CHALLENGES AND PRIORITIES FOR THE NEXT DECADE

1. CHALLENGES AND PRIORITIES FOR THE NEXT DECADE Speech of the Minister of Finance Mr. Charilaos Stavrakis - Annual Conference of ECONOMIST - - 8 April 2008 -

2. Introduction Economist’s conferences have been established as events of high quality discussions on politics and economics Opportunity for an open and frank exchange of views with distinguished personalities, regarding the challenges and priorities of the next decade The objective is the creation of a common vision that would reinforce social and economic prosperity, peace and political cooperation The well being of citizens should be at the centre of our efforts

3. Contentsof my Speech Focus on economic and social challenges Outline of the current situation of the world economy Presentation of main challenges and policy priorities Brief reference to the political dimensions

4. Main Messages Radical changes in the world call for new approaches and reforms Cooperation of social partners is essential for a successful confrontation of challenges

5. World Scene • Re-rankings - rapid growth in China, India, emerging economies • Challenges in the USA – short term = confrontation of the financial crisis – medium term = reinforcement of savings, effective address of the imbalances in the Balance of Payments • Challenges in the EU – reinforcing the remarkable achievements in public finances & adapting the supervisory system of the financial sector to the current situation & promoting structural reforms in the labour market & maintaining and enhancing the social character of the society

9. World Scene (2) • Developments in the world exchange markets reflect re-rankings in the world economy – gradually new balance between Euro & dollar & yen & yuan • Changes in oil markets - maintenance of oil price at high levels • Changes in the commodity markets - maintenance of high commodity prices (cereals)

10. World Scene - (inflation) (3) Oil prices and commodity prices will probably remain at high levels ... they lead to important changes in the world market Maintenance of low inflation and low interest rates challenge for CB – potential trade off between growth and macroeconomic stability

11. CHALLENGES AND PRIORITIES FOR THE NEXT DECADE

12. Economic Growth Model • Adaptation of the economic model to the new situation • Cooperation of public sector, business sector, trade-union and social partners remains essential • Public sector - strategic & regulatory & social role • Business sector – dominant role in the production sphere within a framework of a flexible and regulated economic system • Trade-union and social partners - active participation, aiming at safeguarding social cohesion • Modern, flexible and socially balanced economic model creates a framework for effective reforms and social justice = adaptation to the current situation

13. Safeguarding of Economic Viability Healthy public finances - precondition for further economic and social progress Reforms to confront the effects of the ageing population Objectives - satisfactory level of pensions and health care also for the next generations

14. Adaptation of Financial Sector Development of new products/ services enhance international liquidity and facilitates the channeling of capital resources to profitable activities - however, at the same time, it increases risks Improvement of the financial stability framework is a necessity Necessity for closer cooperation of supervisory bodies on international level and modernisation and adaptation of supervisory systems to the new situation Objectives - increased transparency and adaptation of risk management systems and liquidity management

15. Modernisation of the State New management systems and new systems of evaluation of civil servants New structures that would reflect the strategic – regulatory - social role of the State Better communication with social partners and the citizen Simplification of procedures and fighting bureaucracy – better regulation for businesses

16. Growth Framework Safeguarding economic viability Effective financial sector Modern and socially oriented state ...constitute the necessary framework for addressing the challenges of the next decade

17. Development of the growth framework Low tax burden on production factors (capital and labour) Reduction of administrative burden on businesses for compliance with legislation and regulations - (better regulation agenda) Adjusting educational systems and training to the new situation - need for development of multiple skills & skills in the information technology & communication skills Utilization of new technology Enhancement of cooperation and networking between the research community and businesses

18. Energy Saving of energy – of strategic importance Differentiation of energy sources (renewable energy sources) Necessary political dialogue of oil producing countries and oil consuming countries for achievement of mutually acceptable agreement regarding pricing policy and production levels etc

19. Water Problem Expected to become a binding restrictive factor for economic growth Saving is key for the next decade Further development of systems for desalination and recycling Transport of water from surplus countries - political collaboration

20. Sustainable Development – Environment Growth and environmental sustainability tend to reinforce each other Studies confirm – deterioration of environment threatens economic growth Enhancement of environmental dimension opens up new entrepreneurial opportunities

21. Social Justice Studies confirm - technological progress tends to aggravate social problems Creation of new posts in the labour market in jobs of high specialisation and reduction of posts in professions of low specialisation tends to strengthen social inequalities Tax competition and globalisation tend to limit state resources for the effective exercise of social policy Challenge of the next decade = new balance between growth and social justice Safeguarding an adequate standard of living for all citizens & equal opportunities for education & training & general access in high quality health care

22. Political Dimension Peace and political cooperation necessary conditions for successfully addressing of challenges Resolving of political problems in our region The Government of the Republic of Cyprus is ready for a constructive dialogue for a fair and viable solution of the Cyprus problem Solution will benefit Greek Cypriots and Turkish Cypriots Economic dimensions of solution should be taken seriously into consideration Economic viability = political viability

23. Conclusions • Safeguarding economic viability & effective supervision of financial sector & modernisation of public sector constitute the basis for economic and social progress • Utilization of modern technology & development of new sectors are important elements • Energy, water and environment are the biggest challenges • Social role of State - equal access to education and training are extremely important • Peace and political cooperation are necessary