such as those indicated without seeing their capacity to ensure the financing of economic growth affected. undoubtedly, the prolongation of the phase of robust demand has contributed to widening the economy's external imbalance, increasing the need to resort to foreign saving to finance private - sector spending. overall, the external deficit, whether measured by the current account balance or by net borrowing, reached a new all - time high last year. as is known, belonging to a monetary union substantially changes the meaning and consequences of the current account balance. the breaking of the link between the exchange rate and the economy's external imbalance gives greater prominence to how this imbalance is financed. here, the funds needed to bridge the gap between national investment and saving are being routed essentially via the issuance of securities by banks and, especially, non - bank financial institutions. these securities, such as mortgage - backed bonds, are linked to credits guaranteed by property assets. however, the fact that the external deficit is easier to finance within a monetary union should not conceal the factors of uncertainty derived from the losses in competitiveness and the growing indebtedness of households and firms underlying the deficit, because they may ultimately affect the sustainability of medium - term growth. in the short run, forecasts are for the continuity of the expansion. the central scenario for the coming quarters is set against the substantial buoyancy of the world economy, the smooth adjustment of monetary and financial conditions and the gradual re - absorption of the overvaluation of housing. and it continues to point to a gradual rebalancing of spending, with a slowdown in domestic demand and an improvement in the contribution of external demand. we are thus before a scenario that offers, in principle, sufficient room to face the vulnerabilities that have emerged and to address the measures needed to consolidate the continuity of the expansion. but there is a risk that the restructuring of spending will not be of sufficient intensity or that it will not increase the responsiveness of supply to the extent needed, meaning that the imbalances will continue to grow deeper, thereby raising the probability of a more marked adjustment in the medium run. economic policy challenges given the situation described, an economic policy commitment to rebalancing demand and, in particular, to containing domestic expenditure is particularly necessary. the aim is to ensure the spanish economy continues moving towards the income levels of the core european countries and that it is in a position to become successfully integrated into an increasingly competitive and globalised international

financial markets and the rapid pace of financial convergence, the investment management function within insurers needs to be flexible, risk - focused, and equipped with professionals who are able to respond to the exigencies of the marketplace. an important component of the new risk - based capital and supervisory framework is the notion of supervisory target capital levels which insurers will be required to maintain under the risk - based framework. this is new to our environment, and has been a matter of some concern to insurers which may view it as an additional capital burden. although the risk - based capital regime will more closely align economic capital with regulatory capital, it is important to recognize that it necessarily derives its application from industry - wide tests which cannot fully address risks that are specific to an individual institution. the supervisory capital target therefore serves to provide an early signal of emerging difficulties so that appropriate intervention measures can be taken to prevent a further deterioration of conditions which would warrant more drastic and costly actions. for insurers that already adopt robust internal approaches to capital management, the introduction of the supervisory target level in itself should not significantly alter existing capital management strategies. insurers that do not yet have such systems in place, will be encouraged to develop them, and thereby enhance their own resilience to adverse changes in business conditions. the bank is mindful that developments internationally on this front remain extremely fluid. work is still in progress on the international financial reporting standard for insurance contracts, the solvency ii initiative in the european union, and the development of cornerstones for solvency assessments by the international association of insurance supervisors. the bank will therefore continue to maintain an open consultative approach in proceeding with this initiative to preserve our ability to respond appropriately and to ensure its smooth implementation. going forward, greater attention will be given to market conduct issues, which recent experience in other markets has shown to be an increasingly important factor in promoting confidence in the insurance and takaful industries. financial markets cannot operate efficiently and effectively unless market participants act with integrity. this needs to be reinforced with adequate information to consumers and investors to make informed decisions. in today's information era, the business environment has changed dramatically, and with it, the expectations of consumers and investors have also increased. the industry needs to adapt accordingly. policy initiatives by bank negara malaysia in the area of market conduct will continue to focus on achieving complete, true and plain disclosures to consumers, thereby equipping consumers to make informed decisions essentially through consumer education initiatives, and