The 73rd Annual Report of the Bank for International Settlements for the financial year which began on 1 April 2002 and ended on 31 March 2003 was submitted to the Bank's Annual General Meeting held in Basel on 30 June 2003.
Introduction: an uncomfortable soft spot
The last year or so has been marked by economic disappointments. Interrelated developments in the geopolitical, economic and financial spheres held back growth and led to great uncertainty about the future. The recovery in the world economy seemed to stall. Indeed, the news got worse rather than better during most of the period under review. This was surprising to many given the high degree of policy stimulus being applied in large parts of the world. In fact, such a pattern of unrealised expectations has been the norm for at least the last couple of years, a phenomenon typically explained in terms of unexpected events like the Enron and other corporate scandals, the shock of 11 September 2001 and, albeit better anticipated, the Argentine crisis. The period under review, ending April 2003, was no exception. Uncertainties related to the Iraq war, and even the spread of the SARS virus, were cited as the principal reasons why business investment everywhere seems to have been put on hold.
War in Iraq provided an ominous background. The initial question was whether there would be war or not, and what the implications might be for oil prices. Then the question became one of timing. Subsequently, the issue was how the war might be conducted, and how it could be ended. These questions have been answered more speedily than many expected. Nevertheless, there remain lingering political uncertainties arising from the war that might prove harder to dispel. Even before these recent events, there were a number of international tensions which threatened progress in such crucial areas as the Doha round of trade negotiations and global financial reform. The recent weakening of the US dollar has also thrown into greater relief uncertainties pertaining to international saving imbalances, and how different countries might best contribute to their resolution.
The views expressed here do not necessarily reflect the views of the BIS member central banks.