The buoyant global demand for commodities and the attendant rise in their prices were conducive to the economic growth of the commodities-exporting countries, while widening the room for manoeuvre of their economic policies. The Latin American countries benefited from this positive effect on their terms of trade, enabling them to reconcile relatively high growth rates with current-account surpluses. In this respect, a clearly contrasting use was made of this greater flexibility by the Latin American countries: while some have sought to strengthen their macroeconomic fundamentals and reduce their vulnerability by limiting and improving the terms of their debt, others have given an interventionist bias to their policies which seriously undermines the maintenance of legal security and dents their mediumterm investment and growth prospects. As stated, an essential ingredient in the stability of the world economy has been the maintenance of moderate inflation, despite the rise in energy and other commodities prices. Admittedly, the dynamism of China and other emerging Asian economies has contributed to this increase in commodities prices; but their penetration in the international markets for manufactures has also helped contain wage and price pressures. The greater anti-inflationary credibility of monetary policies is, in any event, responsible for anchoring inflation expectations at moderate levels, having prevented the so-called "second-round effects" – via prices and wages – that prompted a global inflationary spiral in the eighties in the wake of dearer energy.

In respect of corporate income tax it is intended, in addition to reducing the rate in line with international trends, to make more rational use of the system of tax allowances and deductions. Although it is estimated that the impact of tax reform on revenue will be small, its effect on activity will be slightly expansionary. Accordingly, if the economy retains its current dynamism, it might be necessary to introduce some compensatory adjustment. It should be recalled that the entry into force of the EU Financial Perspectives 2007-2013 will entail fewer financial flows from Community coffers. That all reinforces the need in the coming years to design budgets that add to the stabilising role of fiscal policy. On the public spending side, now most spending powers have been decentralised, the co-ordination mechanisms between the different tiers of government must be strengthened. I should moreover stress the importance, once very high levels of decentralisation are in place, of achieving a greater degree of commitment by all levels of government to budgetary stability. The failure by many regional governments to meet the budgetary stability target in 2005 and the deficit projections for 2006 are warning signs for potential shortfalls, which should be prevented and avoided. The new stability laws should contribute to identifying and correcting these potential situations, promoting prompt and transparent information on regional public finances. Lastly, some comments on the challenges posed to the sustainability of public finances over the medium and long term, derived from population ageing.