open financial system and free capital movements gave opportunistic investors the chance to discover iceland. their trading has a range of positive effects but also poses a risk of heightened volatility and fluctuations in exchange rates and interest rates. icelandic financial companies have expanded rapidly overseas, and too rapidly in some people ’ s view. meteoric growth tends to raise questions anyway, and when small institutions are involved from a country that has not had a high profile in the banking world, these questions may be more aggressive and critical than otherwise. icelandic banks discovered this last year. they have learnt a valuable lesson and clearly realise the importance of transparency and open communication, and the need for leeway in their funding and good credit ratings. this experience must not be forgotten. general market discipline and scrutiny will help to prevent that from happening. for government authorities, it is important to pursue balanced and credible economic policies and ensure that the administrative and financial infrastructure remain solid, including strong and efficient financial supervision. the central bank tightened its monetary stance sharply last year, one result of which was a lower rate of inflation than otherwise. the treasury has shown a surplus for many years and privatisation proceeds were deployed to retire debt. today, the treasury ’ s foreign debt is not higher than the central bank ’ s foreign reserves, i. e. roughly 15 % of gdp, and its domestic debt only 10 % of gdp. financial supervision has been boosted and will be strengthened further. it is in line with best european practice. iceland ’ s economic imbalances are waning and the inflation rate and current account deficit are coming down, the latter from a record level in 2006. the financial sector is on a firmer footing than a year ago. the headline of the central bank ’ s financial stability report for 2007 was the commercial banks are more resilient. however, the battle is not over and risks may still be present. the current account deficit is still large. tighter conditions for funding it could undermine the exchange rate and rekindle higher inflation and instability. while the banks have strengthened their liquidity and have a larger share of deposits on the liabilities side of their balance sheets and fewer challenges in their refinancing, they still rely on easy access to international credit markets. a shift in investor sentiment about the banks, or in general risk assessment in the markets, could tighten liquidity and lead to less favourable borrowing terms. thus prudence is called for, along with contingencies for facing tighter conditions and

on our time - tested resiliency and ability to innovate amidst challenging times. and don ’ t forget, our economic fundamentals continue to be a source for optimism. this includes sustained economic growth, slowing inflation, declining interest rates, record high international reserves, balance of payments surplus, a competitive peso and a stable banking system. in the end, the challenge in 2009 for the banking sector is to quickly act on the painful lessons of the global financial crisis. it is simply far too convenient to point at the complexities of structured products, the over - leveraging, or the fundamental dilemma with market greed. all these were necessary inputs but together they are not sufficient to explain where the world is today. more importantly, debating the whys and wherefores will have its place, but at this juncture we need to act decisively with conviction, in unison, and move forward. ladies and gentlemen, while the global prognosis for 2009 is daunting, the bangko sentral continues to believe that the philippines remains in a position of relative strength as we navigate through these difficult times. what we do to consolidate our gains rests squarely on us. in the case of the philippine banking community, i am confident it will prevail and remain sound and stable. on behalf of the members of the monetary board, i thank all the sectors represented here tonight for their continuing support : the banking community ; the legislative, executive and judicial branches of government ; the private sector, the diplomatic corps, the academe, the media, our special guests, and our partners in bilateral and multilateral agencies. together, let us offer a toast to our continuing partnership in sustaining economic growth in our country and improving the quality of life of filipinos. cheers! finally, before it becomes totally unfashionable, let me take this opportunity to wish all of you blessings of good health, success, and prosperity this new year. mabuhay! thank you all and enjoy the rest of the evening.