Governor’s Address at the eightieth ordinary general meeting of shareholders  Introduction  The South African Reserve Bank has once again met the many challenges posed by the changing domestic and international environment with great success during the past year. The Bank’s resilience was proven without any doubt in coping with such changes as the implementation of an inflation-targeting monetary policy framework, the information technology and other problems arising with the new millennium, and maintaining financial stability during very volatile conditions. The Bank also succeeded in improving the efficiency and effectiveness of internal administrative procedures and completed a plan to effect employment equity in all occupational categories.The domestic economy also adapted very well to volatile international financial markets and reversals in capital flows. Developments in the rest of the world had both positive and negative effects on South Africa. On the one hand, the economic recovery in many parts of the world, together with continued low inflation, led to higher international commodity prices and an increased demand for South Africa’s exports. On the other hand, certain inherent weaknesses in the world economy had a negative impact on domestic financial markets and, eventually, also on the recovery in domestic production. The external imbalances in the world caused a realignment of currencies, with the dollar becoming notably stronger against the euro. Risks of sudden changes in market sentiment were exacerbated by increases in share and property prices. Furthermore, international oil prices rose steeply when the Organisation of Petroleum Exporting Countries (OPEC) and several other oil producers began to curb production. prices rose from about us$10 per barrel at the beginning of 1999 to levels in excess of US$30 per barrel in the first half of 2000. This had a material impact on the import bill and prices in South Africa. Despite these developments, South Africa’s balance of payments remained inherently healthy, and the foreign reserves of the country increased substantially. Developments in some parts of sub-Saharan Africa unfortunately had an adverse influence on international perceptions of South Africa. Socio-political conditions in a number of countries remained unstable, and conflicts continued in parts of the continent. Events in Zimbabwe preceding the general election affected the sentiment of many investors towards the region, and unjustifiably raised questions regarding South Africa’s economic prospects. The understanding by non-residents of the underlying strength of the South African economy was further clouded by perceived structural weaknesses in Africa, the slow pace of skills development, inadequate health facilities, the prevalence of virulent diseases (including HIV/AIDS), and growing poverty and debt. These perceptions disrupted domestic financial markets and real economic activity in South Africa during the first half of 2000. A fundamentally sound balance of payments The regional events, a shift of funds away from commodity-based countries to high-technology and manufacturing-oriented economies, a rearrangement of portfolios as a result of the surging energy prices, and higher international interest rates led to large net sales of domestic securities by non-residents. After being net investors in South African bonds to the amount of R16,5 billion from the beginning of 1999 until the end of January 2000, non-residents became net sellers of bonds totalling R15,3 billion in the next six months up to the end of July 2000. Moreover, the net purchase of shares by non-residents on the Johannesburg Stock Exchange fell from R40,6 billion in 1999 to only R6,8 billion in the first seven months of 2000. At first an inflow of other capital was able to offset the net sales of domestic bonds by non-residents. In 1999 the net inflow of capital, including errors and unrecorded transactions, amounted to R27,1 billion, and in the first quarter of 2000 to a still satisfactory R3,1 billion. However, in the se