recent economic developments in russia. the crisis in 1998 was mainly caused by excessive government borrowing. before the crisis, budget deficits in russia were between 5 - 12 % and the public debt level exceeded 50 % of gdp. again capital flew away from government bonds and other russian assets, and the crisis materialised. but since 2000, the russian government has run fiscal surpluses and the debt level has been decreased to less than 30 % of gdp. today nobody seriously predicts a currency crisis in russia, and the economy has grown comfortably between 5 and 7 % per year. of course high oil prices have a played an important role. in fact the russian authorities have used the windfall oil revenue fairly wisely. for example, the russian authorities have recently established a oil stabilisation fund. our beautiful host country seems to be following a similar path to recovery. after the crisis in 1999, successive brazilian governments have run up sizeable budget surpluses and the public debt level has been decreased. maybe more remarkably, the authorities have improved the institutional framework of fiscal policy. the fiscal responsibility law and the voluntary fiscal commitments have improved the credibility of the fiscal policy nicely. consequently, the interest rates have fallen, investments are rising, and gdp is growing satisfactorily by around 5 %. hopefully, this tight fiscal policy will continue now when the capital inflows and economic growth are recovering. if the fiscal consolidation continues and is imitated by others, this brazilian success story will contribute positively to the stability of the whole region. given the capital mobility and the need for sound macroeconomic policy, how should emerging economies chose their exchange rate regime? rigid exchange rate regimes may enhance monetary policy credibility and lower inflation with little costs particularly in countries with low exposure to international capital movements. but as a recent imf study indicates, these economies are often developing countries. nevertheless, in emerging economies with relatively large financial markets and large capital movements, rigid exchange rate systems might be quite a risky choice. as we have seen, fixed and other rigid exchange rate regimes are highly vulnerable to sudden capital outflows and crises. especially if the domestic fundamentals are not perfect. nowadays many emerging market countries have chosen a regime where the currency floats but the authorities, in practice, still target an exchange rate level. this fear of floating may well be a adequate exchange rate regime for many emerging economies. in these countries credibility is still low, dollarisation is high and the intermediation of monetary policy is unstable. but as

15 : more household debt than ever before ] finnish households have more debt than ever before. in parallel with this, total interest expenditure has fallen throughout almost the entire period since 2000. but now, interest rates on housing loans, too, have started to climb briskly, which narrows the consumption opportunities for many households. the high level of household debt has long been a central concern for the bank of finland in regard to financial stability. a majority of household debt – around three quarters – comprises housing loans and housing company loans. new housing loans are larger and loan periods are longer than before. indeed, more than one fifth of new housing loans are for more than 26 years. [ slide 16 : indirect risks to the economy may be greater than banks'direct credit risks from housing loans ] 5 / 8 bis - central bankers'speeches the bank of finland considers that in terms of financial stability, the stability concerns over household debt arise more through risks for growth in the economy in an indirect manner than directly as housing loan credit risks. higher interest rates, together with an increase in essential consumption expenditure and uncertainty in the labour market, could reduce the financial headroom for households. if debt - servicing becomes more difficult, households might reduce their consumption of goods and services. a contraction in consumption will then be reflected in the readiness of businesses to employ workers. this could add to bank losses from both corporate and household loans. currently, in spite of the decline in residential property prices, there are no signs of a rise in credit risks. the quantity of non - performing loans has remained low, and no growth in risk premia has been observed in bank funding. added to this, the capital adequacy and profitability of nordic banks are comparatively good. based on stress tests performed in recent years, the loss - absorbing capacity of nordic banks is at a good level to meet even a serious crisis in the real estate market. [ slide 17 : financial stability risks increasing – finland's crisis resilience at a fairly good level ] at the end of september, the european systemic risk board issued a warning about increased financial stability risks in europe. the purpose of the warning was to focus attention on the seriousness of the risks and to encourage all participants – and especially credit institutions and supervisors – to be prepared for any problems arising from the materialisation of risks. in finland the banking sector is an important financial intermediary for businesses and households. during downturns and disruptive situations in the economy, it is more