to pursue an interest - rate policy consistent with the inflation target of between 1 percent and 3 percent a year, with the intention of reaching the mid - point. the economy does have the problem of poverty, and this should, indeed must, be tackled responsibly by adopting the necessary measures. but it must be tackled with open eyes, with reality constantly in view, and with a commitment to the strategy of long - term growth. without such growth, problems such as poverty cannot be resolved, and it is therefore essential that economic policy be constantly directed towards the achievement and maintenance of growth. as i stated at the outset, the banking system is very important in every economy, and of course israel is no exception. the importance, however, clearly lies in the banking system being healthy, stable and competitive. i have also mentioned the important, even dramatic, development that affected the financial system as a whole, and in particular the banking system - and that is the reform proposed by the bachar committee. i am pleased to see that the banks, or most of them, are already preparing themselves for this, and sales of provident funds and mutual funds are already taking place, and with some measure of success, so it seems to us. when i see this i am happy that the pessimistic scenarios predicted by some are not being realized. in the past, too, such scenarios preceded successful reforms, for instance in the foreign - currency market. it is natural that concern is felt before reforms and changes, but it must be understood that israel's financial system is in need of additional reforms. it is up to the banking system today, and to a great extent also up to the bank of israel, to prepare itself to confront the new targets it faces in a proper manner : at the top of the list i would put basel ii. the bank of israel has placed high on its list of priorities the preparedness of the banking supervision department to adopt the rules of the new basel capital accord ( basel ii ). this also requires the banking system to organize itself accordingly, and that is no small matter. the second target is gearing up to meet the internal audit standards set out in section 404 of the sarbanes - oxley act of 2002 ( " sox 404 " ). this subject is also high on the priorities of the banking supervision department, and of the whole banking system, and will be for the next two years. i have learned from my experience in citigroup

that sox 404 is a burden, but i also know that it greatly improves management's internal control. these two important projects together constitute an overall format of management and control that will instill the highest standards in israel's banking system, standards consistent with the most advanced world wide. the third target relates to the implementation of the bachar reform. this involves the sale of provident funds and mutual funds by the banks ; redefining banks'activity and profit centers in general and in the capital market / their capital - market activity ; reorganization in the field of consultancy regarding pensions ; preparations for competition in the credit markets from nonbank alternatives, etc. the fourth target is for the banking system to face up to current and future changes ( we hope ) in the capital and money markets, for example, the development of the interbank market following the abolition of transactions with " previous day's value date " by the bank of israel ; future development of sophisticated financial instruments ; future development of mortgage securitization ; and the introduction of the real time gross settlement ( rtgs ) system in which the bank of israel is deeply involved. obviously that is not the whole story. these targets will result in a more efficient banking system and in greater competition in the capital and money markets and in the credit market. competition on the retail banking side leaves much to be desired. although some steps have been taken to improve competition in this area, such as the directive issued by the supervisor of banks making it easier for customers to transfer from one bank to another, the situation is still far from satisfactory. as long as there is no increase in the number of large banks - whether through the merger of small and medium banks or through the entry of foreign banks into the field of full retail banking in israel - we will have to continue examining ways of removing the barriers in this area. it should be clear that this goal of strengthening competition in the banking system is one of the prime objectives of the bank of israel, and, i would assume, of every government in israel.