. inflation expectations are an important driver of inflation, and we have seen a successive deterioration of these over the past year in particular. these expectations may feed through to further inflationary pressures. our hope is that inflation expectations will respond quickly to the expected reversal in the inflation trend. despite the deterioration however, there is still an expectation that inflation will decline significantly over the next two years. a major risk factor is the exchange rate market which has also been buffeted by global developments. the increased risk aversion in international financial markets has resulted in a reversal of capital flows to emerging market economies in particular. investors, fund managers and hedge funds are liquidating their positions in emerging markets and moving them to so - called safe havens. some even call this a flight to quality. this is somewhat ironical, given that capital is moving back to the source of the problems. during the year there has been a significant realignment of exchange rates : the dollar has appreciated against most currencies apart from the yen ; sterling has depreciated significantly and most emerging market currencies have also depreciated. since the end of last year for example, sterling has depreciated by around 23 per cent against the us dollar ; the australian dollar by about 26 per cent ; the brazilian real by 19 per cent ; and the turkish lira by 26 per cent. at the same time the rand has depreciated by about 31 per cent against the dollar and about 24 per cent on a trade - weighted basis. these are significant moves which clearly do not only reflect the underlying fundamentals of these economies. part of the reason for the poor performance of the rand is related to the decline in commodity prices. other factors include simple risk aversion, and the concern about the current account deficit on the balance of payments, which to date has been adequately financed through capital inflows. in recent weeks, following the latest round of financial market turbulence, particularly after the demise of lehman brothers, there have been significant sales of bonds and equities by non - residents. the zar and the domestic bond and equity markets were not the only casualties following the failed attempt by barclays to acquire lehman, subsequently resulting in the latter filing for bankruptcy on 15 september 2008. emerging markets in general came under heavy selling pressure as risk aversion escalated. on 15 september, romanian shares fell by more than 4 per cent to their lowest levels in over three years while czech and hungarian stocks dropped to

your excellencies esteemed ladies and gentlemen colleagues we are living through the most severe economic crisis in our living memory. in response, many governments and central banks have taken extraordinary measures to protect their banking systems and their economies. however the past few months have shown that increased global economic and financial integration has resulted in an increasingly interdependent world. over the last three years, the focus has increasingly been turned to the g - 20 to provide leadership on international financial issues, and this was even more so the case during the current financial turmoil. while the g - 20 is still a relatively small grouping, it nevertheless represents almost 90 percent of global trade and gdp respectively. on the other hand, the g - 7 has proven itself to be an increasingly necessary albeit insufficient forum in the changing economic environment of today. hence, the current financial global crisis provides us with a fresh and unique opportunity to review what the role of global institutions and other cooperative arrangements should be. it is clear that the need to act with the necessary resolve and in a cooperative fashion together with institutions such as the imf, the bis and the fsf and the g - 20 is imperative in order to come up with action plans which should be implemented urgently and comprehensively. new global governance structures that are inclusive of all stakeholders are needed. recently the g - 20 heads of states met in washington dc to discuss the global financial crisis. at this g - 20 economic crisis summit, the heads of states resolved that countries should work together to restore financial stability and economic growth. the key issues agreed to at the summit were : the reform of the international financial institutions such as the world bank and imf ; the conclusion of the global free trade agreement ; improvement in financial market transparency ; changing incentives so that excessive risk taking is no longer rewarded ; drawing up a list of financial institutions that could result in systematic failure ; and strengthening financial market regulation. in the meantime, strong and significant actions have been taken in both advanced and emerging market economies to stimulate economies, strengthen the financial sector, provide liquidity and working to ensure that international financial institutions can provide support for the global economy. in addition, the leaders endeavoured at this summit to provide further assistance and to support the global environment by stating the following and i quote : “ against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries. as immediate