In general, owners of capital and scarce skills have been well rewarded, while, less-skilled workers and those with limited access to jobs or finance have enjoyed limited gains. While it is obvious that such an outcome poses serious political risks, even from an economic point of view, inequality raises an economic issue since it implies that human resources are not being productively used. Therefore it  BIS Review 29/2008  3  follows that, unless this imbalance is addressed, it would probably manifest itself in dangerous political upheavals, which could easily negate the economic gains that may have been so painstakingly built up. In recent years, the global expansion has been supported by the ready availability of external financing at relatively reasonable interest rates. Credit has been readily available, particularly as a result of innovations in financial market instruments which were supposed to have improved liquidity and distributed risk better. But those innovative models are today facing increasing pressure, and economic planners are in the process of re-thinking these processes. Therefore, in the near future another serious issue that we may have to face in our effort to achieve sustainability in our growth momentum would be that, over time, global savings may well become more scarce, putting upward pressure on real interest rates. Mr. Chairman, twice during the first half of the last century, the prosperity of the world was severely threatened by devastating world wars.
In this background, we cannot realistically expect oil prices to reduce in the near future and therefore we would have to consciously brace ourselves to deal with the harmful effects of this highly destructive attack on future growth, if we are to maintain our growth momentum. As if the of oil shock was not enough, the international commodity prices too, have been rising sharply during the past year or so. This outcome possibly displays how tightly linked the prices of commodities are, to each other. As a result of these increases, which resulted in the global food price index recording a 54% increase over the past year, many countries are now facing their highest recorded inflation figures in the new millennium. China’s inflation in January 2008 was at its highest in 11 years. In Singapore, it was their highest in 25 years. Australia recorded their highest figure in 16 years. We, in Sri Lanka also recorded our highest rate in 18 years while we know Pakistan too is struggling with its inflation, amidst high food prices. In this volatile scenario, the challenge before the emerging countries is how to maintain price stability, without hampering the growth momentum. Unfortunately, in the backdrop of high international oil and commodity prices, there does not appear to be an easy escape route or a quick fix. Worse still, many experts are now proffering the view that the current increases in oil and commodity prices may be a “structural adjustment” rather than just another “supply shock”.