the external sector, our policies are : to ensure the sustainability of the country ’ s external debt ; maintain a market - determined exchange rate with scope for occasional action in cases of extreme movements in the exchange rate ; maintain a comfortable level of reserves ; and improve further the foreign exchange environment. on the financial sector, our policy thrust shall be to continue our reform efforts towards further strengthening the banking system. our banking sector reforms shall focus on : further enhancing the regulatory framework through the implementation of the basel ii roadmap ; improving corporate governance by promoting compliance with international accounting and financial reporting standards ; accelerating implementation of risk - based supervision technology ; encouraging the development of the domestic capital market ; and strengthening ties with other financial regulators. in line with these thrusts, you may recall that towards the end of last year, the bsp approved two important reform packages : the further liberalization of outward investments of residents. highlights that may be relevant to the fmap are : ( 1 ) allowance of outward investments by residents funded with foreign exchange purchased from the banking system not exceeding us $ 30 million per year no longer need prior bsp approval ; and ( 2 ) qualified investors may now apply for a higher annual outward investment limit. qis include, among others, insurance and pre - need companies, collective / pooled funds such as mutual funds, unit investment trust funds and variable insurance. the amendments to bsp regulations governing derivatives activities of banks and trust entities, including guidelines on risk management and sale and marketing of derivatives. both these reform packages are intended to help make the domestic market more able to quickly adapt to any further changes in the global financial markets. philippine economic outlook on the basis of these policy directions, the outlook for the macroeconomy continues to be favorable. average inflation is expected to be within target in 2008 and 2009. the volatility in world oil prices and uptrend in non - commodity prices remain the key risks to the inflation outlook. nevertheless, these potential risks to inflation are seen to be tempered by some downside risks such as the firm peso and reduced dependence on imported energy sources. meanwhile, the fiscal positions of the national government and the entire public sector are expected to continue to improve, taking off from their performance in 2007. finally, we expect the bop to continue to be in surplus although at a level that is smaller compared to the previous year. the liquidity impact of the external surplus will have to be managed such that the amount of money in the system remains consistent with

widen the crisis beyond the subprime sector. problems in the financial sector have started to spill over to the real sector via reduction in domestic demand particularly in the advanced economies. the third key challenge is the continued volatility in oil prices and the uptrend in non - oil commodity prices. the elevated price of oil, particularly if this continues for a protracted period of time, would be a concern as this could threaten our currently within - target inflation outlook. however, crude oil price forecasts indicate a moderate downtrend in prices in 2008 - 2009, albeit to levels higher than the average seen in 2007. in addition to the forecast of tapering oil prices in the second half of this year, a more structural shield against a surge in high oil prices is the country ’ s reduced dependency on imported oil. our dependence on imported oil has steadily declined from over 50 percent in the mid - 1990s to 37. 3 percent of the total energy consumption as of 2006. meanwhile, the increase in global food prices could continue due to a number of factors, such as the rising incomes in china, india, and other emerging market economies that could drive up further the demand for food products, and increased biofuel production. implications for monetary policy against these risks, monetary policy will need to maintain the right balance in order to address inflationary risks while allowing the economy ’ s growth momentum to continue. with the bsp ’ s adoption of the inflation targeting framework, the achievement of price stability becomes its ultimate objective in the conduct of monetary policy. an inflationtargeting central bank, therefore, should not be bound by multiple objectives unless these are necessary to achieve the goal of price stability. nonetheless, the bsp is firmly committed to promoting price stability that is conducive to a balanced and sustainable economic growth. in particular, monetary policy needs to be watchful of the emerging risks to inflation and inflation expectations. the bsp needs to be on the lookout for second - round effects of supply - side pressures, particularly on wages, utility rates and transport fares. bsp ’ s policy thrusts against these major developments and challenges, the bsp will continue to pursue initiatives aimed at maintaining sound macroeconomic fundamentals supportive of a vibrant economy. we will, thus, remain focused on our inflation target. as you are aware, a low and stable price environment allows economic agents to plan better. it also allows us to maintain a low interest rate environment that would help support domestic demand. relative to