Since then, the financial sector has been liberalized while simultaneously strengthening the regulatory framework. Concerned with the limited contribution of the financial sector to economic development, the Government devised and formulated policy mechanisms for addressing a number of identified obstacles within the framework of the Poverty Reduction Strategy Paper (PRSP) whose implementation started in 2002. In line with the PRSP framework, the World Bank and the International Monetary Fund undertook an assessment of the financial system through the Financial Sector Assessment Programme (FSAP) which was complimented by our own review. Some of the principle areas of concern identified included: •  Low financial intermediation with limited access to financial services, especially for the rural and peri-urban population and the low-to-middle income earners;  •  Poor credit culture in the market;  •  Multiple and potentially conflicting roles of the government in the financial sector;  •  Weak regulatory framework for non-bank financial institutions, insurance and pension funds;  •  Undeveloped money and capital markets; and  •  Limited long-term development and housing finance. In recognition of the strategic importance of the financial sector to the country’s development and poverty reduction efforts, the Zambian government launched the Financial Sector Development Plan (FSDP) in 2004 to address weaknesses that had been identified in the financial sector. The FSDP is therefore a comprehensive strategy that is aimed at achieving a financial system that is sound, stable and market-based, that would support efficient resource mobilization necessary for economic diversification and sustainable growth.
Apart from the cost in net worth, intervention requires withdrawing money used to purchase foreign exchange by placing debt. This debt has an impact on market interest rates, affecting firms’ financial costs and arbitrage conditions, which could end up undoing the direct effects. At the same time, repeated or frequent interventions lose effectiveness: it is essential for intervention to be an exceptional occurrence in order to transmit the relevant information to financial markets. Nevertheless, it is a valid tool, effective in changing the exchange rate and strengthening the international liquidity position. The board of the Central Bank of Chile constantly evaluates the timing and the size of any intervention and in the past few weeks it has certainly been present in our discussions, based on weighing the benefits, costs and the present context. In the Central Bank of Chile we use a variety of methods for assessing the real exchange rate level with regard to its long-term fundamentals and thus we have an ample range of estimates. Our aim is not to determine which is the equilibrium – that is the task of the market –, but rather to detect any anomalous deviation. These discussions led us to the conclusion in our latest Monetary Policy Report that the real exchange rate is within the adequate range of levels, albeit in the lower part of it, and this is confirmed by the most recent appreciation.