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Reforming the International Financial Architecture—
Progress Through 2000

By IMF Staff

March 9, 2001

Also available:

I   Introduction The financial crises of the past few years exposed weaknesses in the international financial system. In response, the international community is strengthening the "architecture of the international financial system" to reduce the risk of crises.
II   Detecting and Monitoring External Vulnerability Detecting and Monitoring External Vulnerability. While good macroeconomic policies and adequate foreign reserves remain the key to reducing vulnerability, work has concentrated on improving IMF surveillance of policies, and on tools to help countries better assess the risks they face.
III   Strengthening Financial Systems Financial regulators need to upgrade supervision of banks and other financial institutions to keep up with the modern global economy and ensure that risk management and other practices keep institutions from getting into difficulties.
IV   International Standards and Codes Adherence to international standards and codes of good practices helps ensure that economies function well at the national level, which is a key prerequisite for a well-functioning international system.
V   Capital Account Issues Architecture reform aims to help countries benefit from international capital flows, an important element of which is helping them open to such flows in ways that avoid risks and emphasize careful preparation.
VI   Sustainable Exchange Rate Regimes Financial crises have often been marked by inconsistencies between the exchange rate regime and other economic policies. The IMF is advising countries to choose a regime that fits its needs, especially in light of the risks of pegged exchange rates for countries open to international capital flows.
VII   Involving the Private Sector in Forestalling and Resolving Crises Better involvement of the private sector in crisis prevention and management can limit moral hazard, strengthen market discipline by fostering better risk assessment, and improve the prospects for both debtors and creditors.
VIII   Reform of IMF Financial Facilities and Related Issues The IMF is implementing important changes to help focus its lending on crisis prevention and to ensure more effective use of IMF funds.
IX   Measures to Increase Transparency Measures are being taken to make available timely, reliable data, plus information about economic policies and practices, to inform both policymakers and market participants, and to reduce the risk of crisis.
X   Conclusion Although more remains to be done, the international financial system has undoubtedly benefited from the reforms over the past three years. Details of what has been done, as well as some of what remains, are set out in the attached matrix.
XI   International Financial Architecture A Matrix of Goals, Progress and Future Steps

I. Introduction

After the financial crises of the 1990s, the international community has been putting in place a policy framework to make crises less frequent and less painful in the future. Much remains to be done, but the "international financial architecture" is already in much better shape.

Improving the prevention and management of crises means tackling sources of vulnerability, increasing transparency, and promoting adherence to international standards of good economic citizenship. This requires action by governments, new approaches by the private sector, and reform of the way the International Monetary Fund does business.

Governments and international financial institutions are now turning the conclusions reached over the past three years into concrete policies and practices. Important challenges remain for both the Fund and its members, as IMF Managing Director Horst Köhler has emphasized:

"The IMF must gain a better understanding of the dynamics of international capital markets and the operations of private financial institutions, to fulfill more effectively its mandate to oversee the functioning of the international monetary system and promote international financial stability. Equally important, our member countries have a responsibility to do their part, by participating in these architecture initiatives and implementing structural reforms to increase the flexibility of their economies and eliminate sources of vulnerability."1

Many of the reforms so far have been implemented without great fanfare, and they have already materially strengthened the IMF's capacity to prevent and manage crises more effectively.

II. Detecting and Monitoring External Vulnerability

In IMF surveillance of economic policies and developments around the world, the Fund is devoting more attention to factors that leave countries vulnerable to crises. To that end, surveillance has become more candid, more continuous, and more focused on the health of financial sectors. The IMF is also developing an analytical framework to assess external vulnerability and working on early warning systems to monitor risks that arise from problems in member countries and conditions in international markets. A lack of reliable data (particularly on foreign exchange reserves) was critical to the crises in Mexico in 1995 and Thailand in 1997, so the IMF has been emphasizing the importance of accurate, timely, and comprehensive statistics.

Work with individual countries on their data systems and institutional arrangements will in many cases take years to complete. This is an area where technical assistance is particularly important. Of course, good data and constant monitoring will never be enough. As always, proper macroeconomic policies and adequate foreign exchange reserves remain essential.

III. Strengthening Financial Systems

In May 1999, the IMF and World Bank launched a joint Financial Sector Assessment Program (FSAP) to identify strengths, risks, and vulnerabilities in national financial systems and to ascertain their development and technical assistance needs. Conducted in more than two dozen countries so far, the FSAP program aims to cover another two dozen countries each year, with a bias towards those that are important to the health of the global financial system.

The IMF is also becoming involved in assessments of offshore financial centers, and together with the World Bank is exploring how they might contribute to the fight against financial abuse, particularly money laundering.

IV. International Standards and Codes

Adherence to international standards and codes of good practices helps ensure that economies and financial systems function properly at the national level. This is a key prerequisite for a well-functioning international system. Adoption of such standards is voluntary, but they can play an invaluable role in helping to prevent crises and boost economic performance.

The IMF has developed a Special Data Dissemination Standard that covers key economic data, and codes for transparency in monetary and fiscal policy. These are already in widespread use in member countries. The Fund has also prepared and published three rounds of Reports on the Observance of Standards and Codes, with the aim of building up over time a comprehensive analysis of individual country progress. Under the FSAP, assessments are also being carried out of observance and implementation of financial sector standards and codes. These include Core Principles in banking, insurance, and payments systems. Guidelines have also been initiated to help countries manage their foreign exchange reserves and public debt effectively.

V. Capital Account Issues

A key objective in reforming the international financial system is to help countries benefit from international capital flows while minimizing the risks they create. This requires careful management and sequencing of financial sector development and capital account liberalization.

It is important to meet certain preconditions before the capital account is fully opened if instability is to be avoided. The IMF is strengthening its capacity to provide practical advice and technical assistance as countries build the necessary institutions. It is paying more attention to capital account developments in its surveillance, and also undertaking additional research and analysis based on individual country experiences to help improve the quality of Fund advice.

VI. Sustainable Exchange Rate Regimes

Financial crises have often been associated with inconsistencies between the exchange rate regime and other economic policies. In the architecture discussions, attention has focused on the tendency of countries to adopt "corner solutions": either a more cleanly floating exchange rate or a very firmly fixed peg. Experience has shown that solutions lying between these two extremes--adjustable pegs or heavily managed floats--require very strong supporting policies if they are to be sustainable. Even then, exchange rate pegs can be tested severely by capital movements where they have been liberalized without adequate or properly sequenced preparation. As recent experience has shown, it can be very costly either to defend exchange rate pegs or to be forced to abandon them in disorderly circumstances.

Within this context, the IMF is advising each member to choose the exchange rate regime that best suits its needs, given the characteristics and circumstances of its economy, and its stage of institutional development. But no matter what regime a country chooses, ultimately it is the strength of its underlying policies and institutions that is decisive for sustained growth and financial stability.

VII. Involving the Private Sector in Forestalling and Resolving Crises

The rapid return of private capital to a number of countries following financial crises highlights the importance of engaging constructively with private sector creditors. There has been considerable progress in developing a framework for the involvement of the private sector in the resolution of crises. An important guiding principle is that IMF lending is inevitably limited, and that private investors must therefore assume responsibility for the risks they take.

While there is broad agreement that private sector involvement should as far as possible be market-oriented and voluntary, the precise mechanisms are only evolving gradually. The aim is to create a framework as predictable as possible, without sacrificing the flexibility needed to deal with individual cases. As well as dealing with the involvement of bank creditors and bond-holders, the IMF is also seeking new ways to work out solutions to financial distress in the corporate sector.

Borrowing countries increasingly recognize that good investor relations can improve understanding and reduce market volatility in periods of tranquility and financial stress alike. Further research is needed on a number of issues, including spillover effects and the factors that determine how fast a country regains access to private finance. The IMF's capacity to pursue these issues is being enhanced by the creation of an International Capital Markets Department.

VIII. Reform of IMF Financial Facilities and Related Issues

The IMF has rationalized and reformed its lending to focus on crisis prevention and ensure more effective use of its funds. The terms of the Contingent Credit Lines (CCL) facility--introduced in 1998 to help countries with demonstrably sound policies avoid the backwash of crises elsewhere--have been made more attractive to potential borrowers.

The Executive Board has also approved measures to encourage early repayment of IMF loans and to discourage excessive borrowing by charging higher interest rates on big loans. These measures will reduce reliance on the Fund as a source of longer-term financing and help it maintain a strong liquidity position in the event of widespread crises. The Fund has also strengthened its oversight of countries following the end of an IMF-supported program, to help them avoid new problems and to provide early warning of financial or economic stress.

In a related step, the policy conditions the IMF attaches to its loans are being reviewed. The aim is to streamline and focus conditionality to improve the quality of IMF programs and enhance the ownership member countries feel for the reform strategies the Fund supports.

IX. Measures to Increase Transparency

Much of the effort to strengthen the international financial architecture involves heightening transparency by individual countries. The key to an efficient and stable international financial system is to ensure that all parties have access to the best available information and to make sure that decision making is transparent. The IMF also needs to explain itself better, and to be more attentive to outside experience and advice. But at the same time, it has to be recognized that the IMF is accountable directly to governments in member countries.

Since 1997, the IMF and its member countries have been making public a vast and still-growing array of Fund and country documents. All documents are posted on the IMF's external website ( Some 80 percent of member countries now issue Public Information Notices, which share with the public the Executive Board's assessment of the annual "economic health check" carried out under Fund surveillance. In addition, 75 countries released the staff reports prepared for these health checks under a pilot project begun in 1999. The Executive Board recently decided to make this a permanent policy, together with the publication of a broad range of other country documents, including staff reports on Fund lending.

X. Conclusion

The international financial system has undoubtedly benefited from the reforms of the past three years. The IMF has done much to reorient its surveillance, lending, and technical assistance activities to be more effective in preventing crises and promoting financial stability.

Much unfinished business remains, but the focus has shifted to implementation and assessment. The process of building a stronger and more resilient international financial system is gathering momentum, country by country and sector by sector. But the painstaking work being undertaken by member countries may take years to bring to fruition, underling the need for well-coordinated technical assistance, focused on the particular requirements of each country.

Despite the progress made, the international economic and financial system continues to face many risks. Countries still confront the threat of sudden crises, and avoiding them will require prudent policies as well as measures to implement the architecture initiatives. To support their efforts and to promote a stronger and better-integrated international financial system, the IMF must remain actively engaged with each of its member countries.

Reform of the international financial architecture is in the interest of all Fund members. Clearly, it will benefit those that already have access to international capital markets. But, just as important, it will also help those that do not to tap this crucial source of investment and growth.

XI. International Financial Architecture A Matrix of Goals,
Progress and Future Steps

    A. Crisis Prevention and IMF Surveillance

1. Managing Countries' External Vulnerability

  • Basic Objective: To better achieve early detection and enhanced management of countries' vulnerability to external shocks to help prevent crises, especially against a background of potentially large and rapid movements of international private capital.

  • The IMF's role: To help members to establish (a) the data, frameworks, and strategies that they need to assess and manage their external vulnerability, in particular with regard to economic and financial data collection and dissemination, and (b) strategies to manage foreign exchange reserves and external debt. To assess members' external vulnerability through bilateral and multilateral surveillance.

  • Related components: Strengthening Financial Systems; International Standards, Principles, and Guidelines; Capital Account Issues; Involving the Private Sector.

Goal: Improve countries' management of foreign exchange reserves
and external debt.

Progress to Date

The IMF is giving more attention to assessing external vulnerability in its bilateral and multilateral surveillance. In February 2000, the IMF convened a conference on capital flow and debt statistics, and in May 2000, the Executive Board had a seminar on debt- and reserve-related indicators of external vulnerability. The IMF has developed provisional guidelines for national statistics on international reserves and the official sector's foreign currency liquidity. As part of an IMF and World Bank joint program to develop guidelines for public debt management, guidelines were formulated, discussed by the IMF Executive Board, posted on the IMF external website, and finalized in March 2001. A survey of reserve management practices among members was completed in mid-2000, and the Executive Board has discussed sound reserves management practices and directed the staff to continue work. Following the introduction of the reserve template for countries subscribing to the Fund's Special Data Dissemination Standard, bilateral surveillance has used the information provided as a benchmark in assessing country reserves.

Next Steps

IMF: Conduct an outreach program and finalize the reserve management guidelines in  2001, and establish a common database for country data on reserves and foreign currency liquidity.

IMF and Other International Bodies: Continue to develop the analytical basis for assessing vulnerability.

Goal: Increase the analysis of capital account issues, including through mechanisms for better assessing capital flows such as systems to monitor short-term
private debt on a high-frequency basis.

Progress to Date

The IMF has expanded internal reporting and technical assistance on capital account data compilation and monitoring, and strengthened contacts with the private sector. The IMF's first Coordinated Portfolio Investment Survey (CPIS) was published in December 1999, and work on the 2001 CPIS is underway. Creditor-side data of the Inter-Agency Task Force on Finance Statistics (the IATF is a collaboration of various agencies, including the IMF, BIS, OECD, and World Bank) have been available on the internet since March 1999. The working group on capital flows of the Financial Stability Forum (The FSF was convened in 1999) to strengthen international cooperation of groups involved in financial regulation and oversight) published its report in April 2000. Systems to monitor interbank lines have been established in a number of systemically important emerging markets. In March 2001, the IMF established the International Capital Markets Department, to enable the IMF to improve its research and analysis of capital account issues.

Next Steps

IMF: Continue technical assistance to improve data and monitoring systems. Carry out the 2001 CPIS. Encourage other borrowing countries to implement systems to monitor debt on a high frequency basis.

Other International Bodies: The Bank for International Settlements (BIS) to continue to improve coverage of international banking statistics. The IATF to widen coverage of creditor data systems; shorten publication lags; and finalize guidelines for the compilation of national external debt data in 2001.

National Authorities: Continue efforts to strengthen data systems on external debt and capital flows, and to improve dissemination of data.

Goal: Increase the provision of data that relates to countries' external
vulnerability to the IMF.

Progress to Date

IMF staff reports for surveillance and use of Fund resources (UFR) have paid increasing attention to countries' data provision practices. The Executive Board agreed on benchmarks for the reporting to the Fund of reserves and external debt data. A reserves template has been put in place and countries subscribing to the Special Data Dissemination Standard (SDDS) now provide the Fund (and, with a short lag, the public) with monthly data on reserves and key components.

Next Steps

IMF: The Executive Board to consider broadening the data that members are obligated to report under the IMF's Articles of Agreement. The staff to help members strengthen their data systems and to provide the Fund with data in line with the established benchmarks. The staff to develop a benchmark for fiscal data.

2. Strengthening Financial Systems

  • Basic Objective: To strengthen financial systems, in light of the rapid globalization of financial markets, the emergence of financial sector problems as the root cause of crises over the last decade in a range of countries, and the important links between the financial sector and a country's overall economic health.

  • The IMF's role: To contribute to the development, dissemination, and assessment of international principles and good practices of sound financial systems; to strengthen its surveillance of vulnerabilities in countries' financial systems; and to provide technical assistance to strengthen financial systems, in coordination with the World Bank.

  • Related components: External Vulnerability; International Standards, Principles, and Guidelines; Capital Account Issues.

Goal: Enhance the analysis of and attention to financial sector vulnerabilities in
IMF surveillance, the preparation of economic adjustment programs,
and technical assistance.

Progress to Date

In May 1999, the IMF and the World Bank launched the Financial Sector Assessment Program (FSAP), a joint monitoring and assessment program aimed at improving evaluations of the health and vulnerabilities of members' financial systems and prioritizing reform and technical assistance needs. Based upon the FSAP, the IMF produces Financial Sector Stability Assessments (FSSAs) that are discussed by the IMF Executive Board in the context of Article IV consultations. Assessments are being undertaken at a rate of about 24 each year. The IMF and World Bank Executive Boards reviewed experience with the FSAP pilot in December 2000 (IMF) and January 2001 (Bank), and agreed that it made a significant contribution to the IMF's work and that it should continue.

Next Steps

IMF and World Bank: December 2000 review paper to be publicly released, with the IMF and World Bank Executive Boards to further review experience with the FSAP by June 2002. The staffs to compile a priority list of countries that would benefit from an FSAP, emphasizing countries of systemic importance; to increase the coverage to 24-30 country assessments each year; and to continue providing technical assistance to countries to strengthen their financial systems. The scope of FSSAs to be extended, especially for countries with offshore financial centers.

National Authorities: Strengthen their financial systems, giving consideration to participating in the FSAP.

Goal: Assess the usefulness of macroprudential indicators in monitoring
financial sector vulnerabilities.

Progress to Date

In collaboration with other international organizations, the IMF has initiated a research program on macroprudential indicators (MPIs), variables that can indicate financial sector health. The Executive Board reviewed progress in September 2000. The results of a survey of the IMF membership on their use of the indicators are being processed.

Next Steps

IMF: The staff to prepare a report based on MPI research and the survey results for the Executive Board's information by April 2001.

Goal: Help offshore financial centers raise standards of financial supervision.

Progress to Date

The Financial Stability Forum (FSF) report on offshore financial centers (OFCs) recommended a process for assessing OFCs' adherence to standards. The IMF Executive Board considered the role of the IMF with regard to OFCs in July 2000. Executive Directors agreed on the need to put in place a voluntary and flexible assessment process to help countries strengthen their prudential and supervisory framework. The IMF has worked closely and consulted fully with OFCs, in cooperation with the other relevant bodies. It has sent missions to 14 OFCs and has held three regional outreach meetings. The IMF is encouraging OFCs to participate in its 2001 Coordinated Portfolio Investment Survey. In September 2000, the FSF welcomed the IMF's work on OFCs.

Next Steps

IMF: Implement the plan of action for the assessment of OFC. Continue the assessment process for 12 OFC jurisdictions and continue to provide technical assistance to strengthen OFC financial systems. Twenty-six missions to OFCs are planned for 2001.

Other International Bodies: The FSF to continue to monitor the implementation of recommendations from the reports of its working group on OFCs.

3. International Standards and Codes

  • Basic Objective: Foster the development, dissemination, implementation, and assessment of internationally accepted standards, principles, and guidelines of good practice for economic, financial, and business activities.

  • The IMF's role: Help develop or refine standards in its areas of direct operational concern: data dissemination; transparency of fiscal, monetary, and financial policies; and, in conjunction with others, implementation of banking supervision principles. Assist in the dissemination of these standards, their adoption by members, and the assessment of their implementation.

  • Related components: Strengthening Financial Systems; Transparency and Accountability; Involving the Private Sector.

Goal: Strengthen the IMF's Data Standards.
Specific proposals: Strengthen the Special Data Dissemination Standard, the IMF standard to guide countries seeking access to international capital markets in the dissemination of economic and financial data to the public, particularly in the areas of international reserves and external debt. Make operational the General Data Dissemination Standard, the IMF standard that guides countries not yet at the stage where they might seek access to international capital markets in their data provision.

Progress to Date

As a result of the Third Review of the Fund's Data Standards Initiatives, under the Special Data Dissemination Standard (SDDS), a new external debt data category has been agreed; the IMF is publishing a quarterly report on progress; and new procedures for data monitoring began in June 2000. Almost all of the 47 countries subscribing to the SDDS are disseminating reserves and foreign currency liquidity data according to an internationally agreed template on their national websites. Under the General Data Dissemination Standard (GDDS), which moved into its operational phase in 2000, data has been prepared for about 15 countries, and posted for 12 countries on the new GDDS website established in May 2000. Also in 2000, the IMF created a framework to help members improve data quality, and information is available through the data quality reference site.

Next Steps

IMF/Other International Bodies/

National Authorities: For the SDDS, finalize the operational guidelines for the data template on international reserves and foreign currency liquidity in 2001 and conclude work on establishing a common database for the template. With national authorities, expand country participation in the GDDS. Prepare a revised GDDS guide. Collaborate with other members of the IATF to finalize the public debt management guidelines in 2001. Continue work on improving data quality. National authorities to subscribe and adhere to the appropriate standard.

Goal: Implement the "Code of Good Practices on Fiscal Transparency
Declaration on Principles" that was adopted by the IMF in April 1998.

Progress to Date

Assessments using this Code are being undertaken, producing fiscal Reports on Observance of Standards and Codes (ROSC) modules are being produced, and further work on the Manual of Fiscal Transparency is under way.

Next Steps

IMF: Continue to provide technical assistance to help members meet the Code. Continue work on ROSC modules.

National Authorities: Aim to adhere to the Code.

Goal: Implement the Code of Good Practices on Transparency in Monetary and Financial Policies that was adopted by the IMF in September 1999.

Progress to Date

Assessments using the Code are being undertaken, including through the FSAP. The Executive Board approved the Supporting Document to the Code of Good Practices on Transparency in Monetary and Financial Policies in July 2000.

Next Steps

IMF: Continue to provide technical assistance to help members meet the Code. Continue work on ROSC modules.

National Authorities: Aim to adhere to the Code.

Goal: Improve the quality of banking supervision internationally.
Specific proposals: Address the gaps in existing standards on banking supervision. Review the 1988 Basel Capital Accord. Help countries achieve compliance
with the Core Principles for Effective Banking Supervision of the
Basel Committee on Banking Supervision.

Progress to Date

A BCBS Task Force proposed a new framework on capital adequacy in June 1999 (, and the IMF published its comments on the new proposed framework in February 2000. A Basel Core Principles (BCP) assessment methodology prepared with IMF and World Bank participation has been published by the BIS, and the IMF and the World Bank are using it to undertake BCP assessments. BCP assessments for over 30 countries have been completed, increasingly as part of Financial Sector Assessment Programs (FSAP). In April 2000, the IMF published a report on its experience with BCP assessments, and the Executive Board reviewed this report and published the highlights of its discussion in May 2000. In January 2001, the Basel Committee on Banking Supervision (BCBS) issued revised proposals for a new capital adequacy framework for banks.

Next Steps

IMF: To prepare comments on the BCBS proposal for a new capital adequacy framework; and to continue, in conjunction with the World Bank, to assess countries' compliance with the Basel Core Principles.

Other International Bodies: The BCBS to incorporate comments on the new capital adequacy framework by end-2001, and to continue addressing BCP implementation issues.

Goal: Complete work in other standard-setting bodies on developing standards relevant for the functioning of economic and financial systems, including on accounting and auditing, bankruptcy, corporate governance, insurance regulations, payment and settlement systems, and securities market regulation.

Progress to Date

Work is under way by various bodies. The Financial Stability Forum has drawn together a prototype compendium of standards and best practices (

Next Steps

Other International Bodies/National Authorities/Private Sector: Continue work. See Appendix II of the Managing Director's Report for a summary of the work in progress.

Goal: Help ensure that standards are adhered to by encouraging the assessment of their observance. Better integrate the use of standards in Fund work.

Progress to Date

The IMF has prepared and published three rounds of experimental country Reports on Observance of Standards and Codes (ROSCs). ROSCs are prepared on a modular, standard-by-standard basis, with the observance of financial sector standards primarily being assessed as part of the Financial Sector Assessment Program. As of end-February 2001, about 90 modules for a mix of 35 industrial, emerging market, and developing countries had been completed. The Executive Boards of the IMF and World Bank reviewed the experience with standards assessments in early 2001 and identified 11 areas of standards that are important for the operational work of the Bank and the Fund. Fund Executive Directors found that the provision of information by members on the observance of standards in the 11 areas is important to Fund surveillance, and that ROSCs provide a structured way of presenting information on standards assessment. The FSF set up a Follow-up Group on Incentives to Foster Implementation of Standards, whose recommendations were endorsed by the FSF in September 2000.

Next Steps

IMF/ World Bank: Carry out with the World Bank around 100 ROSC modules per year. Continue outreach.

Other International Bodies: Other relevant standard-setting bodies to promote (and possibly assess) countries' observance of international standards in areas of their mandates and expertise.

National Authorities: Consider participating in ROSCs.

4. Capital Account Issues

  • Basic Objective: For countries to be able to participate in the substantial benefits of capital account liberalization through careful management and sequencing that minimizes the risks.

  • The IMF's role: To identify approaches to achieving orderly capital account liberalization.

  • Related components: External Vulnerability; Strengthening Financial Systems.

Goal: Consider approaches to achieving orderly capital account liberalization
and the role of capital controls.

Progress to Date

The Executive Board has agreed on certain broad principles, including a stronger emphasis on a case-by-case approach to capital account liberalization and the adoption of improved prudential policies to manage the risks from international capital flows. It has also agreed that liberalization needs to be supported by a consistent macroeconomic framework and institutional arrangements that allow market participants to assess risk. While capital controls cannot substitute for sound macroeconomic and structural policies (and timely adjustment of policies), they may provide a breathing space for corrective action in certain circumstances. The IMF is paying more attention to capital account developments in its surveillance, and publishing quarterly reports on emerging market finance on its website. The Financial Stability Forum's Working Group on Capital Flows published its report in April 2000.

Next Steps

IMF: Continue improving the understanding of the dynamics of capital flows while assisting members to properly manage their capital accounts. The Executive Board to examine the linkage between capital account liberalization and financial stability, and how stability can be safeguarded in the process of liberalization.

5. Sustainable Exchange Rate Regimes

  • Basic Objective: To improve national economic outcomes as well as the stability of the international monetary system through members' adoption of sound exchange-rate regime policies.

  • The IMF's role: To continue to focus on the appropriateness of the exchange rate regime as a core area in its surveillance of members' policies.

  • Related components: External Vulnerability.

Goal: Advance understanding of the appropriateness of exchange rate regimes and the dependence of a sound exchange rate policy on consistent macroeconomic policies and a suitable institutional framework.

Progress to Date

Based on an IMF staff study of exchange rate regimes, asset markets, and international capital flows, the Executive Board concluded that no single regime is appropriate for all members or in all circumstances; that a substantial degree of exchange rate flexibility is desirable for many emerging market economies; that the IMF will continue to respect the regime choices of members but also to focus its surveillance and programs of economic reform on the consistency of regime choices with countries' policies and circumstances.

Next Steps

IMF: Continue to focus its surveillance of member countries, regions, and the international economy on the appropriateness of exchange rate regimes.

6. Measures to Increase Transparency and Accountability

  • Basic Objective: Help foster improved decision-making, financial system stability, and economic performance through enhanced transparency and accountability.

  • The IMF's role: Encourage member countries to be more transparent. Become more open about IMF policies and advice to members, while respecting legitimate needs for confidentiality and preserving candor in the dialogue between the Fund and its members.

  • Related components: International Standards, Principles, and Guidelines; IMF Reform.

Goal: Make available more information on IMF Surveillance of member countries.
Specific proposals: Actively encourage members to release Public
Information Notices following Article IV consultations.
Encourage the publication of Article IV staff reports.
Liberalize access to the Fund's archives.

Progress to Date

Public Information Notices (PINs) are being released for over 80 percent of Article IV consultations at present. Under the pilot project completed in January 2001, 75 Article IV staff reports were published. In August 2000, the Executive Board reviewed the pilot project and other transparency initiatives and adopted new publication policies that allow, among other things, for the voluntary publication of Country Documents, including both Article IV staff reports and use of Fund resources (UFR) staff reports (see below). The Board also adopted a set of principles for the publication of country papers that would mitigate the trade-off between frankness in policy discussions and reporting, and greater transparency. In August 2000 the IMF began to publish its quarterly Emerging Markets Financing report, an integral part of the IMF's surveillance over developments in international capital markets. The time limits for access to the IMF archives have been shortened.

Next Steps

IMF: Continue to ensure greater clarity in the language of IMF documents. The Executive Board to consider further issues associated with the release of IMF documents in 2001 and to review its transparency and publication policy in 2002.

National Authorities: Consider releasing PINs and Article IV staff reports on a voluntary basis.

Goal: Make available more information on countries' IMF-supported programs of economic reform and adjustment.

Progress to Date

Letters of Intent, Memoranda of Economic and Financial Policies, Poverty Reduction Strategy Papers, and other Country Policy Documents that underpin Fund-supported programs are being released for about 90 percent of requests for/reviews of the use of Fund resources (UFR) at present. Statements by the Chairman have been issued in News Briefs and Press Releases for almost all requests for/reviews of members' UFR. In August 2000, the Executive Board adopted new publication policies that allow for the voluntary publication of UFR staff reports, which had previously not been released by members.

Next Steps

IMF: The Executive Board to consider further issues associated with the release of IMF documents in 2001 and to review its transparency and publication policy in 2002.

National Authorities: Consider release of UFR staff reports on a voluntary basis.

Goal: Strengthen the transparency and accountability associated with Poverty Reduction Strategy Papers and the Initiative for the Heavily Indebted Poor Countries.
Specific proposals: Given the open and participatory nature of the joint IMF-World Bank frameworks to support poverty reduction and provide debt relief, enhance the transparency of the documents and discussions under these two efforts.

Progress to Date

Members have been voluntarily releasing Poverty Reduction Strategy Papers (PRSPs) since the poverty reduction strategy was launched in September 1999. In August 2000, the Executive Board agreed that the staff would not recommend Board endorsement of countries' PRSPs unless they were published. At the same time, the Board reaffirmed its presumption that country documents relating to the assessment by the IMF and World Bank staffs of countries' PRSPs and to the Heavily Indebted Poor Countries (HIPC) Initiative would also be published.

Next Steps

IMF: The Executive Board to consider further issues associated with the release of IMF documents in 2001 and to review its transparency and publication policy in 2002.

National Authorities: Release PRSPs and agree to the release of Joint Staff Assessments of PRSPs and of HIPC documents.


Goal: Continue outreach and dialogue with the public on IMF activities.
Specific proposals: Widen the dissemination of IMF information and solicit public feedback on IMF activities, including by making drafts and final documents available on the IMF website and for comment.

Progress to Date

The IMF has consulted with the public and reflected these comments in major initiatives such as proposals for enhancing the HIPC Initiative and the new Poverty Reduction and Growth Facility (PRGF). Feedback from the public is also being sought on many other IMF projects, including through the publication of policy documents in a wide range of areas to encourage public comment and discussion. The IMF staff is intensifying outreach on new IMF policies and operations, such as on the IMF-promulgated standards and codes. Summaries of the IMF's work program have been released since July 1999. Since Fall 1999, the IMF has held regular press briefings and has released the schedules of public engagements of IMF management since May 2000, to help increase public awareness of IMF activities. Beginning in spring 2000, the IMF has held seminars for civil society on how it formulates economic programs with member countries. In June 2000, the IMF began to publish a new research bulletin that provides information on the background research and analysis that feeds into IMF policy formulation. In July 2000, the IMF established the Capital Markets Consultative Group (CMCG), an enhanced channel for communication between the IMF and the capital markets. The CMCG met in September 2000 and March 2001.

Next Steps

IMF: Continue its consultations with and outreach to the public, including the 2001 Review of Conditionality.

National Authorities/Civil Society: Contribute feedback to the IMF.

Goal: Make available more financial information about the IMF.

Progress to Date

A comprehensive site on the IMF external website provides information about members' financial accounts with the IMF and the Fund's liquidity position. In February 2000, the IMF decided to begin publishing information on the sources of its financing, and the first set of quarterly data was issued in May  2000. In August 2000, the IMF Finance page on the website was further upgraded, and now provides extensive and easily accessible information, updated daily.

Next Steps

IMF: Continue the release of financial data.

Goal: Carry out enhanced evaluation of IMF policies and practices.

Progress to Date

External evaluations of IMF surveillance and IMF economic research activities were released to the public in September 1999. In March 2000, Executive Directors released a review of external evaluations. In April 2000, the IMF announced an Independent Evaluation Office (EVO), to complement the IMF's existing review and evaluation mechanisms, for which terms of reference were approved in September 2000.

Next Steps

IMF: A final decision on the position of Director of EVO is expected around April 2001, and EVO will become operational by Spring 2001.

Goal: Make available more information about the private sector.
Specific proposals: Assess how operations of key financial market participants, including offshore financial centers, non-bank financial institutions, and highly leveraged institutions, could be improved through greater disclosure.

Progress to Date

Recommendations of the Financial Stability Forum (FSF) Working Groups on Offshore Financial Centers (OFCs), Highly Leveraged Institutions (HLIs), and its task force on the implementation of standards presented reports to the FSF in Spring 2000 that included calls for a set of good practices for the provision and sharing of timely information (OFCs), enhanced public disclosure (HLIs), and improved data (capital flows). The FSF discussed progress in implementing the recommendations in these reports at its fourth meeting in September 2000.

Next Steps

IMF: The IMF is continuing assessments of OFCs. Among the objectives of this program will be greater transparency and better provision of statistical information by OFCs.

International Bodies/National Authorities: Pursue ongoing work.

    B. Crisis Resolution and Management

7. Involving the Private Sector in Forestalling and Resolving Crises

  • Basic Objective: Better involve the private sector in crisis prevention and crisis resolution to limit moral hazard; strengthen market discipline; and help bring about an orderly adjustment process that achieves the best outcome for both the debtor countries and creditors when crises inevitably occur.

  • The IMF's Role: Join with the international community to assess and, where appropriate, advance specific proposals to achieve the objective of involving the private sector in the prevention and resolution of financial crises, in line with the guidelines set out in the April 2000 communiqué of the IMF's International Monetary and Financial Committee.

  • Related Components: External vulnerability; IMF Reform.

Goal: Eliminate the regulatory bias toward short-term interbank
cross-border credit lines.

Progress to Date

There is broad international support for various proposals such as having monetary authorities charge banks directly for sovereign guarantees and assigning a higher risk weighting to short-term interbank credit lines. The Basel Committee on Banking Supervision (BCBS) has proposed a new capital adequacy framework.

Next Steps

BCBS: Issue revised proposals for further consultation in 2001.

Goal: Encourage countries to take ex ante measures such as arranging commercial contingent credit lines and steps to extend maturities in a crisis.

Progress to Date

Argentina, Indonesia, and Mexico have such lines, and Indonesia and Mexico drew down their lines in 1998.

Next Steps

Private Sector: Debtor countries should discuss various ex ante measures with creditors.

Goal: Improve the dialogue between creditors and debtors and foster the establishment of investor relations programs.

Progress to Date

Mexico, Argentina, and South Africa are among those countries that have established closer contacts with creditors.

Next Steps

IMF: Encourage an active and regular dialogue between country authorities and market participants in normal periods as well as times of stress.

Goal: Encourage countries to consider changes in the terms of international sovereign bond contracts to facilitate orderly resolution of possible future crises.

Progress to Date

Broad support for such clauses has emerged, but emerging market borrowers hesitate to take the lead. Since January 2000, the U.K. Treasury has included collective actions clauses in its foreign currency debt; in February 2000, Germany issued a positive statement on the validity of these clauses under German law; and in April 2000, Canada agreed to include collective action clauses in its international bond issues.

Next Steps

IMF/Other International Bodies/National Authorities: Work further on legal and practical concerns, consulting with the private sector and national authorities. The Finance Ministers of the Group of Seven countries to further consider the possible inclusion of such provisions in their debt instruments.

Goal: Allow the IMF to lend into sovereign arrears to private bondholders to support adjustment measures during debt negotiations.

Progress to Date

The Executive Board agreed in principle to extend the IMF's 1989 policy on lending into arrears on a case-by-case basis in 1998; revised the policy in June 1999; and has implemented it with respect to Ukraine, Russia, and Ecuador since then.

Next Steps

IMF: Apply the revised policy on lending into arrears on a case-by-case basis.

Goal: Allow the IMF to lend into nonsovereign arrears arising from the imposition of exchange controls, to support adjustment measures during debt negotiations, and provide for the imposition of stays on creditor litigation to facilitate orderly nonsovereign debt negotiations.

Progress to Date

In 1998, the Executive Board agreed to further extend the IMF's 1989 policy on lending into arrears to nonsovereign arrears; revised the policy in June 1999; and implemented it with respect to Russia in July 1999.

Next Steps

IMF: Apply the revised policy on lending into arrears on a case-by-case basis.

8. IMF Financial Facilities and Other Issues of IMF Reform

  • Basic Objective: Continue to adapt the IMF to better meet the needs of members in a changing world economy of open and integrated markets and ensure more effective use of IMF funds.

  • The IMF's Role: Continue to assess its policies and operations in areas other than surveillance, including financial facilities; quotas; debt relief and poverty reduction; conditionality; and safeguards on the use of IMF resources.

Goal: Assess and adapt the IMF's financial facilities to enhance their usefulness, effectiveness, and transparency.

Progress to Date

The Executive Board undertook a fundamental review of the design and operation of the IMF's nonconcessional facilities in 2000, commencing with a simplification, or "housekeeping", exercise. Four little-used facilities were eliminated. Subsequently, the Contingent Credit Lines facility was redesigned to be more effective, and it was decided that criteria for the use of the Extended Fund Facility (EFF) should be more stringently enforced. Time-based repayment expectations were introduced, and a surcharge levied for total Fund credit outstanding above a certain level for Stand-by Arrangements and the EFF. Monitoring of countries' economic policies after the conclusion of IMF programs will be strengthened, particularly when there is substantial IMF credit outstanding. These changes took effect in November 2000.

Next Steps

IMF: Implement the decisions on financial arrangements with members.

Goal: Continue to advance the joint IMF-World Bank debt relief and poverty reduction initiatives as a complement to the reform of the IFA and its ultimate objective of supporting international financial stability, sustained growth, and broadly-shared prosperity. In particular, secure the financing of the Initiative for the Heavily Indebted Poor Countries and the IMF's Poverty Reduction and Growth Facility.

Progress to Date

In September 1999, the International Monetary and Financial Committee (IMFC) endorsed the transformation of the Enhanced Structural Adjustment Facility (ESAF) into the Poverty Reduction and Growth Facility (PRGF), with the use of Poverty Reduction Strategy Papers (PRSPs) as the framework for both IMF and World Bank lending in low-income countries. The IMFC also endorsed enhancements and reforms to the Heavily Indebted Poor Countries (HIPC) Initiative, providing faster, broader, and deeper debt relief for countries that implement comprehensive poverty reduction strategies. By the beginning of 2001, PRSPs for thirty countries had been considered by the Executive Boards of the IMF and the World Bank, and a total of some 22 countries have been approved for $34 billion in debt relief. Important IMF-World Bank documents on poverty reduction and debt relief are being released to the public.

Next Steps

IMF, the World Bank, and National Authorities: Continue efforts to secure the remaining contributions to the HIPC Initiative and the PRGF. Continue to pursue and assess the PRSP process. Work with HIPC countries to improve public expenditure management, especially to strengthen the tracking of poverty-related expenditures. Continue to implement the enhanced HIPC Initiative, and consider how best to extend debt relief to countries emerging from conflict.

Goal: Strengthen and/or transform the IMF Interim Committee.

Progress to Date

The Board of Governors decided in September 1999 that the Interim Committee be transformed into the IMFC and strengthened its role as the advisory committee of the Board of Governors.

Next Steps

IMF: The IMFC will meet for the third time at the Bank-Fund Spring Meetings in April 2001.

Goal: Ensure that the structure of quotas, the IMF's main resource, remains appropriate in a changing world economy.

Progress to Date

The IMF Executive Board has begun discussions, based on an external review of the quota formulas that guide members' subscription of financial resources to the IMF, their potential access to IMF resources, and the related voting shares of members. The external review was published in September 2000.

Next Steps

IMF: Continue the review of quota formulas with the goal of achieving wide support for an approach that is transparent, simple, and updated for use in a future general quota increase.


Goal: Strengthen the safeguards on the use of IMF resources.

Progress to Date

In March 2000, the Executive Board adopted a strengthened framework of measures to safeguard the use of IMF resources, which was endorsed by the International Monetary and Financial Committee in April 2000. The IMF has begun to implement a two-stage approach to safeguards assessment of members' central banks. In July 2000, the Board decided to strengthen the guidelines on handling misreporting of information by members to the Fund.

Next Steps

IMF: The Executive Board to consider proposals on the treatment of misreporting under the Heavily Indebted Poor Countries Trust Instrument and on the effective use of the Articles of Agreement to address cases of misreporting. The staff to continue to implement the new approach to safeguards assessment.

Goal: Ensure that IMF structural conditionality remains appropriate and effective.

Progress to Date

Preliminary IMF staff studies have been prepared to assess the experience with structural conditionality in IMF-supported programs and the relationship among ownership, conditionality, and program implementation.

Next Steps

IMF: The Executive Board began discussing this issue in March 2001. Staff studies to be released as part of public consultation prior to further Board discussion.

1Köhler, Horst, "New Challenges for Exchange Rate Policy: Remarks at the Asia-Europe (ASEM) Meeting of Finance Ministers," Kobe, Japan, January 13, 2001. Available at: