BIS Review 39/2003  1  It is important to mention here the close interplay between rigidities in capital, labour and product markets, which can strengthen one another. These interdependencies mean that structural reforms in any one of these markets will have an impact on the functioning of the others. It must be emphasised therefore that only a comprehensive reform programme can create the necessary conditions for stronger economic dynamism. The need for structural reforms tends to become most urgent and evident to policy-makers during economic downturns. But don't forget that structural reforms do not provide short-term solutions to economic problems. Although they can have positive short-term confidence effects, it normally takes time for their benefits to unfold. Hence I cannot emphasise enough the need to speed up the pace of structural reforms in capital, labour and product markets. Structural reforms in various regions of the world Let me now turn to the issue of future challenges with respect to microeconomic policies and structural reforms in particular economic areas. I shall start with structural reforms in the euro area, and then move on to say a few words about structural reform in the EU Neighbouring Regions, the United States, Latin America and, finally, East Asia. Euro area Economic activity in the euro area remained subdued in the first half of 2003. However, there is increasing reason to expect that it will recover gradually in the second half of 2003 and strengthen further in 2004.

Also, the series of corporate failures in 2001-02 revealed weaknesses in corporate governance practices, including accounting and audit rules, which are currently being addressed by the US authorities. Latin America Over the last two years, growth in most Latin American countries has been weak. This year, however, there are signs of a modest upturn, with confidence slowly returning. This has been due, in part, to the direction of the structural reform agendas of many countries in the region. To strengthen the foundations for growth, policy-makers must remain committed to implementing structural reforms. Countries that have made the greatest strides in reform are already reaping the benefits. Both Mexico and Chile, which are at the most advanced stage of reform in the region, have proven remarkably resilient to turmoil in regional economies and have weathered the period of weak global growth well, considering their exposure to sluggish mature economies. Other countries in the region have embarked on reform agendas and should be encouraged by the international community to see them through as swiftly as conditions allow. East Asia As for the crisis-hit countries in Asia, economic performance has been positively correlated with progress in reforms. Stronger average growth potential in countries such as Korea and Malaysia reflects partly the authorities' determination in pushing through corporate reforms, reforming the financial sector and strengthening insolvency laws. In China, the authorities have repeatedly emphasised that banking reform, if coupled with the restructuring and privatisation of state-owned enterprises, is key to strong growth and financial stability in the medium term.