There is growing anxiety over the vast US budget deficit. The next US administration needs to remedy the situation – fast.

Never have forecasters been as lost in their predictions for the world economy as at present. The US is said to be in recovery mode but the burgeoning current account deficit was the major topic of concern at last month’s World Bank/IMF meetings in Washington. Fittingly, it is the subject of our lead editorial in this issue.

Gerrit Zalm is the Dutch finance minister who still believes in the Stability and Growth Pact, he tells Karina Robinson.

Karina Robinson argues that, in practical terms, the policies of the Democrats differ little from those of the Republicans. At the end of the day, the US pursues the same strategic objectives regardless of who is in the Oval Office and, moreover, is prepared to go it alone.

Stanley Fischer, vice-chairman of Citigroup, considers world growth prospects and finds the outlook – though not perfect – at least positive.
It is fashionable for people speaking about the global economy to be worried. I am concerned – but the truth is that the current global situation isreasonably good.

Small city banks in China are becoming more popular with foreign investors wanting to establish a foothold in the country’s fast-growing retail banking market.

Chinese banks are aggressively disposing of their non-performing loans (NPLs), in preparation for their imminent listing in overseas stock markets. In recent months, the China Construction Bank (CCB), Bank of China and Bank of Communications have sold about Rmb323bn ($38.9bn) of bad loans to domestic and foreign investors.

Israel’s Finance Ministry is planning sweeping reforms of the country’s capital market and the banking sector. The reforms have the support of Finance Minister Benjamin Netanyahu, his top officials and the Bank of Israel.

The Dubai International Financial Centre (DIFC) issued its first three licences on September 20, marking the launch of a free zone that Dubai officials hope will catapult their city into the major league of global financial hubs.

Net private capital flows to emerging markets are likely to increase to $226bn this year from $213bn in 2003, with a further slight rise to $229bn next year, according to the latest forecast from the Washington-based Institute of International Finance (IIF). The increase is attributed to a rebound in direct equity investment from the eight-year low seen in 2003, continued strength of bond purchases and substantial net lending by commercial banks. This growth of flows comes at a time when the 29 economies involved are growing more rapidly than at any time in the last 20 years.