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Communiqué of the Interim Committee of the Board of Governors of the
International Monetary Fund|
April 16, 1998
1. The Interim Committee held its fiftieth meeting in Washington, D.C. on April 16, 1998 under the Chairmanship of Mr. Philippe Maystadt, Deputy Prime Minister and Minister of Finance and Foreign Trade of Belgium.
The World Economic Outlook, including the Causes and Effects of the Asian Crisis
2. The Committee agreed that, while the countries at the center of the crisis will suffer significantly from the recent financial turmoil in Asia, the global outlook for world economic growth can be regarded as cautiously optimistic. This assessment reflects the continued strong performance expected in most industrial countries, sustained corrective policies in emerging market countries that helped avert a wider crisis, and progress in much of the developing world and among the transition countries in improving medium-term fundamentals.
Notwithstanding these positive aspects, there are downside risks, calling for resolute action in a number of areas to support global noninflationary economic growth.
Strengthening the Architecture of the International Monetary System—Prevention, Management, and Resolution of Crises
3. The Committee discussed emerging lessons from the Asian crisis and steps required for strengthening the architecture of the international monetary system. Such a strengthening was regarded as needed, particularly in light of globalization, which has brought clear benefits, but at the same time has posed challenges. It has reinforced the importance of sound macroeconomic policies and strong financial systems to guard against vulnerability to shifts in market sentiment and to contagion effects from policy weaknesses in other countries. The Committee considered that action to help prevent financial crises, and resolve them when they occur, should center on the following pillars.
a. Strengthened international and domestic financial systems
b. Strengthened Fund surveillance and recommendations
c. Greater availability and transparency of information regarding economic data and policies
d. Central role of the Fund in crisis management
e. More effective procedures to involve the private sector in forestalling or resolving financial crises
The Committee requested the Executive Board to report on all aspects of its work in these areas at the next meeting of the Committee.
Liberalization of Capital Movements Under an Amendment of the Articles
4. The financial crisis in Asia has given heightened attention to the role of capital flows in economic development. The effects of the crisis have not negated the contribution that capital movements have made to economic progress in the Asian countries before the crisis erupted. Rather, the crisis has underscored the importance of orderly and properly sequenced liberalization of capital movements, the need for appropriate macroeconomic and exchange rate policies, the critical role of sound financial sectors, and effective prudential and supervisory systems. The Committee reaffirmed its view, expressed in the Hong Kong Communiqué last September, that it is now time to add a new chapter to the Bretton Woods Agreement by making the liberalization of capital movements one of the purposes of the Fund and extending, as needed, the Fund’s jurisdiction for this purpose. The Committee noted the progress made thus far and the provisional agreement reached by the Executive Board on that part of the amendment dealing with the Fund’s purposes. It requested the Executive Board to pursue with determination its work on other aspects, including policyissues, with the aim of submitting an appropriate amendment of the Articles for the Committee’s consideration as soon as possible.
Code of Good Practices on Fiscal Transparency—Declaration on Principles
5. The Committee adopted the attached "Code of Good Practices on Fiscal Transparency—Declaration on Principles" 1 to serve as a guide for members to increase fiscal transparency, and thereby enhance the accountability and credibility of fiscal policy as a key feature of good governance. The Committee encouraged member countries to adhere to the principles and implement the practices of the Code, recognizing that implementation will be affected by diversity in fiscal institutions, legal systems, and implementation capacity. The Committee requested the IMF to monitor progress in implementing the Code in the context of its surveillance. The Committee also encouraged the Executive Board to examine the desirability of developing a code of good practices with respect to financial and monetary policies, in cooperation with the appropriate institutions.
ESAF and HIPC Initiatives—Implementation, Financing, and Evaluation
6. The Committee welcomed the progress made to date in the implementation of the HIPC Initiative, including (i) the release by the Executive Boards of the Fund and the Bank of assistance for Uganda when it reached its completion point in early April; (ii) the decisions, in principle, to provide assistance to Bolivia, Burkina Faso, Côte d’Ivoire, Guyana, and Mozambique; and (iii) the preliminary discussions on Guinea-Bissau and Mali. The Committee encouraged countries that could qualify for assistance under the Initiative to take expeditiously the necessary adjustment measures to qualify for this special assistance.
The Committee noted the need to reactivate the efforts by the Fund to secure the full financing of the ESAF and the HIPC initiative. In view of the present and expected future commitments under the HIPC Initiative and the significant costs resulting from the delay in mobilizing the necessary financial resources, the Committee urged all members to move quickly to complete the financing of these initiatives as soon as possible. The Committee requested that the Executive Board report back to the Interim Committee on this issue at its next meeting.
The Committee expressed its appreciation for the work of the external evaluators of the ESAF. Their report, which complemented the earlier internal evaluation of the ESAF, reaffirmed the view that the ESAF is a valuable instrument to assist low-income countries. The Committee noted that, together, the internal and external evaluations provided important lessons and a useful basis for public debate. The Committee welcomed the intention of theExecutive Board to draw operational conclusions from the issues raised by the evaluations so as to strengthen the ability of the Fund to foster sustained growth and external viability in poor countries.
The next meeting of the Interim Committee will be held in Washington, D.C. on October 4, 1998.
CODE OF GOOD PRACTICES ON FISCAL TRANSPARENCY—DECLARATION ON PRINCIPLES
The Interim Committee stressed the importance of good governance when it adopted the Partnership for Sustainable Global Growth in September 1996, and again at its September 1997 meeting in Hong Kong SAR. Fiscal transparency would make a major contribution to the cause of good governance. It should lead to better-informed public debate about the design and results of fiscal policy, make governments more accountable for the implementation of fiscal policy, and thereby strengthen credibility and public understanding of macroeconomic policies and choices. In a globalized environment, fiscal transparency is of considerable importance to achieving macroeconomic stability and high-quality growth. However, it is only one aspect of good fiscal management, and attention has to be paid also to increasing the efficiency of government activity and establishing sound public finances.
Because of its fiscal management expertise and universal membership, the IMF is well placed to take the lead in promoting greater fiscal transparency. The Interim Committee is therefore seeking to encourage IMF member countries to implement the following Code of Good Practices on Fiscal Transparency. The Code is based around the following key objectives: roles and responsibilities in government should be clear; information on government activities should be provided to the public; budget preparation, execution, and reporting should be undertaken in an open manner; and fiscal information should be subjected to independent assurances of integrity. The Code sets out what governments should do to meet these objectives in terms of principles and practices. These principles and practices are distilled from the IMF’s knowledge of fiscal management practices in member countries. The Code will facilitate surveillance of economic policies by country authorities, financial markets, and international institutions.
Guidelines to the implementation of the Code are to be provided in a supporting manual, which is currently being developed. The Code acknowledges diversity across countries in fiscal management systems and in cultural, constitutional, and legal environments, as well as differences across countries in the technical and administrative capacity to improve transparency. While there is scope in all countries for improvement with respect to some aspects of fiscal transparency covered in the Code, diversity and differences across countries inevitably imply that many countries may not be able to move quickly to implement the Code. Moreover, it is recognized that there may be a need for technical assistance if existing fiscal management practices are to be changed, and the IMF must be prepared to provide technical assistance, in cooperation with other international organizations, to those countries that request it in connection with improving fiscal transparency. Modifications to the Code should be considered periodically, in light of the experience with its implementation.
I. Clarity of Roles And Responsibilities
1.1 The government sector should be clearly distinguished from the rest of the economy, and policy and management roles within government should be well defined.
1.1.1 The boundary between the government sector and the rest of the economy should be clearly defined and widely understood. The government sector should correspond to the general government, which comprises the central government and lower levels of government, including extrabudgetary operations.
1.1.2 Government involvement in the rest of the economy (e.g., through regulation and equity ownership) should be conducted in an open and public manner on the basis of clear rules and procedures, which are applied in a nondiscriminatory manner.
1.1.3 The allocation of responsibilities between different levels of government, and between the executive branch, the legislative branch, and the judiciary, should be clearly defined.
1.1.4 Clear mechanisms for the coordination and management of budgetary and extrabudgetary activities should be established, and well-defined arrangements vis-à-vis other government entities (e.g., the central bank, and state-controlled financial and nonfinancial enterprises) should be specified.
1.2 There should be a clear legal and administrative framework for fiscal management.
1.2.1 Fiscal management should be governed by comprehensive laws and administrative rules applying to budgetary and extrabudgetary activities. Any commitment or expenditure of government funds should have a legal authority.
1.2.2 Taxes, duties, fees, and charges should have an explicit legal basis. Tax laws and regulations should be easily accessible and understandable, and clear criteria should guide any administrative discretion in their application.
1.2.3 Ethical standards of behavior for public servants should be clear and well-publicized.
II. Public Availability of Information
2.1 The public should be provided with full information on the past, current, and projected fiscal activity of government.
2.1.1 The annual budget should cover all central government operations in detail and should also provide information on central government extrabudgetary operations. In addition, sufficient information should be provided on the revenue and expenditure of lower levels of government to allow a consolidated financial position for the general government to be presented.
2.1.2 Information comparable to that in the annual budget should be provided for the outturns of the two preceding fiscal years, together with forecasts of key budget aggregates for the two years following the budget.
2.1.3 Statements should be published with the annual budget giving a description of the nature and fiscal significance of contingent liabilities, tax expenditures, and quasi-fiscal activities.
2.1.4 The central government should regularly publish information on the level and composition of its debt and financial assets.
2.2 A public commitment should be made to the timely publication of fiscal information.
2.2.1 Specific commitments should be made to the publication of fiscal information (e.g., in a budget law).
2.2.2 Advance release date calendars for fiscal reporting to the public should be announced.
III. Open Budget Preparation, Execution, and Reporting
3.1 Budget documentation should specify fiscal policy objectives, the macroeconomic framework, the policy basis for the budget, and identifiable major fiscal risks.
3.1.1 A statement of fiscal policy objectives and an assessment of sustainable fiscal policy should provide the framework for the annual budget.
3.1.2 Any fiscal rules that have been adopted (e.g., a balanced budget requirement and
borrowing limits for lower levels of governments) should be clearly specified.
3.1.3 The annual budget should be presented within a comprehensive and consistent quantitative macroeconomic framework, and the economic assumptions and key parameters (e.g., effective tax rates) underlying budget estimates should be provided.
3.1.4 Existing commitments should be distinguished from new policies included in the annual budget.
3.1.5 Major risks to the annual budget should be identified and quantified where possible, including variations in economic assumptions and the uncertain costs of specific expenditure commitments (e.g., financial restructuring).
3.2 Budget estimates should be classified and presented in a way that facilitates policy analysis and promotes accountability.
3.2.1 Government transactions should be on a gross basis, distinguishing revenue, expenditure and financing, and classifying expenditures on an economic and functional basis. In addition, expenditure should be classified by administrative category. Data on extrabudgetary operations should be similarly classified. Budget data should be presented in a way that allows international comparisons.
3.2.2 A statement of objectives to be achieved by major budget programs (e.g., improvement in relevant social indicators) should be provided.
3.2.3 The overall balance of the general government should be a standard summary indicator of the government’s financial position. It should be supplemented by other fiscal indicators (e.g., operational balance, structural balance and primary balance) when economic circumstances make it inappropriate to base judgements about fiscal policy stance on the overall deficit alone.
3.2.4 The annual budget and final accounts should include a statement of the accounting basis (i.e., cash or accrual) and standards used in the preparation and presentation of budget data.
3.3 Procedures for the execution and monitoring of approved expenditures should be clearly specified.
3.3.1 A comprehensive, integrated accounting system should be established. It should provide a reliable basis for assessing payments arrears.
3.3.2 Procedures for procurement and employment should be standardized and accessible to all interested parties.
3.3.3 Budget execution should be internally audited, and audit procedures should be open to review.
3.4 Fiscal reporting should be timely, comprehensive, reliable, and identify deviations from the budget.
3.4.1 During the year, there should be regular, timely reporting of budget and extrabudgetary outturns, which should be compared with original estimates. In the absence of detailed information on lower levels of government, available indicators of their financial position (e.g., bank borrowing and bond issues) should be provided.
3.4.2 Timely, comprehensive, audited final accounts of budget operations, together with full information on extrabudgetary accounts, should be presented to the legislature.
3.4.3 Results achieved relative to the objectives of major budget programs should be reported to the legislature.
IV. Independent Assurances of Integrity
4.1 The integrity of fiscal information should be subject to public and independent scrutiny.
4.1.1 A national audit body, or equivalent organization, should be appointed by the legislature, with the responsibility to provide timely reports to the legislature and public on the financial integrity of government accounts.
4.1.2 Macroeconomic forecasts (including underlying assumptions) should be available for scrutiny by independent experts.
4.1.3 The integrity of fiscal statistics should be enhanced by providing the national statistics office with institutional independence.
INTERIM COMMITTEE ATTENDANCE
April 16, 1998
Philippe Maystadt, Deputy Prime Minister, Minister of Finance and Minister of External Trade of Belgium
Members or Alternates
Ibrahim A. Al-Assaf, Minister of Finance and National Economy, Saudi Arabia
Yilmar Akyuz, Chief, Macro-Economics and Development
Policies Branch, UNCTAD
IMF EXTERNAL RELATIONS DEPARTMENT