##tralasia and africa have also been part of the global recovery to varying degrees. behind the euphoria, there are a number of factors that have been identified as posing a risk to the sustainability of the turnaround. firstly there are the imbalances in the us economy. the us trade and current account deficits may require an adjustment in us macroeconomic policies, if the required adjustment is not achieved through movements in the dollar exchange rate. some adjustment is inevitable as economic growth in the us accelerates. the challenge for the us will be to reverse its policies in such a way that does not undermine the global recovery and also achieves the desired effects with respect to the imbalances. the lenient macroeconomic policies of the united states in particular were an important element in bringing about the global recovery, and the challenge is to prevent the inevitable reversal of these policies from undermining the recovery. the recent positive employment figures emanating from the us have fuelled expectations that the tightening of the us policy stance will begin sooner rather than later. this will follow the lead of central banks in the uk, australia and new zealand which have already increased interest rates. secondly, a further risk to the global recovery is posed by the recent developments in the international oil market, where oil prices are moving inexorably towards the us $ 40 per barrel mark. this is a result of a combination of low inventory levels in the united states, the reduction in opec production quotas, tensions in the middle east, and political problems in a number of oil - producing countries. as recently as february it appeared that the pressure on prices would be short - lived as the opec basket price moved from around us $ 30 per barrel down to the us $ 28 per barrel level, the upper limit of the opec target range. unfortunately this turned out to be a temporary reprieve. the average price of the opec basket was us $ 32, 05 in april and us $ 35, 23 in the first week of may. although at this point it appears that this threat is more short term in nature, there have been warnings that excessively high prices could undermine the sustainability of the global upswing. despite the upswing in the global economy, there is no widespread expectation of a revival of generalised world inflation. the imf world economic outlook projects a decline in world inflation from 3, 7 per cent in 2003 to 3, 2 per cent in 2005. although a handful of countries are

, depending on whether the levy is imposed ex - post or ex - ante. for instance, the proceeds raised by a levy can be destined to finance a dedicated fund to be activated in the future for the orderly winding down of distressed banks. the eu commission is moving forward in this area, with the aim of establishing a common framework for a levy in the eu member states. the imf is also finalising a report on this topic for the g20 summit later this month in toronto. in my view the discussion should be properly framed in the overall reform of the prudential framework, including the quantitative impact assessment of the various initiatives i mentioned earlier. such a careful assessment is warranted, inter alia, to avoid imposing an undue burden on the banking sector and, ultimately, hamper the flow of credit to the real economy. another important element of the basel reform package is the introduction of a range of measures designed to mitigate the inherent pro - cyclicality of the financial system. in this context, mechanisms that enhance prudent and forward - looking provisioning of banks as well as the building up of sufficient capital buffers in years of economic expansion that can be drawn down at times of stress, are all under consideration. overall, these measures aim at ensuring that the financial system functions as an absorber, rather than an amplifier of shocks, thus smoothing the volatility of the financial and real economic cycles. in setting up a more forward - looking provisioning framework, the basel committee works closely together with the accounting standard setters with a view to developing a sound operational framework for expected loss provisioning. in this context, let me mention as very important the collaborative efforts under way between the basel committee and the iasb to develop a revised expected loss model that proves operational. concerning measures on capital buffers, the basel committee set forth a proposal on a capital conservation buffer that would establish certain restrictions for undercapitalised banks with regard to the distribution of earnings in the form of dividends, share buy backs and bonuses. in addition, the introduction of a counter - cyclical buffering mechanism is also considered. it would require banks to build up additional capital buffers when excessive credit growth is identified in the economy. the last topic i want to pay some attention to is the role of central banks in financial stability. the experience of the financial crisis was not only an important trigger to set in motion supervisory and regulatory reform. it also drew attention to the need to develop