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Greater openness in economic policymaking and in the dissemination of data on economic and financial developments are key elements of the international community's efforts to be more effective at preventing financial crises. This emphasis on transparency promotes the orderly and efficient functioning of financial markets, reduces the likelihood of shocks, and enhances the accountability of policymakers. Many countries have taken steps in recent years to become more transparent, and the IMF has undertaken initiatives to make its operations and policy deliberations more open to the public while safeguarding its role as confidential adviser to governments.
The financial crises of the 1990s have spurred significant reforms in many countries and in the international financial system. For policymakers and market makers alike, one of the central lessons from the crises was that a lack of transparency about economic and financial developments, and about the formulation of policy can contribute to instability. In an era of real-time information and large-scale, potentially volatile capital flows, the timely provision of reliable information should make it less likely that markets will be destabilized by unpleasant surprises.
Lack of transparency was a feature of the buildup to the Mexican crisis of 1994-95 and to the emerging market crises of 1997-98. In these crises, markets first became uncertain as they were kept in the dark about important developments, and then were unnerved as a web of interlocking problems was revealed. Inadequate economic data, hidden weaknesses in financial systems, and lack of clarity about government policies and policy formulation contributed to a loss of confidence that ultimately threatened to undermine global stability.
A great deal has changed since then. The international community's efforts to prevent future crises—through reforms such as the development of international standards and codes of good practices—are built partly on a commitment to greater transparency. There is a consensus among the community of nations that openness in economic policymaking and in disseminating data on economic and financial developments is a building block in the reform process that needs attention along with other building blocks related to the strengthening of economic fundamentals.
Transparency promotes the orderly and efficient functioning of financial markets by making participants better informed. It can enhance economic performance by encouraging more widespread discussion and analysis of policies. It enhances the accountability of policymakers and should also improve the credibility of their policies. Transparency can also help reduce the opportunities for corruption.
Many countries have made new commitments to transparency in recent years, providing a wider range of information to markets and the broader public. This effort has been promoted by the International Monetary Fund, as well as other international financial institutions and professional organizations. In turn, greater transparency has been a feature of the reform of the IMF itself. The Fund has undertaken a wide-reaching program to improve public understanding of its policies and operations, and to be more attentive to outside views. As part of this effort, the Fund has vastly increased the volume of material it releases to the public.
Greater openness has become a key objective for many country authorities in the wake of the emerging market crises. Governments that once guarded access to economic data now release it regularly and rapidly. The policy-making process has become much more open in many countries.
This shift is largely a response to experience and the information requirements of smoothly functioning financial markets. But it also reflects the international community's concern that every possible step be taken to prevent future crises. The Bretton Woods institutions—the IMF and World Bank—have played a prominent role in promoting these changes. Technical assistance from the IMF and other bodies will be essential if countries are to continue making progress toward greater openness and accountability.
A key part of the IMF's work with member countries deals with the promotion of transparency practices, including the provision of economic data to markets.1
External Vulnerability and Data Dissemination: Early detection of countries' vulnerability to crises and consideration of the corrective policies that may be required form part of the IMF's regular surveillance of economic policies and interaction with country authorities. But early detection of vulnerabilities is also a function of financial markets, and therefore dependent on transparency, including with regard to data. The IMF has developed data standards to guide countries in the dissemination of economic and financial data to the public. These initiatives include the Special Data Dissemination Standard (SDDS), which assists countries that have or seek access to international capital markets; and the General Data Dissemination System (GDDS), which aims to provide a framework for other countries to improve their data compilation and dissemination. The SDDS covers 17 data categories reported on a monthly basis, including international reserves and external debt. Currently, 48 countries participate in the SDDS.2Indeed, many countries have chosen to release key economic data on a more frequent basis than called for under the SDDS.
Standards and Codes: Adherence to international standards and codes of good practices in policymaking helps ensure well-functioning economies. These practices are developed by international organizations, including the IMF, and international regulatory bodies. Codes relating to transparency represent one portion. Along with the SDDS, the IMF has developed codes for fiscal transparency and for transparency in monetary and financial policies.3Countries' observance of standards and codes is assessed by the World Bank and IMF in Reports on Observance of Standards and Codes (ROSCs), which are prepared on a modular, standard-by-standard basis. As of end-April 2001, over 100 ROSC modules for about 40 industrial, emerging market, and developing countries had been completed. Most of these assessments are released publicly if the countries are willing.4
The IMF used to be accused of lacking transparency and accountability. But recent reforms have effectively addressed that issue. A series of initiatives since the mid-1990s have opened most IMF activities to public scrutiny, including its reports on the economies of a majority of its member countries, its lending activities, and many of its internal policy deliberations.5Moreover, its policy deliberations have in some cases been opened up to public participation.
One of the challenges that the IMF faces in becoming more transparent is that its role as confidential adviser to the authorities of its member countries must not be compromised, since this is essential to its effectiveness in serving its members and providing them with candid advice.6
In the area of IMF surveillance of member countries' economies—a key part of which is the normally annual Article IV process—Public Information Notices (PINs) that summarize the IMF Executive Board's discussions of each country, and the staff's assessment, were published for over three-quarters of the Fund membership in 2000. Article IV staff reports are now published when the country concerned agrees; by end-April 2001, 73 members had agreed to publication of 86 such reports since June 1999, when the Board took the decision to authorize their release.
In the area of IMF-supported programs with member countries, news briefs and press releases following Executive Board consideration of requests and reviews related to the use of Fund resources now are released on a systematic basis. There also is now a presumption that many documents related to lending programs will be released publicly. About 90 percent of such documents are released—including Letters of Intent, and Memoranda of Economic and Financial Policies. Publication of Poverty Reduction Strategy Papers (PRSPs) and Interim PRSPs is mandatory, since they are intended to elicit public response as part of the consultation process. Staff reports related to Fund loans are released by the Fund when the country concerned agrees.
This progress has been matched by a wide range of information about the Fund's internal activities. Proposals from IMF management and staff on a wide range of policy issues—and summaries of Executive Board discussions of the related papers—are now released in many cases. Most recently, the Fund released for public comment a set of papers on the reform of its conditionality practices, and plans a series of public forums to broaden the feedback process.7This follows earlier requests for comment on other important policies, including the enhanced initiative for Heavily Indebted Poor Countries in 1999.8
A comprehensive section of the IMF website provides information about the IMF's financial accounts, member countries' financial positions in the Fund, and the institution's liquidity position.9The IMF now publishes information on the sources of its financing, and the Fund's accounting procedures accord with international practice.
Fund management and staff have been broadening their interaction with a wide range of outside groups. In July 2000, the Fund established a Capital Markets Consultative Group to enhance communication with the markets, and a new International Capital Markets Department is being set up, in part, to deepen this process. Staff world-wide discuss the work of the IMF and related issues—on a formal and informal basis—with representatives of civil society, including nongovernmental organizations.
A number of external (as well as internal) evaluations of IMF activities and programs have been conducted in recent years, and the results of almost all of those studies have been released.10In April 2000, the Fund announced that it would set up an Independent Evaluation Office (EVO) to complement its existing review and evaluation procedures. The head of the EVO, former Indian Financial Secretary Montek Singh Ahluwalia, was selected in April 2001, and the office is expected to become operational later this year.
Summaries of the IMF Executive Board's agenda, known as its Work Program, are now released on a semiannual basis. Schedules of the public engagements of IMF management also are released.
Becoming more transparent is, to a large extent, not technically difficult. But developing effective transparency—with the dissemination of good data, and transparent policy-formulation—involves a long-term effort to develop legal frameworks, administrative capacity and technical expertise. This will take time, especially in many developing countries. The work on devising the standards that will form part of the foundation of transparency is still in its early stages. In many areas, the relevant codes and standards have yet to be fully developed; and there are still many refinements to come in this area. The IMF is playing a role in these developments. And it also has a role to play in providing technical assistance in its areas of expertise to help countries achieve effective transparency, to their own benefit and the benefit of the world economy as a whole.
1 "Reforming the International Financial Architecture—Progress Through 2000", International Monetary Fund Issues Brief 01/01, March 2001; Available at: http://www.imf.org/external/np/exr/ib/2001/030901.htm.
3 "Code of Good Practices on Fiscal Transparency"; Available at: http://www.imf.org/external/np/fad/trans/code.htm; and "Code of Good Practices on Transparency in Monetary and Financial Policies"; Available at: http://www.imf.org/external/np/mae/mft/index.htm.
6 "IMF Reviews the Experience with the Publication of Staff Reports and Takes Decisions to Enhance the Transparency of the Fund's Operations and the Policies of its Members"; Public Information Notice No. 01/3, January 12, 2001; Available at: http://www.imf.org/external/np/sec/pn/2001/pn0103.htm.
7 "Conditionality in Fund-Supported Programs—Overview", February 20, 2001; Available at: http://www.imf.org/external/np/pdr/cond/2001/eng/overview/index.htm; "Conditionality in IMF-Supported Programs-Policy Issues", February 16, 2001; Available at: http://www.imf.org/external/np/pdr/cond/2001/eng/policy/index.htm; "Structural Conditionality in IMF-Supported Programs", February 16, 2001; Available at: http://www.imf.org/external/np/pdr/cond/2001/eng/struct/index.htm; " Trade Policy Conditionality in
10 "External Evaluation of the ESAF", June 1998; Available at: http://www.imf.org/external/pubs/ft/extev/index.HTM; "External Evaluation of IMF Surveillance", September 1999; Available at: http://www.imf.org/external/pubs/ft/extev/surv/index.HTM; "External Evaluation of IMF Research Activities", April 2000; Available at: http://www.imf.org/external/pubs/ft/extev/res/index.HTM
IMF EXTERNAL RELATIONS DEPARTMENT