The framework seeks to reduce poverty through three core areas of sustainable economic growth, inclusive social development and good governance. The strategy is a sound one as it does not focus solely on physical infrastructure, i.e. the building of roads, bridges and other “hardware”, but also on the “software” of policy and institutional reform in the public and the private sectors. The Strategic Framework also attaches importance to private sector development, particularly in the fields of finance, banking and corporate governance. The quality of the “software” of a developing economy is precisely what international investors are looking for as they return to Asia. At a time when Asian economies are showing incipient signs of recovery against an improved external environment, international capital flows are triggering back to the region but in a more cautious and discriminate manner than before. Investors are now a lot more selective about who may lend to and where they put their money. International capital flows from OECD markets to Asia, in the form of bank credits, foreign direct investment and portfolio flows, have dropped significantly in the last few years. In the case of bank credits, total flows declined by about $ billion during the 1997-1998 period, although the decline has been at a more moderate pace in the last two years. In the light of this, it is important that the Bank plays a catalytic role in mobilising resources within and outside of the region.
I don’t think any of us want to return to the Great Inflation of the 1970s. Inflation also tends to become more variable at high levels, making it more difficult for both businesses and households to plan ahead and make financial decisions. By keeping inflation low and stable, we contribute to maintaining economic activity and employment at a high level. 2/3  BIS central bankers' speeches  High and variable inflation rates also have distributional implications. As an unexpected rise in prices will not automatically be followed by an increase in wages and benefits, the result will be a reduction in purchasing power, particularly for those with low incomes and small margins. Norges Bank cannot influence international commodity prices or water reservoir levels. Inflation caused by these factors is beyond our control. But we can take steps to prevent inflation from becoming entrenched. Higher interest rates have the effect of reducing demand for both labour and goods and services, thereby pushing down wage and price inflation. In addition, higher interest rates can contribute to strengthening the krone, which can in turn curb the rise in prices for imported goods. Chart: Household debt has increased As the policy rate is raised, residential mortgage rates will rise. Norwegian households are highly leveraged. Over the past 30 years, household debt as a percentage of disposable income has doubled. With higher debt, increased interest rates will have a stronger impact on household budgets and, combined with the high level of inflation, will curb growth in household consumption ahead.