Nevertheless, the Celtic tiger was not immune to the challenges that the financial crisis posed to many of the world’s advanced economies. On the contrary: Ireland has had to deal with more severe challenges than most. Much has been written about how Ireland arrived in this position. But let me state this right at the beginning: Ireland is not the only country that needs to reform. Fiscal consolidation and growth enhancing structural reforms are needed everywhere in Europe to remain competitive on a global marketplace. Ireland is, however, one among several countries with more severe adjustment needs. Our view is that to set the correct course, we must be clear-headed about the reasons why we are where we are. To frame the issue somewhat bluntly, the Irish State and people woke up to a painful new reality when the Irish housing bubble burst at the onset of the international financial crisis in 2007. Extraordinarily high growth in the run up to the crisis had gone hand-in-hand with the build-up of economic and financial imbalances. The path back to full fitness has been enormously difficult and entailed wrenching economic, financial and social change. And the path has not been smooth. Indeed, about one-and-ahalf years ago the economy was close to cardiac arrest. The patient required life support – kept alive with the substantial assistance from international lenders, as well as the continued levels of extraordinary support from the Eurosystem. But progress since then has been good: the programme is on track. So far, Ireland has delivered.
Average inflation between 2001 and 2013 was 3.1% annually. Pillar number three is our floating exchange rate regime. Exchange rate flexibility allows to rapidly and effectively accommodate big external shocks such as changes in the terms of trade via movements in the exchange rate. This flexibility gives more room to monetary policy to contribute to the smoothing of the domestic business cycle. Chile’s long-term interest rates, unlike those of other economies, have decreased in recent months. And they are certainly lower than they were in the 1990s. By way of example, compare the 6.5% average rate of indexed 10-year bonds in the nineties with their 2% rate of today. The floating exchange rate provides the right incentives to the private sector to administer the currency and foreign liquidity risks in a much globally integrated economy like ours. On the financial sector side, there is a sound regulatory and supervisory framework grounded on a set of prudential norms and standards. These are in line with international recommendations, and are under the supervision of specialized regulatory entities, aimed at the correct management of financial institutions. All this has helped to develop a mature, stable, solvent financial system. The Basel index, measured by the Capital Adequacy Ratio of the Chilean banking system is more than 13%. The banking sector shows sound capital and funding structures, concentrated in long-term sources. Additionally, they carry no significant currency mismatches on their balance sheets, nor do their customers.