to be contained. and a mutually damaging trade war would be averted. and this is what emerging asia is doing – liberalising trade within the region and with others. tpp - 11 or comprehensive and progressive agreement for trans - pacific partnership ( cptpp ) this will reduce barriers across economies with a gdp of us $ 10 trillion, roughly 13. 5 % of the world economy. it is expected to be ratified early next year. and five to six more countries have expressed interest in joining the cptpp. asean + 6 or regional comprehensive economic partnership ( rcep ) this fta builds on the existing five asean plus one ftas. negotiations have been going on for some time but the pace has picked up recently as rising trade tensions have underscored the importance of enhancing economic integration to build resilience when it is signed, rcep will be the world ’ s largest trading bloc in terms of population, covering nearly 3. 5 billion people, and accounting for a third of the world ’ s gdp. second headwind – tightening global financial conditions. as the fed continues to raise interest rates and unwind its balance sheet, global liquidity conditions will tighten and financial market valuations will come under further pressure. asset revaluations will be keenly felt in emes, which have benefited from large investor inflows driven in part by investors ’ search - for - yield in the post - gfc period. in emerging asia, some economies will face higher financing costs, rising external debt burdens, short - term capital outflows, and heightened currency volatility. we have already seen some signs of these pressures. they are to be expected – as part of the normal adjustment to the normalisation of global financial conditions. asean is well placed to deal with these pressures as well as contagion effects from emes in other parts of the world first, economic fundamentals in asean are stronger. growth is good – it is close to or above potential across the asean - 4 ( malaysia, indonesia, thailand, philippines ). inflation has been subdued. current accounts are in surplus or only a small deficit. buffers to withstand shocks are strong – be it central banks ’ reserves or banks ’ capital adequacy. second, asean policymakers have demonstrated that they are able and willing to adjust policies to deal with external and internal stresses. they have raised interest rates pre - emptively. they have allowed their exchange rates to depreciate in an

the bank ’ s two most important tasks at present, and in fact at all times. the first concerns the inflation target and figures connected with it. the second is the position and performance of financial companies. as it happens these two issues are generally interlinked, because decisions by financial companies have a strong impact on the first task, and imbalances in the icelandic economy can affect international analysts ’ assessments of the position of the financial sector. but be that as it may. i was interested to note that my cautious predecessor as chairman of the board of governors described in his last address to the annual meeting how the strong growth in lending by the banks showed that they have overstepped the mark. those were the words he used. he was discussing the impact on growth, overheating and inflationary pressures in the economy. i quote : “ the surge in lending over the past two years is a cause of concern both for financial stability and the central bank ’ s inflation target … lending by the credit system as a whole increased by 16 % in real terms last year. ” unfortunately these cautionary words had no effect, because on top of the 16 % increase in lending in real terms in 2004 came a further 25 % increase in lending in real terms in 2005. this must be changed. the board of governors of the central bank has held productive meetings with leaders of the banking sector to discuss this question among others. statements have been issued in these meetings boding a more cautious approach in the future. the board of governors has no reason to doubt the integrity behind these promises. however, lending has continued to grow in the first months of this year, and at a faster pace than in 2004. the difference in practice is explained by the time it takes to clear promised loans which are in the pipeline. the central bank still has faith that these planned improvements will materialise, since a great deal is at stake. in his address last year that i quoted from, the former chairman of the board of governors also said that changes in their activities and strategies have left the banks more exposed to shocks originating in foreign markets. recently we have seen instances of this. admittedly, a lot of what was said in the much - quoted reports by international analysts is misrepresented, and some of it based on misunderstandings, wrong information and, occasionally, obvious antipathy towards the icelandic banks and their activities. this is all regrettable and, in some cases, deserves to be condemned. but these cases