Press Release No. 04/135

Press Release: Statement by the Managing Director on June 16, 2004 on the Work Program of the Executive Board

July 1, 2004

1. At the ministerial meetings in April 2004 in Washington, the membership reviewed the Fund's progress across a broad range of its activities, identified the basic orientation of members' policies that would be supportive of the strengthening global economic recovery while providing heightened protection against remaining vulnerabilities, and gave strategic direction to the Fund's policy agenda for the coming 6-12 months. The work program proposed below aims to give concrete shape to the priorities identified.

2. The Board's work program is ambitious, but feasible. It has three distinct, but intertwined, strands:

• The Board will devote a major part of its time—probably around two third of the Board's hours spent in meetings—to providing policy advice and making decisions on Fund financial assistance to member countries. In this context, Executive Directors will have opportunities continuously to ensure that policy initiatives that they have agreed in recent years to improve the effectiveness of the Fund in the areas of Fund surveillance, use of Fund resources, and technical assistance are being effectively implemented.

• The Board will also devote attention to policy development and review. Three major policy areas are scheduled for review in the coming period:

• The biennial review of surveillance, which will evaluate progress on the range of surveillance-related initiatives recently implemented and consider further improvements in the content and modalities of surveillance.

• The review of the 2002 Guidelines on Conditionality, which will focus on the implementation of the recently streamlined conditionality guidelines.

• The identification of specific modalities and instruments in refining the Fund's role in low-income countries, focusing on the PRSP approach and the PRGF, the HIPC initiative and debt issues, and aid issues.

Work in these three areas is being informed by a continuing process of consultations. Executive Directors will have had the opportunity to provide input in shaping the structure and content of the reviews of surveillance and conditionality guidelines through informal discussions on the outlines of the respective staff papers at an early stage of their preparation. The further work on low-income countries will build on the stage-setting informal briefing of the Board in August 2003 on this topic. In each of these areas, the work of the Fund is also benefiting from outreach efforts to national policymakers, parliamentarians, and other members of civil society for inputs into the policy formulation and implementation process.

• Finally, the Board will discuss, prior to the 2004 Annual Meetings, three IEO evaluation reports—on PRSPs/PRGF, the role of the Fund in Argentina, and technical assistance. Experience indicates that applying the lessons from previous IEO evaluations to shaping Fund policies and practices in a substantive, cost-effective, and evenhanded manner is a challenging, yet rewarding, effort.

3. As usual, management will prepare a report to the IMFC on progress with the implementation of the Fund's policy agenda prior to the 2004 Annual Meetings.

4. In implementing this work program the staff will need to continue to produce streamlined Board documents that are of a high standard and are conducive to focused, constructive Board discussions. The Secretary will continue to remind staff of the importance of adhering to the minimum circulation periods for all Board papers and will work to avoid undue bunching of the Board calendar.

5. The IMFC urged that our analysis and policy direction on the global economy and financial markets focus on sustaining the global economic recovery and providing the foundation for durable economic growth by achieving an orderly reduction in global imbalances, vulnerabilities, and structural rigidities that impede growth and resilience. Our key vehicles for this purpose will be the periodic discussions on the World Economic Outlook (WEO), World Economic and Market Developments (WEMD), the Global Financial Stability Report (GFSR), and the Financial Markets Update. Multilateral surveillance will continue to pay close attention to the cross-border impact of individual member countries' policies and global economic developments, including commodity market developments, as well as to vulnerabilities arising from both domestic and world-wide sources. Together with the stream of Article IV country consultations, multilateral surveillance will be the main vehicle for promoting and monitoring progress on the key priorities for surveillance identified by the IMFC for the coming year.

6. The IMFC underscored the critical importance of open markets for supporting broad-based global economic growth and prosperity. The Fund will continue to advocate multilateral trade liberalization and help members to gain full advantage of the opportunities it provides. The Fund's recent decision to establish the Trade Integration Mechanism will provide financial support as warranted to underpin progress under the Doha Round. A staff guidance note on the implementation of the new mechanism will be circulated this summer. Following the 2004 Annual Meetings, a seminar will review recent developments and issues in regional trade agreements.

7. The IMFC stressed the importance of ongoing reforms to strengthen the quality, effectiveness, and evenhandedness of surveillance. As foreshadowed in the March informal discussion with Executive Directors, the biennial surveillance review in July will take a two-pronged approach. First, it will assess the coverage and content of surveillance over the past two years, including how bilateral surveillance has reflected individual country circumstances and global issues, the treatment of global and regional spillovers in bilateral surveillance, the coverage of exchange rate issues, the use of balance sheet analysis, and institutional issues relevant to enhancing growth. Second, it will examine, drawing inter alia on the results of outreach, surveys, and interviews, whether there are practical ways of further enhancing the impact and effectiveness of surveillance, for example by improving the policy dialogue with member countries and the procedures for surveillance.

8. Two seminars in May addressed successively improving the sovereign debt structure for crisis prevention and the role of liquidity management in limiting liquidity risks and coping with external shocks. An informal seminar in the summer will examine how the balance sheet approach may be applied to emerging market countries, drawing on case studies to illustrate how developments in currency and maturity mismatches can help explain recent financial crises. As part of our efforts to strengthen financial sector surveillance, the Board will hold a seminar in September on issues and gaps in financial sector regulation, drawing on the findings of FSAPs and suggesting ways in which to strengthen responses to the main regulatory issues facing member countries.

9. A note, to be circulated for information in June, will focus on Fund issues in bilateral surveillance of the investment climate in member countries, drawing on the work of other institutions in this field.

10. In December, an informal seminar will take up the institutional and operational preconditions for successful implementation of a floating exchange rate regime.

11. The next review of the Fund's Standards and Codes Initiative will take place in mid-2005. The Board will also discuss a paper presenting a standard for insolvency and creditor rights as the basis for preparing ROSCs in this domain.

12. Our work to improve program design and conditionality will flow in two main streams. First, on the design of Fund-supported programs the staff is preparing a series of background papers on the objectives and main analytical frameworks of program design, and on the macroeconomic and structural policy content of programs. A summary paper drawing together the main conclusions of these papers will be considered by the Board in July. Second, work on preparing for the review of the 2002 Guidelines on Conditionality will start off with an informal seminar in June based on an outline of the questions to be addressed in the formal Board review of the Conditionality Guidelines following the 2004 Annual Meetings. It will explore how the review will cover the implementation of the recently streamlined conditionality guidelines, including the issues of ownership, the focus of conditions on critical factors, and the clarity of conditions for members. The review itself will draw on the review of Fund-Bank collaboration undertaken in March 2004, and the discussion of the lessons from recent capital account crises building on the recent evaluation of the IEO.

13. We need to continue to adapt our financing facilities to the new environment of large and volatile capital flows. In July, a staff paper on precautionary arrangements will examine issues raised at last year's Board discussions on the precautionary extension of Brazil's stand-by arrangement, the CCL review, and precautionary arrangements more broadly. The paper will inter alia cover the use of precautionary arrangements as a crisis prevention tool; their potential impact on creditor and debtor behavior and on the Fund's liquidity; and changes to the Supplemental Reserve Facility that would allow it to be used for potential balance of payments needs.

14. Following the Annual Meetings, the Board will discuss a series of papers on other issues related to facilities, conditionality, and program design. The next biennial review of access policy will take place in late 2004 and will include access under the PRGF as well as exceptional access. In response to the issues raised by Executive Directors during the discussion of exceptional access policy, the Board will consider, early next year, a paper reviewing charges and maturities of Fund facilities more generally. Based on the insights from the discussion on the balance sheet approach (see paragraph 8), a staff paper on debt management conditionality and policies under Fund-supported programs will consider the implications of broadening debt limits beyond the current ones on externally issued public debt to put greater emphasis on the currency and maturity structure of debt and the role of contingent liabilities. In mid-2005, the Board will review trade reforms under Fund-supported programs, drawing on experience with programs during the period 1990-2002 to inform Fund policy advice in this area.

15. Prior to the Spring 2005 meetings, the Board is scheduled to review comprehensively the experience with the Fund's safeguards policy. The Board will also follow up on the recent discussion on public investment and fiscal policy with a paper reporting on pilot case studies.

16. The IMFC stressed the important role that the Fund—in partnership with the multilateral development banks and bilateral donors—continues to play in assisting low-income countries with effective policy advice, financing, and technical assistance to achieve higher and more sustained growth and poverty reduction in the context of the international effort to meet the Millennium Development Goals (MDGs). Following up on the August 2003 discussion on the role of the Fund in low-income countries, the Board will take up a broad range of topics in the coming months, focusing on the PRSP approach and the PRGF, the HIPC initiative and debt issues, and aid issues.

17. Following up on the March discussion on this topic, a further paper is planned for discussion in September on PRGF financing and instruments, which will consider how to finance PRGF operations beyond 2005, with options for mobilizing supplementary resources as the need rises. The paper will also include an elaboration of proposals on instruments that were endorsed by the Board and require further consideration. This will be preceded by a discussion in July on the IEO report on the evaluation of the PRSP/PRGF. Also this summer, short papers will be circulated on post-program monitoring under the PRGF and subsidizing natural disaster assistance for consideration on a lapse of time basis. The staff also plans to circulate, for the Board's information, guidance notes to the staff on norms for successive PRGF arrangements, criteria for PRGF/EFF blending, low-access PRGF arrangements, and emergency post-conflict assistance. The annual PRSP progress report will address issues in the IEO (and Bank OED) report and will be considered in September.

18. In the area of HIPC and debt issues, the Board will discuss in September work on debt sustainability in low-income countries. A joint Fund-Bank staff paper will focus on further considerations with respect to the framework for debt sustainability in those countries. A companion piece will address operational issues specific to the Fund, including options on how to formulate debt limits in PRGF arrangements. Prior to this discussion, the Board will consider this summer a paper on options for handling the HIPC sunset clause and later this summer a paper on HIPC topping up issues. In the run up to the Annual Meetings, the Board will consider progress reports to the IMFC on the implementation of the HIPC Initiative and the PRSP approach prepared by the Fund and Bank staffs. An update on PRGF/HIPC financing will also be provided.

19. In September, a seminar will be held on a joint Fund-Bank staff paper on aid, aid effectiveness, and financing modalities for the MDGs, including the effectiveness of aid and members' capacity to absorb it, the role of aid in meeting the MDGs, and potential global sources for increasing the amount of aid available in the near to medium term.

20. In the period following the Annual Meetings, the Board will discuss a paper on technical assistance on monetary and financial matters to post-conflict economies, drawing key lessons for future cases from rebuilding these economies' monetary and financial systems. In November, following on the recent discussion on instruments and financing for low-income countries and the interest in a strengthened process of surveillance for low-income countries, the Board will consider a paper on the Fund's role in providing appropriate signals about low-income countries' macroeconomic policies to donors and other international financial institutions in the absence of a need for Fund financing. In December, the Board will discuss a paper on the design of macroeconomic programs supported by the PRGF. The 2005 Global Monitoring Report, updating progress on meeting the Millennium Development Goals, will be issued for the Spring 2005 meetings. Also in the spring the Board will discuss a joint Fund-Bank paper on assessing the capacity to track poverty-reducing spending in HIPCs, reviewing progress in this area since the February 2002 Board discussion.

21. Our efforts at strengthening the framework for crisis resolution will continue to focus on promoting collective action clauses (CACs) in international sovereign bond issues. Progress toward a voluntary code of conduct is being made in the G-20 and other fora. Work also continues on other crisis resolution issues, and following the Annual Meetings a Board seminar is planned on how the design and modalities of sovereign debt restructurings could affect a member's financial system, including the implications of crisis resolution strategies for program design and conditionality, and for the role of Fund financing. A summary of developments on crisis resolution initiatives, including on CACs and the development of a code of conduct, will be included in progress reports for the Annual Meetings and the Spring 2005 meetings.

22. The IEO's report on the role of the Fund in Argentina will be discussed prior to the Annual Meetings.

23. In the period following the Annual Meetings, the Board will hold an informal seminar on issues concerning reaccess to capital markets by countries emerging from a financial crisis. A paper, for discussion prior to the Spring 2005 meetings, will give further consideration to issues arising in the context of members needing to renegotiate debt to private creditors.

24. The IMFC called on the Executive Board to continue its work on quotas, voice, and representation, and to report on progress at its fall meeting. The Development Committee expects to receive reports from the two Boards on all aspects of the issue of strengthening the voice and participation of developing and transition countries in the work and decision making of the Bretton Woods institutions for discussions at its fall meeting.

25. At the request of Executive Directors during the latest discussion on the Fund's income position, the Board will review the Fund's finances and financial structure, with an informal seminar planned for November, prior to circulating a staff paper in December for a formal Board meeting in January. The review of the Fund's income position for FY 2005 and 2006 is planned for April 2005.

26. In August, the Board will discuss the IEO's report on the Fund's role in providing technical assistance.

27. The Budget Committee will review the FY 2004 outturn in July, consider a report on progress on budget reforms in November, and discuss the preparation of the FY 2006 Administrative and Capital Budgets and the medium-term budgetary framework in February. The 2005 review of staff compensation and the discussion of the FY 2006 Budget and Medium-Term Framework will take place in April.

28. A staff paper on the Fund's external communications strategy is expected to be discussed in early 2005.

29. A paper on the Fund's external audit arrangements will be discussed by the Board after the Annual Meetings. To prepare for this discussion, an informal seminar is planned for this summer.