and which is generally used to estimate the path of economic recovery, could be substantially lower than the one estimated with traditional statistical methodology. in other words, this crisis might have affected the structure of the “ world production function ”, as a result of the downsizing of some productive sectors, such as finance, and the permanent change in relative prices. this is particularly relevant not only for economic analysis put also for the conduct of macroeconomic policies. these policies, in particular fiscal and monetary policies, contribute to cyclical stabilization by bringing forward resources in the low phase of the cycle and delaying payment to the favourable phase. for instance, an increase in public expenditures financed through debt delays payment to the cyclical upturn. monetary policy also acts through incentives aimed at shifting consumption and savings over time. the sustainability of these policies crucially depends on the pace of economic growth and income level achieved over the medium term, after the crisis is over. given the uncertainty on the structural and cyclical components of the current crisis, there is the risk of a divergent assessment of the sustainability of economic policies, between financial markets on the one side and policy authorities on the other. the latter might have the tendency, or the temptation, to calibrate the policy response on an income target as high as the pre - crisis one, as if the crisis was entirely of a cyclical nature rather than structural, while financial markets might consider lower levels of potential income over the next few years, as a consequence of the structural effects of the crisis. such a divergence might impair the effectiveness of macroeconomic policies. it might be useful in this respect to recall the experienced of the 1970s, after the first oil crisis, when economic policies did not take into account that the higher oil price had reduced potential growth in advanced economies and calibrated their policy response to an unrealistic target. what can be drawn from the above considerations is that the exit from the current crisis does not depend on macroeconomic policies only, but also on structural factors, such as the functioning of goods and labour markets. as i already mentioned, the contraction of sectors that had grown excessively before the crisis is likely to have a structural component, lasting over the medium term. this means that not all the employment lost in these sectors during the slowdown might be reabsorbed during the recovery. some labour will have to be reallocated to other sectors, to avoid weighing on growth and on public finances, and on social conditions. this raises

was purchased during the first three months of 2011. going forward, the bank will continue to work closely with national treasury to continue building reserves. the bank ’ s policy remains that of accumulating reserves and not of defending or achieving a particular level for the exchange rate. the exchange rate remains market - determined, and any speculation that the bank may currently have a preference for a stronger currency or may have even been selling foreignexchange reserves is misplaced. bis central bankers ’ speeches the bank continues to manage the country ’ s official foreign - exchange reserves in a prudent manner, and has continued its successful partnership with its external private and officialsector fund managers. 3. 3 market development initiatives the financial markets liaison group ( fmlg ) is a joint initiative between the bank and key participants in the financial markets. the objective of this consultative forum is to promote the efficiency, integrity and stability of south africa ’ s financial markets, and to discuss international market and structural developments that could affect domestic financial markets. the fmlg, which emerged from the money market liaison group, has recently been reconstituted and held its first meeting in november 2010. the november 2010 meeting was preceded by several meetings of the sub - committees comprising the fmlg, namely the money market, foreign exchange and fixed income and derivatives subcommittees, and progress on a wide range of projects was reported. these projects include, among others, investigating the maturities of sarb debentures and longerterm reverse repos ; the pricing of floating rate notes in the secondary market ; the impact of algorithmic trading on the foreign - exchange market ; the monitoring of the over - the - counter ( otc ) market in foreign - exchange derivatives ; and the revision of reference rates in the money market. a working group was also established to review credit value adjustments ( cvas ) and credit support annexures ( csas ), which might impact the efficiency and liquidity in the interbank derivative market. 4. concluding remarks let me conclude by thanking you for your co - operation during the past financial year. we may find that when we gather here next year, the financial and economic landscape may be vastly different to what it is today. no doubt the future holds surprises and interesting challenges in store for us, but i trust that the spirit of co - operation and co - ordination that we have developed in our financial markets over the years will allow us to rise to these challenges. in conclusion, i should also