A Guide to Progress in Strengthening the Architecture of the International Financial System
Report of the Managing Director to the Interim
Committee on Progress in Strengthening the Architecture of the International Monetary
System, April 26, 1999
Experimental Case Studies on Transparency
Practices, April 1999
Involving the Private Sector
In Forestalling and Resolving Financial Crises, March 1999
G7 Finance Ministers and Central Bank Governors Declaration and G7 Leaders Statement, October 30, 1998
Memorandum on the Work Program on
Strengthening the Architecture of the International Monetary System, October 30, 1998
Reports on International Financial Architecture,
Statement by the Managing Director|
on Progress in Strengthening the Architecture of the
International Financial System
Executive Board Meeting
April 16, 1999
My report contains a comprehensive survey of the progress in strengthening the international
financial system. I would like to suggest some priorities for the period ahead. Some can be
implemented by the Board, some by national authorities, and some by the broader international
Substantial progress has been made in containing and resolving the crises that unfolded over
the past two years; also, the international community, acting in a variety of fora, has forged a
consensus on the important lessons from this experience. On a number of issues, those lessons
have led to action:
- In the areas of transparency, standards and Fund surveillance much has
already been accomplished. The SDDS has been strengthened, the Code of Good Practices on
Fiscal Transparency has been adopted and other codes and standards substantially agreed, while
information about the Fund and countries' policies has been greatly expanded.
- On financial sector strengthening, the process of Fund-Bank collaboration has
been enhanced, the Basle Core Principles are being used actively to assess banking systems, and
numerous recommendations for better supervision have been made.
- On private sector involvement in forestalling and resolving crises, much
experience has been gained in effectively involving the private sector in a number of country
cases, and in better identifying the sources of risk in country exposure and the key aspects of
preventive and ex ante measures to be followed up. Fund surveillance is being strengthened in
these areas both globally and in the context of individual country activities.
On other issues, general conclusions have been drawn but remain to be translated into specific
reforms. It also remains to ensure that a problem we were wrestling with before this crisis, namely
the successful integration of a larger number of developing countries into the global financial
system, be pursued with vigor. This will require successful application of the lessons from the
crisis as well as action to improve the policy performance of these countries and to remove, where
needed, the overhang of debt that impedes better integration and inhibits growth.
In determining the priorities for follow-up action, I suggest that we have in mind:
- the need to involve the private sector more effectively and more imaginatively in
efforts to forestall and resolve financial crises and in initiatives to increase transparency and
promulgate the use of internationally accepted standards;
- the need to maintain the momentum of initiatives in the areas of standard setting and
monitoring, including the role of Fund surveillance in fostering this process;
- the opportunities presented by new arrangements in international
cooperation—including the Financial Stability Forum—to catalyze proposals that have
been endorsed, but not acted upon, and to better define and deal with the gaps remaining in the
- the need to consider further some of the systemic implications of the recent crises, such as
the appropriate exchange rate arrangements;
- the imperative of correcting unstable and unsustainable debt structures of the poorer
countries, including through further strengthening the HIPC Initiative and funding the ESAF;
- the need to adapt the global institutions to the new challenges posed by globalization.
This includes the need to revisit the governing structure of the IMF to assure a comprehensive
approach to the problems we face and strong support and a closer involvement of national
I would propose that attention during the upcoming meetings and over the months ahead be
concentrated on the following actions:
Transparency, Standards, and Fund Surveillance
Strengthening Financial Systems
- National authorities should indicate their willingness to participate in the pilot
program for release of Article IV staff reports.
- Countries should move towards observing the voluntary standards developed in the
Fund's core areas:
- existing subscribers need to adhere to the initial SDDS as soon as possible, and to
implement the strengthened standard on reserves;
- countries should implement the Code of Good Practices on Fiscal Transparency, and once
finalized, adopt the Code of Good Practices on Transparency in Monetary and Financial
- The Executive Board should consider, in the context of further pilot studies, whether the
Fund should produce transparency reports and, in that context, address:
- the optimum combination of self-assessment and Fund assessment;
- the monitoring of standards beyond the Fund's core areas; and
- the ways in which to bring other standard-setting bodies or other institutions, including
the World Bank, into the process.
- National authorities and international institutions should encourage the development,
adoption and implementation of relevant internationally recognized standards applied at the level
of the private sector (e.g., standards on accounting, auditing, and corporate governance) as well
as the promotion and implementation of others, including core labor standards.
Capital Account Issues
- The Fund and the Bank should press ahead with joint financial sector
- National authorities should intensify their assessments of financial systems, helped by the
Fund and others, and align national practices with international principles, including with the Basle
- Examine, in the appropriate fora, possible sources of vulnerability that might arise from
the insurance sector and from the activities of offshore centers, as well as highly leveraged
- Develop proposals for the disclosure of private sector information, building on the output
of various working groups based in Basle.
Involving the Private Sector in Forestalling and Resolving Crises
- The membership needs to adopt the appropriate amendment of the Articles of the
Fund to promote liberalization of capital movements.
- Differences of view remain on the use and effectiveness of capital controls in different
circumstances. In light of the Interim Committee's discussion, the Executive Board should move
to draw conclusions, based on further country cases, on the use and effectiveness of specific
controls and on the best way for the Fund to assist countries in their efforts to liberalize capital
movements, as well as on the possible gradual acceptance of liberalization obligations.
- Introduce new clauses in international bond contracts. While there is a general
consensus on their desirability, what is needed now is that workable models be adopted by the
relevant international bodies and by national authorities, and be implemented.
- Revise the Basle capital standards by reducing the bias toward short-term interbank
- Intensify national authorities' efforts at crisis prevention, including through maintaining an
appropriate debt structure. Establish or strengthen high-frequency monitoring systems, and
intensify surveillance over debt structures and financial derivatives, with Fund assistance.
- Explore possibilities for private contingent credit lines or other instruments to provide
additional liquidity or reduce debt-service burdens in periods of severe payments difficulties.
- Explore possibilities for establishing effective communication between private capital
markets and the international financial institutions, as well as between borrowing countries and
- Explore further the processes that could assist with orderly workouts, including a possible
role of Article VIII Section 2(b).
- The Executive Board should continue to examine the implications of recent crises for the
appropriate exchange rate regimes for both industrial and developing countries.
- The Executive Board should finalize the modalities of a Fund-financed Contingent Credit
- We all need to work to secure full financing for the ESAF and the Fund's participation in
the HIPC Initiative.