Capital inflows, as you know, are the counterpart of our record current account deficit. The gap between domestic savings and investment is large and growing, and if the inflow of foreign capital reversed suddenly, the consequences for our economy would be noticeable. A fourth risk arises from ongoing adjustments in financial markets to the perception of a riskier economic environment.
Over the course of this year, commercial banks have tightened their lending standards, and quality spreads have increased in the bond market--especially in the high-yield sector. Activity in the IPO market has subsided as equity investors have turned away from riskier ventures.