rates – businesses, the general public and the international community will have confidence in the economy and economic activity can prosper. the bank plays a major role in influencing macroeconomic conditions through its monetary policy and management of the exchange rate policy. given a condition of macroeconomic stability, it is up to the other government agents to do their part to improve things at the micro level. overall macroeconomic management during the construction phase of the lng project, the government should adhere to the parameters of its annual budgets, and prioritise its expenditure so as not to compete with the private sector on the limited resources within the country, especially in areas of construction, civil works, earthmoving and other infrastructure developments. it should instead concentrate on maintaining existing transportation and social sector infrastructure that have deteriorated in many parts of the country, in order to improve health, education, and law and order status. the government should increase capacity of the workforce by providing appropriate training in schools and colleges and improve the performance of implementing agencies. this would also allow for the utilization of the expertise, physical and human resources that are built up bis central bankers ’ speeches by the lng project development, to be efficiently and productively used as and when they are released from the project. over the life span of the lng project, the government should then follow a strategic expenditure plan which relates to its medium term development plans, containing specified programs and projects that aim to improve infrastructure and bring services to the rural population. the drawing down of funds from the swf should tie in with the annual national budgets, which should reflect the year to year programs of the medium term plans so that it serves its purpose of enabling the government to better manage the revenue flows – including dividends, royalties and tax from the lng project, and expend it on priority areas in a sustainable, efficient, and productive way, that will benefit the great majority of the population and care for future generations. all these are part of prudent macroeconomic management that will aim to ( 1 ) contain inflation rate at an acceptable or tolerable level and ( 2 ) minimise the effects of “ dutch disease ” on industries that will not directly benefit from the lng project. prudent macroeconomic management encompassing what the key central governments and the bank can do as described above has to be accompanied by micro level initiatives and programs. this is where the national agriculture development plan and other medium term development plans of the government come in. these plans must enable the

have exports in some other categories ( graph 3 ). many of these are areas where australia does have a comparative advantage and where value added is high. it is by focusing on these comparative advantages that we can best build a strong and successful manufacturing sector, while at the same time living with a high exchange rate. bis central bankers ’ speeches graph 3 i would now like to turn to the second broad factor that has helped maintain domestic balance during the once - in - a - century investment boom. and that is the increase in household saving. since the mid 2000s, the household sector net saving ratio has risen from around zero to around 10 per cent ( graph 4 ). in today ’ s money this represents about an additional $ 90 billion that is saved, not spent, by households each year. graph 4 now i know that this increase in household savings has not been universally welcomed by the retail sector. it has caused difficulties for some businesses, including those that based their business models on a continuation of the earlier trends. but consider how the economy might have looked over the past few years had households spent an extra $ 90 billion each bis central bankers ’ speeches year. it is likely that there would have been significant overheating. the exchange rate would have been higher. there would have been more borrowing from the rest of the world. and both inflation and interest rates would have been higher. i suggest that these are not developments that would have been warmly welcomed by most in the community. so, somewhat ironically, two of the factors that have created difficult challenges for many businesses over recent years – the high exchange rate and increased household savings – are the very same factors that have been critical to australia ’ s good macroeconomic performance. importantly, these factors have helped australia to digest a huge investment boom without generating substantial imbalances in the economy. at the same time, these factors have prompted significant structural change which, while difficult, is critical to achieving higher overall productivity and higher living standards. there is clearly a lot of change going on in the australian economy at the moment. how you view this change depends critically upon where you stand. however, no matter what one ’ s perspective, we should not lose sight of the fact that maintaining overall macro balance through this period of change has been a significant achievement. and it is an achievement that has benefited the entire community. the contribution of monetary policy so far i have discussed structural factors, but monetary policy has also played some role in helping maintain this overall internal balance. in