Address by Mr TT Mboweni, Governor of the South African Reserve Bank, at the International Jubilee Conference of the Economic Society of South Africa, Johannesburg. 1. INTRODUCTIONAll of us are, without doubt, still shocked and horrified about what happened in New York and Washington on Tuesday (11 September 2001). The shock for me personally was compounded by the fact that I stayed at the Millenium Hilton Hotel in New York, opposite the World Trade Centre, from the second to the fourth of September, i.e. last week. Our hearts go out to the victims, their families, the American people generally and their President and leadership.The economic impact of this tragedy is currently unknown but that there will be an impact is beyond reasonable doubt. A lot will depend on how events unfold in the coming days and months. The initial panic reaction in our market seems to be calming down and therefore one would expect that by next week the JSE Securities Exchange will see the All-Share Index back to where it was before the tragedy. One would also expect exchange rates to work the initial impact of this tragedy out of the equation. The one unknown in this situation will be oil price. This is one factor which is so critical to our inflation targeting endeavours. Whilst the initial reaction of the oil price was to shoot up, it seems that some calm may also be returning to this market. The assurances by OPEC to do all they can to maintain oil price stability is something which gives us hope. But the jury is still out on this one.These developments in the United States have come at a time for us when economic developments in South Africa are being closely monitored. Of fundamental importance in this regard was whether the slowdown in the US economy would have a major negative impact on our own economic performance. That the slowdown in the US economy is severe is not in doubt with the last published quarterly data indicating that GDP growth was only 0.2 per cent. Questions are naturally filling the papers: is the US economy going into a recession? What would the implications be for the global economy if this was to happen? What will happen to the South African economy? The South African economy has been making some progress on the growth front. Significant structural changes have taken place in the South African economy since 1994 after the successful transformation to a new political dispensation. These changes followed a period of sanctions, trade boycotts and other measures applied by the international community to isolate apartheid South Africa. During these years there were attempts to achieve sustained growth and higher levels of employment by stimulating demand in the economy but often without taking account of the supply-side capacity of the economy to meet that demand. This led to accelerating inflation and increasing external deficits, which eventually had to be brought under control through restrictive monetary policy. Expanding government expenditure was financed either through higher taxation or increased borrowing and this process tended to crowd out the private sector. Monetary and fiscal policy were not always synchronised. Persistently large deficits and an increasing ratio of government debt to gross domestic product gave rise to expectations of stubborn inflation, even in the face of relatively firm monetary policies. The private sector could not do much about generating employment and the ever-higher levels of taxation and borrowing weakened the opportunities for wealth creation. The new government committed itself to creating an open economy in the belief that South Africa's future lay in being a competitive participant in a globalised environment. In recent years the new South African government has changed the focus of trade and industrial policy to the pursuit of employment-creating growth through improved international competitiveness. Government has concentrated on improving supply-side flexibility and moved away from demand-side interventions. The tariff structure was rationalised and import surcharges were a