Report of the Managing Director to the Interim Committee on Progress in Strengthening the Architecture of the International Financial System
September 24, 1999
Report of the Managing Director to the Interim
Committee on Progress in Strengthening the Architecture of the International Monetary
April 26, 1999
Statement by the Managing Director
on Progress in Strengthening the Architecture of the International Financial System
Executive Board Meeting
April 16, 1999
Progress in Strengthening the Architecture of the International Financial System
Statement by the Managing Director|
on Progress in Strengthening the Architecture of the
International Financial System
Executive Board Meeting
September 16, 1999
This report contains a comprehensive survey of the Fund's progress in strengthening the
international financial system. I would like to highlight a few key issues.
The work on "architecture" has entered a new phase:
- There are fewer announcements of new initiatives, but greater focus on the
specification and implementation of existing ones. This shift in emphasis is expected and entirely
- Much of the work is highly complex and resource-intensive for national authorities, as
well as for the Fund and other international institutions and fora, and it is essential that the
momentum be maintained to carry the work through to fruition.
- As some elements will take some time to implement fully, regular reports to the Interim
Committee are useful to help ensure that the progress in carrying out the requests of the
Committee is monitored.
A few examples illustrate the extent of progress so far, including in areas that I suggested
were priorities in my statement for the last Interim Committee meeting.
Transparency, Standards and Fund Surveillance
- Many national authorities (45 at latest count) have indicated a willingness to
participate in the pilot program for release of Article IV staff reports, which is now well
underway. Moreover, 80 percent or more of member countries now agree to the release of
program documentation and Executive Board assessments of Article IV consultations.
- Countries are making progress in adhering to the standards developed in the Fund's core
areas, although more progress is required in the period ahead.
- The SDDS continues to gain greater prominence in both the official sector (including by
the Basel Committee in its discussions on the Capital Accord) and by the private sector
(including in investment house newsletters and analysis). All subscribers should adhere to their
commitments under the strengthened SDDS, notably to join those who have already begun to
implement the strengthened standard on reserves. The next stage is the strengthening of external
debt data. In most countries, greater coordination of agencies within the country would
enhance the efficiency of the data provision process.
- Countries should be encouraged to implement the Code of Good Practices on Fiscal
Transparency and, now that it has been finalized, the Code of Good Practices on Transparency in
Monetary and Financial Policies.
- The Executive Board has discussed again, in the context of further case studies, how to
develop the proposal for reports on transparency or, more generally, on progress in implementing
standards. In the year ahead, particular focus will be given to ways to bring other institutions,
including the World Bank, more fully into the process of monitoring standards beyond the Fund's
core areas. The World Bank has agreed to experiment with the joint preparation of reports.
- National authorities and international institutions will need to do more to encourage the
development, adoption, and implementation of relevant internationally recognized standards
applied to the private sector.
- Helpful evaluations of the Fund's surveillance and research activities have been
concluded, and we will over the coming months be distilling the lessons they hold for these
Strengthening Financial Systems
- Fund-Bank collaboration on financial sector work has intensified, including through
regular meetings of the Financial Sector Liaison Committee (FSLC). The joint Financial Sector
Assessment Program (FSAP), having been agreed in concept, is now moving to operational
reality. The Fund and the Bank are in the process of undertaking several financial sector
assessments, and progress will be reviewed.
- National authorities are intensifying their assessments of financial systems, helped by
the Fund and others, and aligning national practices with international principles. A new
methodology has been developed for assessments of adherence to the Basel Core Principles (with
24 countries so far assessed). Moreover, the international community will need to respond to the
consultative document on revising the Basel Capital Accord. This is a very full agenda, and
crucial to the efforts to reduce vulnerabilities.
- The Financial Stability Forum (FSF) has begun its work, and the Interim Committee will
be hearing from the Chairman of the FSF on progress, including work on possible sources of
vulnerability from the activities of offshore centers, highly leveraged institutions (HLIs), and
from short-term capital flows. From these endeavors, we expect recommendations early next
year, including for the disclosure of information by the private sector.
Involving the Private Sector in Forestalling and Resolving Crises
- Further progress has been gained in recent months in better identifying the sources
of risk in country exposure and in considering possible preventative and ex ante measures, many
of which have been put forward earlier.
- Much practical experience has also been gained since the last Interim Committee
meeting in effectively involving the private sector in specific country cases. The complexity and
variety of country cases have highlighted many conceptual and practical issues that will need to
be addressed. I expect this to be a major focus of our efforts in the months ahead.
In other areas of reform previously identified, more discussion is needed before
comprehensive proposals can be agreed. Such areas include capital account issues--the
role of capital controls and possible amendment of the Articles of Agreement to provide for the
liberalization of capital movements--and other systemic issues, including the
implications of recent crises for the appropriateness of exchange rate regimes. Analysis and
discussions on these topics have been an important focus for the Fund in recent months and will
continue to be in the period ahead.
- Discussion is ongoing with potential users of the Fund's Contingent Credit Line
- One systemic issue that I highlighted in April--the need to reform the ESAF, as well
as to secure the full financing for the ESAF and the Fund's participation in the HIPC
Initiative--is being addressed in separate reports to the Interim Committee. There is no
doubt, however, that the successful integration of a larger number of developing countries into
the global financial system will depend on the correction of unstable and unsustainable debt
structures of the poorer countries.
The Fund has a very busy agenda on architecture issues, and will continue to be fully
engaged in implementing what has already been suggested. The same is true for national
authorities, other international institutions and fora, and for the private sector, and we must
ensure that adequate resources are devoted to these efforts. The recent return of a degree of calm
in markets and recovery in the crises countries should not be permitted to cause the agenda to
languish. Reform of the international financial system must remain a top priority if we are to
lessen the risks of a recurrence of recent financial crises.