Stepping up investment in capital goods and establishing conditions conducive to the incorporation of technological progress, especially in the ICT field, are vital factors for boosting productivity gains in the economy. Nevertheless, as the experience of other countries (particularly the United States) has shown, to reap the potential benefits of the incorporation of new technologies through investment also requires setting a more flexibly working economy in place, pushing through structural and liberalising reforms, and designing an appropriate regulatory framework. Structural reforms aimed at promoting flexibility, innovation, human capital formation and competitiveness should not be considered as having only medium- and long-term effects. The recent history of the Spanish economy illustrates the relative speed with which their effects have become visible, when they have been applied with perseverance and consistency. This is because they alter the expectations of agents, who incorporate the new framework into their behaviour almost immediately. The foregoing takes on special importance in the face of the challenges EU enlargement entails. The similarities between the productive specialisation of our economy and that of the accession countries, combined with their low-cost and highly trained labour, pose a challenge to the Spanish economy, which has to face stiff competition in those industries in which Spain is more specialised. It will be necessary to bolster the competitive capacity of the Spanish productive structure through productdifferentiation and quality-enhancing strategies, by improving its endowment of technological and human capital and by developing the technologically most advanced industries.

First, one highly favourable aspect of recent developments in the world economy, which I mentioned in the presentation of last year’s Annual Report, is the resilience generally shown by the financial system in the industrialised countries, which has limited the adverse effects of turbulence on the real sector. This resilience continued in 2002, although there are perceptible signs that the succession of shocks and the obstinacy of certain disequilibria might have eroded the solidity of certain segments of the global financial system in some countries. There would have been no such resilience were it not for the improvements in risk management introduced in recent years and for the margin for manoeuvre built up during the boom years. Second, the response by general government, with its three-pronged executive (including here the various supervisors), legislative and legal powers, has proven prompt and effective and has allowed many of the shortcomings in market fundamentals highlighted by the crisis to be corrected. Initiatives such as the Sarbanes-Oaxley Act in the United States; the amendments made in Spain by the Financial System Reform Measures Act; the boost to international accounting convergence between Europe and the United States, based on putting principles ahead of detailed rules; the reinforced supervision of auditors; the fresh momentum to improving corporate governance, etc., have all made for some progress in improving confidence. Against this uncertain backdrop, Spanish deposits institutions likewise offered proof of resilience, along with greater strength in areas such as accounting, own funds and provisions.