insurance acts 2002. under the central banking act 2000, the central bank has three important objectives. these are : • the responsibility for monetary policy formulation and implementation ; • financial system regulation and prudential supervision ; and • oversight of the payments system. the act also made significant changes to the relationship between the central bank and government, eliminating political influence, introducing price stability as the objective of monetary policy, and provided greater independence to the central bank in the management and conduct of its affairs. the governor is responsible for monetary policy and financial system supervision whilst the board of the bank is responsible for administrative oversight of the central bank. the board of the central bank comprises of ex - officio members from the chamber of commerce, the trade union congress, the securities commission, council of churches, the institute of accountants and two appointees by the minister for treasury. the central banking act 2000 made price stability the main objective of monetary policy. consistent with the act, the monetary policy statement ( mps ) is released semiannually taking into account monetary policy views for the year and the medium term. however, as monetary policy shocks are more frequent and for the bank of papua new guinea to respond quickly to shocks, the kina facility rate ( kfr ) is announced on the first monday of each month, which provides a clear signal to the market on the bank ’ s monetary policy stance. this announcement is strengthened through operational instruments such as treasury bills, repurchase agreements and central bank bills, which are also used by many other central banks. the regulatory and supervisory framework for the financial system has evolved significantly since 2000. with the additional superannuation and life insurance acts, the main thrust of the policies has been to preserve the soundness and stability of the financial system whilst ensuring that the intermediation process continues to support economic growth. in this regard, the bank has introduced international best practices on prudential supervision of banks, finance companies and other financial institutions such as savings and loan societies, superannuation funds and life insurance companies. this is to ensure prudent management of depositor ’ s funds, members ’ contributions, and premiums on life insurance policies held with these financial institutions. in addition, a part of the standards introduced was focused on good governance practices and the assessment of fit & proper persons for directors and management of these financial institutions. to date, the reforms have vastly improved the conditions and outlook of the financial sector landscape of the country. in the banking sector, there is marked improvements

the rugged geographical terrain of the country makes access to financial services difficult for the semi - formal, informal and the rural population. in our endeavours to bring out financial services to these sectors, the bank of papua new guinea in collaboration with the asian development bank, the national government and ausaid established the “ wau microbank ” under the micro finance project. the pilot project is slowly growing into a viable complementary player in the development of the financial system. in addition, the png micro finance limited, which obtained a banking license in 2004, and has operations in ncd, western and oro province. the micro - finance industry development is a meaningful way of mobilizing savings and servicing a large section of the community to whom financial facilities are not readily available. the government has also introduced the district treasury roll - out program, which will further complements the provision of financial services in the rural parts of papua new guinea. this entails the provision of treasury, banking and post office services from one outlet mainly at local and district levels. the bank of papua new guinea is also supportive of the government ’ s initiatives to promote export driven economic growth strategy through removal of impediments to trade and investment. in recognition of this initiative, the bank liberalized the foreign exchange control regime by freeing up controls in all but ( 4 ) areas which are : • opening of foreign currency or kina accounts offshore by residents ; • approval for capital transaction contracts ; • gold export licenses ; and • approval for dealing in foreign exchange. in addition, borrowing restrictions on domiciled foreign companies were removed to encourage growth in lending. to date, consistent with the banks expectation, the liberalization has had limited impact on the balance of payments position of the country. this is the result of a close and ongoing dialogue and communication between the stakeholders and the bank of papua new guinea. macroeconomic outcome the end result of the financial sector reforms and the other reforms in aggregate have resulted in political and macroeconomic stability. the current government will serve a full term in office, which is a first of its kind since independence. the reforms have also helped to achieve macroeconomic stability as reflected by the lower annual headline inflation of 4. 6 percent in 2005, compared to 21. 8 percent in 1998, stable exchange rate at around us $ 0. 3240, high international reserves of us $ 770 million that is sufficient for 7 - 11 months of import cover, and a strong growth in private sector credit at an annual rate of