Good governance key to success of economic policies

Governance generally encompasses all aspects of the way a country is governed, including its economic policies and regulatory framework. Corruption is a narrower concept, which is often defined as the abuse of public authority or trust for private benefit. The two concepts are closely linked: an environment characterized by poor governance offers greater incentives and more scope for corruption. Many of the causes of corruption are economic in nature, and so are its consequences—poor governance clearly is detrimental to economic activity and welfare. To strengthen its focus on governance and anti-corruption, the IMF adopted a Guidance Note in 1997 entitled The Role of the IMF in Governance Issues.

Promoting good governance

The Fund works with its members to promote good governance and to prevent and address corruption in several important areas where it has a mandate and expertise. These include public resource management, tax administration, financial sector soundness, central bank safeguards, as well as anti-money laundering and combating the financing of terrorism, with an emphasis on establishing strong and transparent procedures and institutions in order to ensure accountability. The Fund also provides technical assistance to help strengthen countries’ capacity to combat corruption by advising on appropriate anti-corruption legal frameworks, such as anti-corruption commissions, and asset declaration.

Through a regular review process of a country’s economy , known as “Article IV consultations,” the IMF provides policy advice, when relevant, on governance-related issues. Attention to these issues increased steadily since the launch of the Guidance Note on Governance in 1997.

Good governance is also promoted through IMF-supported programs. When seeking financial support from the IMF, country authorities describe their economic policies in a letter of intent. When warranted, specific measures to strengthen governance, such as steps to improve expenditure control or transparency of central bank operations, may be part of the conditionality of IMF-supported programs.

IMF programs, and initiatives that promote good governance

The IMF promotes good governance through specific initiatives which tie in with its surveillance, lending, and technical assistance.

• The IMF encourages member countries to improve accountability by enhancing transparency in policies, in line with internationally recognized standards and codes that cover government, the financial sector, and the corporate sector.

• For fiscal policy and monetary and financial policies, the IMF has developed codes that set out transparency principles. They are accompanied by manuals that describe good and best practices. The Code of Good Practices on Fiscal Transparency aims to encourage a better-informed public debate about the design and results of fiscal policy, and greater government accountability. Its Code of Good Practice on Transparency in Monetary and Financial Policies serves a similar purpose in the area of monetary and financial policies.

• In resource-rich countries, Fund staff promote transparency in the management of resource revenues—including the publication of fiscal regimes and contract terms—using the Fund’s Guide on Resource Revenue Transparency. The Fund supports the Extractive Industries Transparency Initiative (EITI).

• To improve the transparency, quality and timeliness of data, the IMF encourages its members to subscribe to the Special Data Dissemination Standard (SDDS) or participate in the General Data Dissemination System (GDDS).

• In its work with low-income countries—especially those that receive debt relief under the Initiative for Heavily Indebted Poor Countries—the IMF emphasizes adequate systems for tracking public expenditure related to poverty reduction. It partners with other international financial institutions and donors in the Public Expenditure and Financial Accountability (PEFA) program, which helps member countries develop essential public financial management systems including by measuring their performance.

• Finally, the IMF contributes to the international efforts to combat money laundering and the financing of terrorism by assessing its members' legal and regulatory frameworks, providing technical assistance to address shortcomings, and conducting policy-oriented research.

Integrity starts at home

As a means to safeguard its resources, the IMF assesses the governance and transparency frameworks within central banks of countries to which it lends money, to promote sound oversight and operation of the internal control, auditing, and public financial reporting mechanisms of these critical financial institutions.

To promote and ensure the integrity of its own organization, the IMF has adopted a number of rules and regulations to ensure ethical conduct and prevent corruption among its staff, reflected in the Code of Conduct for Staff. These rules are bolstered by extensive financial certification and disclosure requirements, all subject to disciplinary sanctions in case of their violation. There is a separate, but similar, Code of Conduct for Members of the Executive Board who, unlike the staff, are not subject to the authority of the Managing Director, as they are appointed or elected by the IMF’s member states. An Integrity Hotline offers protection to “whistleblowers.”

The IMF has also established an ethics office, which is responsible for advising the IMF and its staff on ethics issues and for inquiring into alleged violations of the IMF’s internal rules and regulations.