CONTENTS Page Opening Address by Mr. James Michel President of the Republic 2 Introductory Remarks by Mr. Pierre Laporte Governor Central Bank of Seychelles 5 The Implications of the Financial Crisis For the Governance of Central Banks Address by Dr. Gavin Bingham 8 Concluding Remarks by Ms. Caroline Abel Deputy Governor Central Bank of Seychelles 15 Opening Address by President James Michel Salutations…. It gives me great pleasure to be here today to be part of this year’s Central Bank of Seychelles’ Anniversary lecture. This eagerly awaited annual event is an opportunity for all of us to share some thoughts about issues that impact on us in many different ways. This year’s lecture, entitled “The implications of the financial crisis for the governance of central banks" is particularly fitting as it addresses two critical issues that are highly topical in today’s environment. Firstly, the global financial crisis is one that has touched us in Seychelles in many ways. Secondly, governance of the central bank is something that all Seychellois have come to take very seriously. I am therefore extremely pleased that the CBS has chosen this particular theme for this year. Ladies and Gentlemen: When I addressed the Seychellois people on October 31, 2008, to spell out my new vision for the economic management of our country, I warned about the adverse impact of the global financial crisis, and the need for us to remain resilient if we were to ride this storm. But beyond just words, we needed concrete actions. In the face of this storm my Government took the bold decision to pursue a full and comprehensive macroeconomic reform program. This decision was not without its risks. Above all, the risk that such a small island, with an extremely high openness index, with hardly any reserves at the time, would be able to fully liberalize in the face of a crumbling world economy, on which we depend so much. Some had suggested that we needed hundreds of millions of dollars to do so. But we showed in the end, that all that was needed were smart minds and determination. Let’s not also forget the political risk, which at all costs, I was prepared to take. Risks, as we know too well come with reward. The higher the risk, the greater the reward, and today we the Seychellois people we are reaping the rewards of this immense sacrifice. Today, Ladies and Gentleman, we have an economy that is as solid as a rock. Real GDP growth for 2010 is projected to outpace the original growth forecast and exceed 6 percent. The government budget continues to perform so impressively that we have already surpassed the primary fiscal surplus target for this year, at over 10 percent of GDP. This will provide us with more fiscal space for the benefit of our people. The inflation rate continues to hover around zero percent, while the exchange rate remains impressively stable in the face of volatility in the world’s leading currencies. Official foreign exchange reserves continue to grow at an impressive pace, having already surpassed the 2-month import threshold. Our debt level continues to decline as our debt-to-DGP ratio moves toward the path to sustainability. These impressive indicators, Ladies and Gentlemen, point to an overwhelming success of our economic reform program. Critical to this success has been the contribution of the Central Bank of Seychelles. As most of us here today would appreciate, one of the fundamental pillars of our macroeconomic policy is our monetary policy. When I embarked on our journey to transform the Seychelles economy two years ago, I was convinced that a prerequisite for a successful monetary policy framework would be an independent central bank. I felt that this was absolutely necessary if the CBS was to deliver on its monetary policy 2 mandate to the full. To this end, my Cabinet approved several fundamental amendments to the Central Bank Act in early 2009, which were later made into law through Parliamentary approval. The new Act, as amended, provided a streamline and more focused set of objectives, with price stability spelled out clearly as the Bank’s primary objective. In terms of accountability, the amended Act provides for the possibility that the Governor may be called before Parliament to explain and answer questions on monetary policies and other activities of the Bank. And with regards to independence, it disqualifies all government members and employees, and all persons affiliated with a political as a potential member of the CBS Board of Directors. Moreover, no CBS Board member can sit on other Boards, except where these have a direct implication to the work of the CBS. The law was also strengthened such that it bars CBS Board members, which includes the Governor and Deputy Governor, to be influenced by any person in the discharge of their duties. With these provisions, our amended CBS Act meet the fundamental criteria of best practice when it comes to central bank governance structure of clear objectives, accountability, and independence. Governance, Ladies and Gentlemen, is a term that has taken prominence in my government’s efforts to improve transparency and accountability. I am extremely pleased to note that our central bank has also made important strides in that regard. Notwithstanding our achievement in successfully stabilizing our economy, it is critical that we pursue our structural reform agenda to preserve these gains. In this regard my government will pursue our structural reforms with the same vigour and determination that we have shown over the past two years. The fact that the CBS chose Governance as the main theme of this year’s lecture is an illustration of the importance that the Management of our central bank attaches to the issue of governance. The Seychellois people have taken note of the critical role played by our central bank in the success of our reforms through its successful monetary and financial policies, and its endeavour to continue to improve governance and transparency in its operations. Just over two years ago a Safeguards Assessment carried out by the International Monetary Fund pointed out several areas that required strengthening, and one of these areas was the governance structure of the Bank. In July 2010, exactly two years later, a similar report concluded the CBS has made substantial progress in implementing the recommendations of the 2008 report, which has resulted in a marked improvement in the Bank’s governance structure, among other things. Ladies and Gentlemen, one of the reasons that Seychelles was able to weather the financial crisis with almost no impact on the domestic financial sector is that the CBS already had in place an adequate supervisory and regulatory framework that ensured that financial institutions were adequately capitalized, and that the CBS itself had in place adequate instruments that would have allowed it to assist any institution that could have got in trouble. I have followed with interest the further progress that the CBS has made over the past two years to further modernize its banking supervision framework and other regulatory requirements, with the assistance of the IMF in particular. Make no mistake; there were significant risks for some of our institutions when we launched the reforms, which coincided with the implosion of US and European financial systems in late 2008. One of our government banks faced serious interest rate 3 risks, whilst another faced serious exchange rate risks. However, in a reflection of the resilience of our financial system, both banks weathered the storm without any assistance from the CBS or from Government. In a few moments we will hear more from our Guest speaker about the implications of the financial crisis for central bank governance, which I know you are all eagerly looking forward to. On this note I would like to conclude by thanking the Central Bank for hosting this important event, and for inviting me to be here with you today. Thank you. 4 Introductory Remarks by Mr. Pierre Laporte Governor Central Bank of Seychelles President James Michel, Former President Sir James Mancham, Vice President Danny Faure, Distinguished Guest Dr Gavin Bingham, Ministers, Leader of the Government Business in the National Assembly, Leader of the Opposition, Secretary of State, Members of the National Assembly, Excellencies, Members of the Board and Staff of the Central Bank, Distinguished Guests, Ladies and Gentlemen,. Welcome to the 2010 Central Bank of Seychelles Annual Anniversary Lecture. Two days ago we celebrated the 32nd anniversary of the Central Bank of Seychelles and I want to thank all of you present today, for having accepted our invitation to be with us for this evening’s event. Just over a year ago whilst attending the COMESA central bank governor’s meeting in Mauritius I had the privilege of listening to a presentation by Dr. Gavin Bingham, our lecturer for this evening’s event, on central bank governance. At that time the CBS and Seychellois people had already taken a major step forward in reforming our economy and our financial system. But as I often remind my Seychellois brothers and sisters, economic reforms are not just about getting the macro-economy right. Equally important is the need to deal with structural problems that if left unaddressed would hamper the prospects of the macroeconomic reforms. This is no exception for the central bank, as we too, have faced serious challenges of structural nature. Our institution has over the past 24 months undergone major structural reforms internally to improve our stature, including our governance structure. It is against this backdrop that I proposed today’s theme to my Management and Board, and I am absolutely delighted that Dr.