that its magnitude has diminished. * * * there is no simple measure by which to judge the sustainability of either a string of current account deficits or their consequence, a significant buildup in external claims that need to be serviced. financing comes from receipts from exports, earnings on assets, and, if available, funds borrowed from foreigners. in the end, it will likely be the reluctance of foreign country residents to accumulate additional debt and equity claims against u. s. residents that will serve as the restraint on the size of tolerable u. s. imbalances in the global arena. unlike the financing of payments from export and income receipts, reliance on borrowed funds may not be sustainable. by the end of september 2003, net external claims on u. s. residents had risen to this anomaly was first identified more than three decades ago ; see h. s. houthakker and stephen p. magee, “ income and price elasticities in world trade, ” the review of economics and statistics vol. 51 ( may 1969 ), 111 - 25. an estimated 25 percent of a year ’ s gdp, still far less than claims on many of our trading partners but rising at the equivalent of 5 percentage points of gdp annually. however, without some notion of our capacity for raising cross - border debt, the sustainability of the current account deficit is difficult to estimate. that capacity is evidently, in part, a function of globalization since the apparent increase in our debt - raising capacity appears to be related to the reduced cost and increasing reach of international financial intermediation. the significant reduction in global trade barriers over the past half century has contributed to a marked rise in the ratio of world trade to gdp and, accordingly, a rise in the ratio of imports to domestic demand. but also evident is that the funding of trade has required, or at least has been associated with, an even faster rise in external finance. between 1980 and 2002, for example, the nominal dollar value of world imports rose 5 - 1 / 2 percent annually, while gross external liabilities, largely financial claims, also expressed in dollars, apparently rose considerably faster. 3 this observation does not reflect solely the sharp rise in the external liabilities of the united states that has occurred since 1995. for other oecd economies, imports rose about 2 percent annually from 1995 to 2002 ; external liabilities increased 8 percent. less - comprehensive data suggest that the ratio of global debt and equity claims to trade has been rising since at

reflect a growing recognition that sound accounting policies and meaningful public disclosure by banking and other financial organizations and by nonbanking companies can improve market discipline. with sufficient, accurate, and relevant information, market participants can better evaluate counterparty risks and adjust the availability and pricing of funds to promote better allocation of financial resources. thus, more - effective market discipline can, in a sense, " regulate " the risk - taking activities of banks and other firms in ways that can complement supervision and regulation of financial institutions and foster stable financial markets. the concept of market discipline has assumed greater importance among international banking supervisors with the publication of the new international capital framework, called basel ii, which seeks to strengthen the market's ability to aid bank supervisors in regulating capital adequacy. as you know, in addition to pillars on risk - based capital requirements ( pillar 1 ) and risk - based supervision ( pillar 2 ), basel ii includes the very important pillar 3, which addresses disclosure of risks and capital adequacy to enhance market discipline. this approach to capital regulation, with its market - discipline component, signals that sound accounting and disclosure will continue to be important parts of the global bank supervisory approach for many years to come. in addition to disclosure and market discipline, supervisors and regulators around the world recognize the need for stronger audit and control standards for financial services firms and other companies. the quality of management information and supervisory and financial reporting is dramatically affected by internal control systems, including internal audit programs and reviews by external auditors. sound supervisory and financial reporting, good internal controls, and quality audits are becoming more important to financial services regulators because they directly affect regulators'ability to promptly identify institutions in distress and work toward a satisfactory resolution. this shared understanding of the importance of sound audit and control practices led to an unprecedented level of cooperation among the international regulatory community - - in this case, iosco, the basel committee, the iais, the european commission ( ec ), the world bank, and the financial stability forum, which came to be known as the monitoring group. working together, they were able to develop a common position on reforms. this common position served as a basis for dialogue with the leadership of ifac about establishing a credible independent oversight authority to help enhance the integrity and objectivity of the iaasb's international audit - standards - setting processes. this led to the creation of the new public interest oversight board of ifac, which is now busy assuming its new responsibilities. the public interest