Good governance is key to economic success

Governance is a broad concept covering all aspects of the way a country is governed, including its economic policies and regulatory framework, as well as adherence to the rule of law. Corruption--the abuse of public authority or trust for private benefit--is closely linked: a poor governance environment offers greater incentives and more opportunities for corruption. Corruption undermines the public’s trust in its government. It also threatens market integrity, distorts competition, and endangers economic development. Since poor governance is clearly detrimental to economic activity and welfare, the IMF adopted in 1997 a policy on how to address economic governance, embodied in the Guidance Note “The Role of the IMF in Governance Issues.”

Promoting good governance

The Fund works with its member countries to promote good governance and combat corruption. In the context of its surveillance, lending, and technical assistance, the IMF covers economic governance issues that fall within its mandate and expertise, concentrating on issues that are likely to have a significant impact on macroeconomic performance and the sustainability of sound economic policies. In doing so, the IMF stresses evenhandedness across its member countries and collaborates closely with other multilateral institutions.

IMF surveillance involves annual reviews of countries’ economic policies, carried out through the so-called “Article IV consultations.” In the process, the IMF may provide policy advice, when relevant, on governance-related issues.

Good governance is also promoted through IMF-supported lending. 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 may be included and thus become part of the program’s conditionality. In practice, roughly half of the structural conditions in IMF-supported programs focus on improving governance, including through better fiscal expenditure control, publication of audited accounts of government agencies and state enterprises, streamlined and less discretionary revenue administration, greater transparency in the management of natural resources, the publication of audited central bank accounts, and better enforcement of banking supervision.

In all of these areas, the IMF also provides technical assistance that benefits good governance. In addition, the IMF assists in strengthening countries’ capacity to combat corruption by advising on appropriate anti-corruption legal frameworks.

IMF programs and initiatives that promote good governance

The IMF promotes good governance through specific initiatives that tie in with its surveillance, lending, and technical assistance. Several involve close collaboration with the World Bank.

• 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. Together with the World Bank, the IMF assesses member countries’ compliance with international standards in 12 policy areas in the context of its Standards and Codes Initiative.
• For fiscal policy and monetary and financial policies, the IMF has developed codes that set out transparency principles. Particularly important is the Code of Good Practices on Fiscal Transparencyand accompanying manual.
• For application in natural-resource-rich countries, the Fund issued its Guide on Resource Revenue Transparency. A multi-donor Topical Trust Fund launched in 2011 has enabled the IMF to considerably increase technical assistance in the management of natural resource wealth.
• To improve the transparency, quality, and timeliness of data, the IMF encourages its members to subscribe to the Special Data Dissemination Standard ((SDDS) or participatein the General Data Dissemination System (GDDS).
• In its work with low-income 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, whichhelps countries measure their performance.
• The IMF contributes to the international efforts to combat money laundering and the financing of terrorism (AML/CFT). It assesses members' legal and regulatory frameworks, provides technical assistance, and conducts policy-oriented research. In 2009, the IMF established a multi-donor Topical Trust Fund for capacity building on AML/CFT.
• Finally, the IMF contributes to various working groups and international initiatives, including the Extractive Industries Transparency Initiative, the G20 Anti-Corruption Working Group, the OECD Working Group on Bribery in International Business Transactions, and the Stolen Assets Recovery (StAR) initiative.

Integrity starts at home

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

To promote good governance within its own organization, the IMF has adopted a number of integrity institutions, including a Code of Conduct for Staff—bolstered by financial certification and disclosure requirements, and sanctions—and a similar Code of Conduct for Members of the Executive Board, an Integrity Hotline offering protection to “whistleblowers,” and an Ethics Office, which advises the IMF and its staff on ethics issues and inquires into alleged violations of rules and regulations.