time ; and ( ii ) that they could be very costly – they always lead to a loss of output and private savings, they carry heavy fiscal costs associated with public bailouts, and they could lead to a systemic loss of confidence in the financial system which is difficult to rebuild. examples covering both advanced and developing countries suggest that while financial crises differ as to their details, they always reflect the confluence of some underlying economic vulnerabilities and a specific crisis trigger. the underlying vulnerabilities could be any of a number of things : poor risk management by financial institutions ; mis - matches between assets and liabilities ; excessive leveraging of financial institutions, poor liquidity management or inadequate capital. the trigger could be anything, depending on the country – terms of trade shocks, the collapse of an asset ( housing ) bubble, or macro - economic setbacks resulting from exogenous shocks. sometimes the specific event that can trigger a crisis is unpredictable and crises themselves are also unpredictable. in fact, many triggers are exogenous and we can do very little about them. in these circumstances, our focus therefore should be on identifying and addressing underlying vulnerabilities early so as to reduce their incidence. recognition of this reality – the need to detect emerging problems has led to the development of early warning signals and more recently to the preparation of financial stability reports by central banks. some international financial institutions, have compiled a set of macro - prudential indicators to serve as barometers of the health and stability of the financial system and to provide early warning of potential problems. our monitoring system in the caribbean has been rudimentary at best, on non - existent and fragmented, in many of our regional jurisdictions. this is unfortunate since any robust analysis would have shown up a whole range of vulnerabilities in all of the financial institutions of the clf conglomerate. some of the more glaring vulnerabilities were : ( i ) a mis - match between assets and liabilities, with mostly short term liabilities paying above market interest rates, matched by long term assets ; ( ii ) excessive leveraging of balance sheet assets, reducing their net value ; ( iii ) a preponderance of inter - group transactions ; ( iv ) the total absence of a risk management framework ; and ( v ) inadequate capital. of course, these vulnerabilities were compounded by : ( i ) a weak legislative and regulatory infrastructure, in which clf, the parent holding company was not subject to

ewart s williams : inflation in trinidad and tobago opening remarks by mr ewart s williams, governor of the central bank of trinidad and tobago, at the launch of the bank ’ s education pamphlet no. 2 - “ inflation ”, port - of - spain, 8 august 2006. * * * welcome to the alumni from our reuters journalism course of september 2005 and to other members of the media. we had promised to invite you back to check the progress. we thought that it would be nice to give you an opportunity to showcase some of the things you learnt at the course, and the launch of our second “ public education pamphlet ” on a topic of heightened national interest, seemed to provide the ideal occasion. we are hoping that you help us in another respect. as we say in our foreword, “ our pamphlet series is targeted to a broad audience – students at secondary and tertiary institutions and members of the public that have an interest in increasing their knowledge of economics and business. ” we would like to get your views as to whether we are getting close to our target audience. as to the theme of our second pamphlet we couldn ’ t be more timely and topical. the pamphlet seeks to explain the ( pernicious ) effect of inflation, underlying the fact that it affects a broad cross section of the population, but particularly the poor. it goes on to trace the country ’ s inflation performance from the 1970s to 2005. as you know, last year ( 2005 ) saw a jump in inflation ( on an annual average basis ) from 3. 9 per cent to 6. 7 per cent. the inflationary momentum has continued through 2006 with 12 - month inflation reaching 8 per cent in july. the main driver of inflation has been the rise in food prices which reached 24 per cent on a 12 - month basis in july. the pamphlet raises the spectra of inflationary expectations which could lead to wage pressures and perpetuate inflation. there is a passing caution against resorting to price controls, which carry their own problems. the fact is that the only way to address our inflation problem is the old - fashioned way – through increasing agricultural output, tight monetary policy, greater fiscal restraint and wage discipline. a tall order – but that prescription works all the time.