Statement by the Managing Director on Progress in Strengthening the Architecture of the International Financial System Executive Board Meeting
September 16, 1999

Report of the Managing Director to the Interim Committee on Progress in Strengthening the Architecture of the International Monetary System
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
A Factsheet

Report of the Managing Director to the Interim Committee on Progress in Strengthening the Architecture of the International Financial System

September 24, 1999


  1. Transparency, Standards and Fund Surveillance
       Efforts to Improve Transparency and Accountability
          Within the IMF
       Progress in Developing International Standards
       Assessing Standards
  2. Strengthening Financial Systems
  3. Capital Account Issues
  4. Involving the Private Sector in Forestalling and Resolving Crises
  5. Systemic Issues
       Exchange Rate Regimes
       Transforming the Interim Committee
       Developing the IMF's Facilities
       Enhancing the IMF Resources
Progress in Strengthening the International Financial Architecture Developing International Standards in Areas Outside the Fund's
   Direct Operational Concern



  1. Strengthening IMF Surveillance
  2. Management of External Debt and Reserves in Emerging Markets
  3. Key Issues Covered in an ESAP Report
  4. Work Related to Financial Sector Reform Underway in Selected Other International Fora
  5. Some Recent Experience with Involving the Private Sector
  6. Eligibility Criteria for the IMF's Contingent Credit Line (CCL)




Report of the Managing Director to the Interim Committee on Progress in Strengthening the Architecture of the International Financial System

1.  The financial crisis of the last two years, and the speed with which it spread across borders, has provoked much reflection and analysis in the international community on ways to strengthen the international financial system. Such a strengthening is seen as a prerequisite for sustainable and balanced growth in the context of rapidly expanding markets for goods and capital. Together with other international organizations, national agencies and the private sector, the IMF has been working on a series of initiatives intended to contribute both to crisis prevention and resolution. Reflecting the complexity of many of these issues, the extent of progress to date on the various initiatives has varied noticeably.

2.  In some areas, substantial progress has been made and work is underway to implement specific proposals. Efforts to achieve greater transparency and accountability in the public and private sectors have been continuing. Experimentation has been occurring, with initiatives such as the publication of the IMF's Article IV consultation staff reports on a pilot basis. The IMF has been enhancing the scope of its traditional surveillance activities with greater focus on data issues, vulnerability assessment, debt and reserve management, financial sector reform, and capital account liberalization. Experimentation has begun on broader and more in-depth assessments of countries' progress toward observance of internationally recognized standards and of financial system stability. In these areas, the key challenges are now largely those of implementation. In the period ahead, we can expect to see more progress in developing specific modalities to implement proposals already agreed and assessing the preliminary results of these implementation efforts.

3.  In other areas, more discussion is needed before comprehensive approaches can be agreed. Discussions on key issues such as appropriate exchange rate regimes, the role of capital controls and, most complex of all, how to involve the private sector in crisis prevention and resolution, have been an important focus for the IMF in recent months and will continue in the period ahead.

4.  The IMF's efforts are part of the wider response of the international community to strengthen the international financial architecture. Work is underway in a number of other international institutions and fora, including the World Bank, the Financial Stability Forum (FSF), the Organization for Economic Cooperation and Development (OECD), the Bank for International Settlement (BIS), and other Basel-based groups. The next round of multilateral trade liberalization will also take place in the context of the evolving international financial architecture.

5.  The strengthening of international and national financial systems is being complemented by efforts to intensify work on social sector issues--a social pillar for the international architecture--to support the goal of durable poverty reduction. In this area the World Bank and United Nations (UN), as well as other international agencies in the social policy sphere, are taking the lead. The UN is working on further developing basic social sector principles and the World Bank, in collaboration with other international agencies, is developing general principles of good practice in social policies. The IMF has emphasized the importance of macroeconomic stability and structural reforms to foster the rapid sustainable growth critical to poverty reduction. In this context, the IMF and the World Bank have developed joint proposals that would set their lending operations in Enhanced Structural Adjustment Facility (ESAF) and International Development Association (IDA) countries within the context of comprehensive poverty reduction strategies. These issues are discussed in the following papers to be presented to the Interim Committee: the joint World Bank/IMF paper on HIPC Initiative--A Progress Report and the Report of the Managing Director to the Interim Committee on the Reform of the ESAF.

6.  This paper is organized as follow : Section I discusses progress in strengthening IMF surveillance, improving transparency and accountability of IMF practices and policy advice, and the development and monitoring of international standards. Sections II and III discuss measures taken to strengthen financial systems and capital account issues respectively. Section IV discusses the IMF's approach to securing private sector involvement in crisis prevention and resolution, while Section V addresses systemic issues. Progress in strengthening the international financial architecture is summarized in tabular form in Appendices I and II.

I.  Transparency, Standards and Fund Surveillance

7.  Strengthening IMF surveillance is an ongoing process and a number of significant improvements have been made in recent years. In discussing the recent external evaluation of IMF surveillance activities, the Executive Board emphasized the need to provide even greater emphasis on capital account and financial sector issues, the sustainability of exchange rate regimes, debt and reserve management practices, vulnerability analysis, international aspects of a country's macroeconomic policies, cross-country comparisons and regional developments. Work is already underway in many of these areas (see Box 1) and the Executive Board will return to these issues, inter alia, in the context of the internal review of surveillance to be initiated later this year. These deliberations will also provide input into the forthcoming review of IMF-supported programs.

8.  The IMF's efforts to improve transparency in decision-making have focused on three main areas. First, the IMF is in the process of improving the transparency of its own practices, thereby helping to ensure greater transparency in, and scrutiny of, its policies and policy advice to member countries. Second, in collaboration with other bodies, progress has been made in developing and strengthening internationally-recognized standards applicable to both the public and private sectors. Third, the IMF is experimenting with assessments of countries' progress in adhering to internationally-recognized standards in areas of direct operational relevance and is working with others, including the World Bank, to encourage the development of mechanisms for the assessment, by others, of standards beyond its own areas of expertise.

Box 1.  Strengthening IMF Surveillance

Several internal evaluations of surveillance have been conducted in the wake of the Mexican and Asian crises and an independent, external, evaluation of IMF surveillance was completed in July 1999.1 In its initial discussion of the external evaluators' report, the Executive Board noted that the quality of analysis and policy advice in the IMF's traditional areas of expertise--exchange rate policy and associated macroeconomic policies--and in multilateral surveillance was rated highly. However, the evaluators' report identified three sets of issues:

  • Scope: The IMF should concentrate on its traditional areas of surveillance while giving increased attention to the international and regional aspects of surveillance and more explicit attention to vulnerability issues including enhanced analysis of the capital account, the financial sector, and the treatment of contagion.

  • Transparency and Confidentiality: Article IV staff reports should be published to strengthen accountability and the peer review process.

  • Organization and Governance: The report made several proposals with a view to (i) making the Executive Board's oversight more focused; (ii) enhancing ownership of the surveillance process by the Board; and (iii) ensuring that consultations cover the most important issues.

There is substantial common ground between the report and the IMF's own internal evaluations. During the last two years the Executive Board has agreed on additional steps to strengthen surveillance including:

  • Greater attention to financial sector vulnerabilities (including through the Financial Sector Assessment Program), capital account issues and sustainable exchange rate regimes;

  • Greater focus on debt and reserve management practices and efforts to assess the adequacy of reserves. Work is also underway on developing early warning systems to signal potential problems;

  • Initiatives aimed at greater transparency in members' policies and in IMF policy advice to members including the development and dissemination of standards and codes of best practices in areas of direct operational concern to the IMF; assessments of country practices in relation to these international standards on an experimental basis; and the pilot project for the voluntary release of Article IV staff reports.

  • More continuous surveillance by supplementing annual consultations with interim visits, frequent informal Board reviews of major developments in selected countries and enhanced multilateral and regional surveillance.

The Executive Board will return to the key issues raised in the evaluators' report including in the context of the next internal review. Issues that will receive particular attention include: the focus and scope of bilateral surveillance; the increased attention to international, regional and cross-country issues; vulnerability issues and early warning systems; debt/liquidity/reserve management issues; and the coverage of financial sector and capital account issues.

1Details are available on the Fund's website at /external/pubs/ft/extev/surv/index.htm
Efforts to Improve Transparency and Accountability Within the IMF

9.  The Executive Board has taken significant steps to improve the transparency of the IMF and of its members' policies. However, there are risks that efforts to improve transparency could adversely affect the candor of the dialogue with members that has characterized the IMF's traditional role as a confidential policy adviser. As a result, some initiatives are proceeding on an experimental basis.

  • It was agreed in March 1999 that the IMF should continue to actively encourage the release of Public Information Notices (PINs) following Article IV consultations. PINs have been released following about 80 percent of the Article IV consultations that occurred during the first eight months of 1999.

  • An eighteen-month pilot project for the voluntary public release of Article IV staff reports was established in April 1999. Since then, 45 countries have agreed to participate in the pilot project. As of September 15, 1999, 16 staff reports have been published or authorized for publication.1

  • The decision on June 3, 1999, to release Chairman's statements summarizing the Executive Board's views following discussions of a member's use of Fund resources (UFR) has resulted in the release of 32 statements since then.

  • Following the establishment on June 3, 1999 of a presumption that the relevant Letters of Intent (LOI), Memoranda of Economic and Financial Policies (MEFP) and Policy Framework Papers (PFP), if any, will be published in UFR cases, national authorities have agreed to publish these documents in 26 out of 31 cases.2

  • Publication of key IMF documents has gathered further momentum with the release of various policy papers and related summings up, and a summary of the Executive Board's work program through end-September, 1999. The external evaluations of the IMF's surveillance and economic research activities, the staff's statements on the findings of these studies, and the summings-up of the Executive Board discussions have also been released.

  • Two sets of experimental case studies--initially referred to as "transparency reports"--on the extent to which various countries have implemented international standards and codes, were released to the public in April and September 1999.

  • The IMF has continued to solicit comments from the public on ongoing work, most recently on the draft Code of Good Practices on Transparency in Monetary and Financial Policies and, from SDDS-subscribing countries and other interested parties, on compilation procedures for external debt statistics.

10.  The Executive Board has made a number of changes to Board operations and procedures and the IMF will continue to pursue further improvements in its procedures and practices in the next few months, including in the following areas.

  • The experience with the release of various IMF documents (the Chairman's statements in UFR cases, PINs following Article IV consultations, LOIs, MEFPs, PFPs, and Article IV staff reports) will be reviewed over the course of the next six months. The Executive Board will also revisit the issues involved with the release of staff reports and PIN-like documents related to use of Fund resources.

  • The experience with external evaluations of IMF surveillance, economic research activities and ESAF-supported programs will be reviewed by the Executive Board with a view to developing a system for independent evaluations and to considering what specific evaluations should be proposed.

  • The Executive Board is considering ways of strengthening the role it plays in surveillance.

  • The Executive Board will consider proposals for an external review of the efficiency of IMF operating procedures that could be undertaken in 2000. A review of the IMF's approach to external communications has been completed by external consultants, and a report with recommendations will be prepared for consideration by the Board.

Progress in Developing International Standards

11.  Important progress continues to be made in developing and refining voluntary standards in areas of direct operational concern to the IMF. Notable developments relate to the strengthening of the Special Data Dissemination Standard (SDDS) with respect to international reserves and external debt, the endorsement of the Code of Good Practices on Fiscal Transparency by the Interim Committee, and the Executive Board's approval of the Code of Good Practices on Transparency in Monetary and Financial Policies.3 However, to be effective, these voluntary standards need to be implemented. In the period since the Spring 1999 Meetings efforts have focused on encouraging members to implement standards, including through the provision of technical assistance.

  • By end-August 1999, several countries, including Canada, France, Germany, Switzerland, and the United Kingdom had started disseminating information on international reserves in accordance with the SDDS template agreed in March 1999. Other members are expected to begin disseminating such data soon. By March 2000 all SDDS subscribers are required to disseminate data in line with the template. Operational guidelines for disseminating such data will shortly be circulated to statistical agencies and central banks in SDDS-subscribing countries. The agreed monitoring procedures for the SDDS are being implemented.

  • Work continues on the General Data Dissemination System (GDDS), which is targeted toward those countries not in a position to subscribe to the SDDS. By end 1999, seminars will have been held in all regions of the world and virtually all potential GDDS clients will have participated. The GDDS will move into its operational phase starting in 2000.

  • Countries are being encouraged to make assessments of fiscal transparency with technical assistance provided as necessary, subject to resource constraints. The fiscal transparency code, a manual to assist implementation, and a questionnaire and self-evaluation report are available on the IMF's web site. Ten countries have completed questionnaires.

  • The Code of Good Practices on Transparency in Monetary and Financial Policies, developed by the IMF, together with other institutions and agencies, has been approved by the Executive Board and awaits endorsement by the Interim Committee.

  • A draft handbook on the methodology for assessing implementation of the Basle Core Principles for Effective Banking Supervision, developed by a working group, including the IMF, is being reviewed by the Basel Committee on Banking Supervision (BCBS) for final approval. The IMF and the World Bank have undertaken several assessments of countries' compliance with the Core Principles, both individually and, in some cases, jointly.

12.  Following the development of international standards in areas of the IMF's direct operational concern, there is now a need to develop supporting mechanisms to facilitate effective implementation, including through the provision of technical assistance. Given the increasing focus on vulnerability assessments in the context of surveillance, there is also a need to further develop indicators and principles for sound liquidity and debt management (Box 2). Looking ahead:

  • The Executive Board will consider the issue of benchmarks for the provision of international reserves data to the IMF by all members; examine issues relating to countries' foreign exchange reserve management practices; and consider improved ways for assessing the adequacy of reserves and short-term debt management.

Box 2.  Management of External Debt and Reserves in Emerging Markets

The G-10 Deputies and other international fora have emphasized the importance of better debt and reserve management in crisis prevention and as a key to effectively involving the private sector in crisis resolution.

Data quality and timeliness

The creation of the reserves template for the SDDS was a major achievement and IMF staff will soon finalize operational guidelines. The Executive Board will soon discuss the reporting of reserves to the IMF by members. The Board is expected to discuss transition periods for annual data on the International Investment Position and quarterly data on external debt, now prescribed for SDDS subscribers; the IMF, in cooperation with the Inter-Agency Task Force on Finance Statistics (IATF), will intensify its technical assistance efforts in this area. The IMF has provided technical assistance to establish high-frequency debt monitoring systems.

Work is continuing to improve the timeliness and quality of the creditor-based Joint Debt Statistics of the BIS, the IMF, the OECD, and the World Bank, currently available on a quarterly basis with a 24-week lag.

To improve data necessary to assess vulnerability, discussions are taking place on a possible extension of the SDDS to macroprudential indicators of the soundness of the banking system. IMF staff are consulting with users and compilers, and will bring proposals to the Executive Board in October 1999.

Reserve adequacy

The IMF and others have increasingly focused on ways to assess the risk of external crises. The IMF has begun to test comprehensive "early warning systems" for emerging market economies. Efforts are also underway to improve the analysis of the adequacy of international reserves.

Indicators of a country's ability to withstand a liquidity crisis are being improved. The ratio of reserves to short-term debt is a reasonably good predictor of the incidence and depth of crises. There have been proposals for simple benchmark rules, such as the "Guidotti rule"(countries should manage their external assets/liabilities so as to be able to live without foreign borrowing for up to one year) or Mr. Greenspan's suggestion of a benchmark of the ratio of reserves to short-term debt. Simple measures should be supplemented with careful analysis of country-specific factors, and with more elaborate stress testing.

Debt management

Aspects of a country's external debt which affect its external vulnerability include the level, composition and structure of debt. Article IV consultations increasingly focus on these issues.

The collection and assessment of information on external debt should be complemented by attention to debt management practices. Besides managing its own debt soundly, the public sector should foster sound risk management in other sectors through banking supervision, or by avoiding a bias toward short-term foreign borrowing).


  • Proposals are being developed for the transition period for observance of the new prescription on external debt in the SDDS. To that end, a consultation paper on external debt statistics seeking information from compilers in SDDS-subscribing countries was posted on the IMF's Dissemination Standards Bulletin Board in July 1999.

  • The Executive Board will consider the advantages and disadvantages of including macro-prudential vulnerability indicators in the SDDS or of providing separate incentives to encourage the development and dissemination of information to permit evaluation of financial systems and potential vulnerabilities. This work will reflect discussions involving selected international groupings, national authorities, and private sector institutions.

  • The review of data dissemination standards will discuss a number of developments related to the SDDS, including the implications of its inclusion as a criterion for eligibility in the IMF's new Contingent Credit Line (CCL) and its possible use as a criterion for minimum risk weighting for bank capital ratios under the Basel Accord.

  • A supporting document to guide members in implementing the Code of Good Practices on Transparency in Monetary and Financial Policies is being prepared in cooperation with appropriate international and national institutions.

13.  The IMF has also established a standards and codes web page on its external website.4 This page provides information on standards in areas of direct operational relevance for the IMF (data dissemination, fiscal, monetary and financial policy transparency, and banking supervision), a description of progress in developing standards in other areas, links to the websites of other standard-setting bodies, and experimental reports on observance of standards in selected economies.

14.  Efforts also continue to improve standards and disclosure requirements applicable to the private sector. The International Organization of Securities Commissions (IOSCO) is considering proposals to increase the transparency of dealings between highly leveraged institutions (HLIs) and securities firms; strengthen risk management procedures at securities firms; and improve information flows about HLI activities to regulators, market authorities and the public (the FSF is also considering this issue--see below). The OECD's Principles of Corporate Governance were endorsed at the May 1999 OECD Ministerial meeting and the OECD and World Bank have now established a Global Corporate Governance Forum to promote effective dialogue on corporate governance issues. The BCBS has provided guidance for banks (and supervisors) on recognizing and measuring loans and credit risk disclosure. The Institute of International Finance (IIF) has also proposed a series of best practices and standards, including for financial firms to manage risk exposure to emerging market economies, common industry definitions for non-performing loans, and common criteria for loan classification.

Assessing Standards

15.  IMF staff, in collaboration with others, have prepared a number of experimental reports on the observance of standards and codes--initially referred to as "transparency reports". These reports combine descriptions of practice, based on discussions with the relevant national authorities, with independent assessments by IMF staff as to the consistency of those practices with specific standards. These experimental assessments are one way of ensuring a thorough understanding of country practices in relation to international standards in the areas of the IMF's direct operational concern which, in the Executive Board's view, is necessary for effective surveillance.

16.  There have been two rounds of experimental assessments. The first set of reports on Argentina, Australia and the United Kingdom, were released to the public in April 1999. In September 1999, a second set of reports covering the IMF four areas of direct operational concern were published for Bulgaria, Czech Republic, Hong Kong SAR, Tunisia and Uganda, while assessments of a single standard--a "module"--were released for Cameroon and Ukraine.5 In each case assessments have been prepared in cooperation with the relevant authorities; the World Bank assisted in the preparation of a number of the second round studies.

17.  The Executive Board has asked staff to continue to experiment with the preparation of assessments. Future reports will generally be prepared using a modular approach, whereby comprehensive assessments of member's adherence to a range of standards can be built up over time, standard-by-standard, in order to stagger the workload on member countries, IMF staff and others involved, and allow efforts to be better focused on priority areas within and across countries. The preparation of assessments is highly resource intensive, both for the IMF and for members.

18.  The Executive Board has indicated that the IMF should focus on preparing assessments in those areas within its direct operational focus--data dissemination, fiscal transparency, monetary and financial policy transparency, and banking supervision, working with the World Bank and other bodies as appropriate. Comprehensive coverage of standards will require that other bodies undertake assessments in areas outside of the IMF's direct operational focus and a "shared ownership" approach is foreseen that would involve other institutions taking primary responsibility in these areas.

19.  The World Bank is developing its own capacity to contribute to assessments of standards in particular areas. IMF and World Bank staff are discussing how to proceed in preparing assessments across a range of standards of direct relevance to the IMF and the Bank. Fund staff will also undertake further outreach to the private sector in order to both better gauge the value and appropriateness of the evolving approach to assessments and to ensure that potential users appreciate the intention and limitations of the assessments. The Executive Board will review the experience with preparing assessments of the implementation and observance of standards in mid-2000.

II.  Strengthening Financial Systems

20.  The IMF, the World Bank, other international groups, and financial supervisors in various countries have stepped up efforts to develop and implement principles and good practices for sound financial systems, and to improve their capacity to make assessments of financial sector vulnerabilities.

21.  Analysis of financial sector vulnerabilities is receiving increasing attention in the course of Article IV consultations, multilateral surveillance, the preparation of economic adjustment programs and technical assistance. The IMF and the World Bank have sought to ensure more effective collaboration on financial sector issues through the establishment of the Bank-Fund Financial Sector Liaison Committee (FSLC). In the period since April 1999, the FSLC has facilitated the launch of the collaborative Financial Sector Assessment Program (FSAP) and helped coordinate the two institutions' contributions to the work on financial sector issues in various international fora.

22.  The FSAP, introduced in May 1999, is designed to identify strengths and vulnerabilities and to provide better coverage and analysis of member countries' financial systems through closer collaboration between the two institutions and a better utilization of scarce expert resources (see Box 3).6 The resulting assessments will feed into the work of both institutions in the financial sector area. In the IMF's case, Financial Sector Stability Assessments (FSSA) will be prepared based on the FSAP report, and will inform Article IV consultations. The program should underpin a more effective dialog with national authorities, help countries reduce vulnerabilities within their financial sectors, and identify priorities for longer-term financial development and related technical assistance needs. A twelve-month pilot program has been initiated that will cover 12 countries, representing all regions, and a full review of the FSAP will take place at the end of the period.

Box 3.  Key Issues Covered in an FSAP Report

The FSAP is designed to identify financial system strengths and vulnerabilities. The coverage typically includes:

I.  Financial institutions

  • Soundness of financial institutions (e.g. developments in prudential indicators, stress testing and sensitivity analyses).
  • Developments in the corporate sector that may flow on to the financial sector, as well as possible asset price bubbles.

II.  Financial markets

  • Structure, efficiency and systemic liquidity issues in organized money, foreign exchange, debt and equity markets.
  • Central bank lending policies, including lender-of-last resort and contingency liquidity arrangements.
  • Review and assessment of payment systems, including risks and risk management procedures.

III.  Legal framework, prudential regulations and supervision, including observance of standards and good practices

  • Adequacy of policy, regulation and supervisory framework for financial institutions, capital and insurance markets.
  • Adequacy of supervisory systems and procedures, including compliance with the Basel Core Principles.
  • Adherence to international standards in monetary and financial policies, accounting, disclosure and reporting standards.

IV.  Arrangements for crisis management, financial safety nets, and workout mechanisms

  • Bank exit policies and developments in bank resolution and liquidation.
  • Status and developments regarding guarantee schemes and deposit insurance.

V.  Key reforms to reduce vulnerabilities in the financial system and to minimize systemic risks

  • Appraisal of key structural vulnerabilities and deviations from best practices.
  • Formulation of broad program of financial system reforms, including sequencing, and technical assistance needs.


23.  The IMF is also contributing to work underway to improve cooperation and coordination among national supervisors and international bodies (see Box 4):

  • The IMF, along with other institutions, will participate in a task force to review the 1988 Basle Capital Accord. In addition, the IMF is preparing comments on the new framework put forward by the BCBS in a Consultative Paper on a New Capital Adequacy Framework to replace the 1988 Accord.

  • IMF staff has been collaborating closely with other international organizations to promote orderly and effective insolvency systems and to ensure the proper legal environment for the operation of financial systems. The IMF has prepared a paper on effective and orderly insolvency procedures, which the World Bank intends to use in its efforts to develop guidelines for effective insolvency regimes for developing countries. In addition, the United Nations Commission on International Trade Law (UNCITRAL) has expressed strong interest in collaborating with the IMF and the World Bank in this area.

24.  The FSF met for the first time in April 1999 and established three working groups (with IMF and World Bank participation) to consider systemic implications of highly leveraged institutions, capital flows, and offshore financial centers. Preliminary status reports were prepared for the Forum's consideration in mid-September, and final reports are expected to be prepared early next year.

Box 4.  Work Related to Financial Sector Reform Underway in Selected Other International Fora

  • National financial supervisory and regulatory agencies have begun reviewing procedures to enhance oversight of financial sectors, including with respect to highly leveraged institutions (HLIs).

  • The Basel Committee is reviewing gaps in existing work, including issues related to data, weak banks, safety nets, licensing, governance and legal and judicial matters.

  • The FSF was established to promote international financial stability through enhanced information exchange and international cooperation in financial market supervision and surveillance. Three Working Groups have been set up to recommend policy actions in the areas of HLIs, capital flows, and offshore financial centers (OFCs). These groups comprise officials of G7 and non-G7 developed countries, developing market economies, international financial institutions and supervisory groups.

  • The Working Group on HLIs is taking stock of the extensive work already done to assess whether current recommendations cover the key issues and the extent to which banks and HLIs have modified their practice since the Long Term Capital Management episode.

  • The Working Group on Capital Flows is considering flows involving banks and non-banks and a full range of domestic and external financial instruments, including market-based ways to involve the private sector in preventing and minimizing crises.

  • The Working Group on OFCs is taking stock of the use of OFCs in international financial markets and their impact on global financial stability. It is reviewing progress in enforcing international prudential and disclosure standards, and compliance with international agreements on the exchange of supervisory information or information relevant to combating financial fraud and money laundering.

The Groups have submitted their status reports to the FSF which drew on work completed or underway in public and private sector fora and was supplemented by consultations with supervisory authorities and private sector participants. On September 15, 1999, the FSF considered the status reports, which contained preliminary conclusions and recommendations and sought guidance from the Forum on how to proceed. The final reports are expected to be completed by April 2000.

III.  Capital Account Issues

25.  The Executive Board has emphasized that capital account liberalization brings substantial benefits but has also emphasized that it carries risks and needs to be carefully managed and sequenced. To be successful, liberalization needs to be fully supported by a consistent macroeconomic framework, including monetary and exchange rate policies, and by institutional arrangements that strengthen the ability of financial intermediaries and other market participants to assess and manage risk and which also support monetary and exchange rate policies.

26.  The Executive Board has also discussed the merits of maintaining, or imposing, capital controls to further policy objectives. In that context, the Board found it useful to distinguish between controls on inflows and those on outflows. Most Directors concluded that the reimposition of controls on capital outflows was not generally an effective policy instrument in a crisis; and resort to controls on outflows was seen as likely to increase the severity of external adjustment and have longer-lasting damaging effects on countries' access to international finance. Several Directors, however, considered that, in a crisis, the reimposition of controls on capital outflows could play a useful role. Regarding controls on inflows, there was more support for the view that controls could help shift the composition of inflows toward longer maturities, thus serving a prudential role. However, it was also noted that controls on inflows are not a substitute for more fundamental policy actions.

27.  In more recent discussions, Directors agreed that there is no single approach to securing the benefits of international capital flows while limiting the risks. Differences of view remain, however, as to the net benefit or cost of capital controls and, hence, the usefulness of controls as a policy measure. Based on a series of country studies, some tentative observations are as follows.7:

  • Capital controls cannot substitute for sound macroeconomic policies, although they may provide a breathing space for corrective action. The room for policy maneuver that capital controls are capable of providing has varied greatly across countries, reflecting a variety of factors including the degree of flexibility in exchange rate policy, the level of financial market development, the quality of prudential policies, and the administrative and enforcement capacities of the authorities. However, countries with serious macroeconomic imbalances, and no credible prospects for correction in the short-run, have regularly been unable to address large-scale capital outflows by using capital controls. Moreover, in some cases, controls have reduced pressures on the authorities to introduce needed policy reform. Some have also pointed to the possible adverse consequences on other countries from the imposition of capital controls.

  • Although comprehensive and wide-ranging controls appear to be more effective, they also tend to be more distortionary than selective controls, impede desirable transactions, dampen financial market development, and adversely affect investor confidence and access to international capital markets. Nonetheless, many Directors believed that controls on capital inflows to supplement other policy measures may be warranted in situations where a country experiences large persistent inflows and that the possible benefits of controls need to be weighed carefully against their costs.

  • Building effective regulatory and supervisory institutions for financial markets may take a long time. However, more work is needed to determine whether capital controls, particularly on short-term inflows, may temporarily and partially substitute for full-fledged prudential arrangements.

  • Strong prudential policies for the financial sector can play an important role in orderly and sustainable capital account liberalization, and in reducing the vulnerability of an economy to external shocks. Directors agreed that work in international fora to address potentially destabilizing capital flows should concentrate on efforts to improve prudential regulation and supervision, both in creditor and debtor countries, and aim for coherence in prudential policies among countries.

  • A case-by-case approach to capital account liberalization is needed. The sequencing and pace of capital account liberalization, capital account opening and financial sector reform are ongoing and interrelated processes, which are closely linked to the overall level of economic development and a country's other individual circumstances.

28.  IMF surveillance has increasingly focused on strengthening financial systems in order to facilitate orderly and sustainable capital account liberalization. Work to improve the reporting and monitoring of capital flows is underway in a number of fora, while more general issues associated with capital flows are also being addressed by the FSF.

IV.  Involving the Private Sector in Forestalling and Resolving Crises

29.  The recent focus on several crisis cases where difficulties in dealing with scheduled payments to bondholders have been an issue masks the broader efforts underway to prevent crises and, when they do occur, to involve the private sector in a collaborative fashion. Prevention remains the key to forestalling financial crises--work in this area is proceeding on a number of fronts, drawing importantly on efforts to enhance transparency in decision-making, the dissemination and adherence to standards, and financial system strengthening which are discussed elsewhere in this report. In the area of contacts between members and their creditors, to date, Mexico, Argentina, and South Africa are notable examples of countries that have established more frequent and transparent communications with creditors. Other members are being encouraged to strengthen their ongoing contacts with creditors. A consensus is emerging in the IMF and in other fora regarding the principal requirements for preventing the buildup of vulnerabilities to crisis and for strengthening of IMF surveillance to better identify vulnerabilities.

30.  While prevention will continue to provide the first line of defense against crisis, there is also an important role for ex-ante measures--designed and put in place during normal economic conditions--which would help facilitate the orderly resolution of problems should they materialize. In recent discussions on these issues:

  • Most Directors agreed that there would be considerable benefits from the introduction of collective action provisions in new bond contracts, such as those found in existing international sovereign bonds issued under trust deeds. Many Directors felt that this could best be achieved if industrial countries included such terms in their own bond issues. In addition, provisions authorizing a trustee to negotiate with the debtor on behalf of bondholders, but without authorizing the trustee to legally bind them to any agreement, could also contribute to an orderly and speedy restructuring process.

  • Private contingent financing arrangements should be encouraged, with appropriate pricing. No new lines have been established beyond those already secured by Argentina, Indonesia, and Mexico.

31.  When crises do occur, the international community must stand ready with measures that assist in their resolution. Recently, the Executive Board gave further consideration to the IMF's approaches to securing private sector involvement in crisis resolution. It agreed that in most cases it would be appropriate for the IMF to rely on its traditional approach to securing private sector involvement via the catalytic effect of IMF-supported programs in generating spontaneous capital inflows. Nevertheless, in cases in which the catalytic effect to secure the necessary financing of the adjustment program does not appear to be working, or in which the member does not appear to have reasonable prospects for regaining spontaneous market access, consideration would need to be given to concerted mechanisms for securing private sector involvement.

32.  We are at an early stage of this evolving policy, and the differences in country circumstances regarding, for example, debt structures, banking sector soundness, and medium-term viability, make it inadvisable to specify in advance detailed rules that would be applicable in most cases. However, Directors considered that the balance of the various considerations reflected in the report by G-7 Finance Ministers to the Köln Economic Summit provides a framework within which the international community can work to address individual cases that may arise. Over time, Directors considered that it might be possible to further refine the approaches laid out in this framework as experience builds.

33.  Work is focusing on how to develop these principles and on developing further the tools to be applied in the specific cases. Although there has been some success in recent cases, several challenges in securing private sector involvement have become clear (Box 5). On some specific issues, the following considerations were highlighted by the Executive Board:

  • Directors underscored the difficulties associated with restructuring sovereign bonds. They emphasized that priority should be given by members to efforts to reach voluntary agreements with creditors.

  • The role of the IMF in debtor-creditor negotiations should focus on specifying the broad parameters of financing needs during the program period and assessing the consistency of financing packages with medium-term sustainability. The negotiation of specific agreements with private creditors would be the responsibility of the member concerned and its legal and financial advisors.

  • There is a need to strengthen the analytic basis for members to assess how comprehensive financing packages should be, the extent to which there is a need for concerted financing, and whether individual credits should be restructured on an ad hoc basis as they mature, or whether the member concerned should seek a comprehensive restructuring of such instruments.

  • The IMF recently revised the criteria applicable to its policies on arrears and financing assurances to permit IMF lending into sovereign arrears to private creditors, and into nonsovereign arrears to private creditors stemming from the imposition of exchange controls during the, possibly protracted, period of negotiations. Such lending would only be on a case-by-case basis in circumstances in which early support is judged to be essential to the success of the adjustment effort, where the member is making good faith efforts to normalize creditor-debtor relations, and where the member is pursuing sound policies.

  • Creditors' committees could have a role to play in effectively resolving financial crises. While the creation of a single standing committee was generally not considered practical, consideration could be given to ad hoc arrangements in appropriate cases, with due regard to the need to ensure confidentiality during the process of negotiation. As experience is gained in this area, staff are encouraged to draw lessons on approaches that could be useful for the future.

  • Differences of view remain as to whether further consideration should be given to adopting a mechanism that could--in extreme circumstances, and subject to carefully defined criteria--allow for standstills on payments to allow for a breathing space while negotiations proceed. Views also differ as to whether such an effort would require the international community to sanction a temporary stay on creditor litigation.

Box 5.  Some Recent Experience ith Involving the Private Sector

In trying to involve the private sector to help finance adjustment programs, the IMF has relied on its catalytic role to mobilize private financing. In four recent cases where debt to creditors other than banks was an issue-Ecuador, Pakistan, Romania, and Ukraine-the prospects for securing spontaneous new private financing appeared weak. Based on an assessment of the pressures facing the country, including, inter alia, the debt and debt service structure, the level and composition of reserves, and the strength of the policy package to form the basis for a catalytic approach, the IMF has encouraged these countries to:

  • approach their creditors for additional financing, which could take the form of some combination of a concerted new money package and a restructuring of existing obligations; and
  • use market-friendly approaches that, to the extent possible, avoid defaults and disorderly creditor/debtor relations, except under extreme circumstances.

In each of these cases efforts are continuing. Developments to date are as follows.

In Romania's case, the authorities initially approached bond holders for a voluntary restructuring. The authorities subsequently sought to obtain new money from private sources in light of positive assessments about prospects for mobilizing new capital market financing, and inter alia, to avoid jeopardizing Romania's access to inward direct investment. Attempts to seek additional private foreign financing met with limited success earlier this year. In the context of a new IMF-supported program, the authorities are making intensive contacts with the private sector with the aim of securing the needed financing.

In Ukraine's case, the government negotiated with four major groups of creditors regarding a voluntary conversion of short-term instruments into longer term ones: resident commercial banks; nonresident holders of treasury bills; a fiduciary loan placed in October 1997; and most recently, holders of a bond issue maturing in 1999. Based on the results of earlier debt restructurings and an assessment of Ukraine's immediate balance of payments needs, the authorities sought refinancing of a substantial amount of the maturing obligations. A significant amount of new money was made available, although falling short of the target.

In Pakistan's case, negotiations are expected to commence soon on a restructuring of Pakistan's three outstanding issues of external bonds. The restructuring was required by the Paris Club in the context of seeking comparable treatment from other creditors in connection with its rescheduling of Pakistan's debt and in light of the weak balance of payments. While the IMF will need to assess the consistency of any restructuring with the medium-term prospects for the balance of payments, the Paris Club will have to decide whether any agreement meets the Paris Club's requirement for comparable treatment.

In Ecuador's case, the authorities have announced their intention to avail themselves of the 30-day grace period for the interest payments on Brady bonds coming due, and to offer a voluntary debt exchange to its Brady bond holders. Ecuador's case has been complicated by the severe liquidity crisis, delays in implementing a set of adjustment measures, and the complexity of the debt structure.

V.  Systemic Issues

34.  Work has also been underway to address a number of systemic issues involved in strengthening the architecture of the international financial system.

Exchange Rate Regimes

35.  The Executive Board has had a preliminary discussion of the key issues concerning exchange rate regimes in an environment of increasing international capital mobility. This discussion addressed both exchange rate regimes among the major international currencies and key issues for currency regimes in developing and emerging market economies. Some initial observations worth noting include:

  • No single exchange rate regime is appropriate for all countries or in all circumstances, and the choice of exchange rate regime--and the scope for regional monetary cooperation--reflect both economic and political factors.

  • The existing system of flexible exchange rates among the three major currencies (the dollar, the euro, and the yen) seems likely to continue, with monetary policy in these areas predominantly focused on domestic stability. Monitoring developments in exchange rates between these currencies and their global implications is an important part of IMF surveillance.

  • Pegged exchange rates may continue to be the preferred choice of many countries, including small, open economies and those attempting to reduce high rates of inflation. However, other things equal, an increase in openness to capital flows will raise the requirements--in terms of policies and institutional readiness--for sustaining a peg.

  • For mid-size industrial and emerging market economies, pressures arising from the extreme fluidity of capital flows are tending to push countries either toward floating exchange rates or toward more rigid arrangements such as currency boards.

  • Exchange rate flexibility needs to be accompanied by a credible alternative anchor for monetary policy. Inflation targeting is one option.

36.  Fund surveillance and programs must address consistency between exchange rate regimes and policies pursued by members.

Transforming the Interim Committee

37.  In a separate report, the Executive Board has also proposed a draft Resolution for adoption by the Board of Governors to transform the Interim Committee into the International Monetary and Financial Committee.

Developing the IMF's Facilities

38.  Progress has been made in adapting IMF facilities to the new international financial architecture. The Supplemental Reserve Facility (SRF) was reviewed in early 1999 and the Executive Board agreed that it remained a useful instrument to ensure a prompt and effective response in times of crisis. The Contingent Credit Line (CCL) was created in April 1999 as a precautionary line of defense against future balance of payments problems that might arise from international financial contagion. The Executive Board now has under consideration the establishment of a temporary, short-term, facility to assist members that may incur balance of payments difficulties as a result of Y2K-related problems.

39.  The eligibility criteria for the CCL are demanding (Box 6) but IMF staff's preliminary judgement is that they would be met by a number of members. Inevitably, it is taking some time for members to familiarize themselves with the features of the CCL and to decide whether they wish to request access to the CCL. At this stage, members have expressed, in particular, the concern that markets do not yet sufficiently understand the nature of the CCL and may misinterpret an arrangement with CCL resources as a sign of weakness rather than strength. IMF staff are continuing preliminary discussions with a number of members that might be interested in entering into an arrangement with CCL resources. The Executive Board will review the CCL early next year.

Box 6.  Eligibility Criteria for the IMF's Contingent Credit Line (CCL)

The IMF's Executive Board has agreed to provide the CCL for members with strong economic policies as a precautionary line of defense against future balance of payments problems that might arise from international financial contagion. The CCL was established for a two-year period and will be reviewed next year.

The member should satisfy the following criteria at the time of approval of a commitment of CCL resources:

Past policies and plans for the future should be considered unlikely to give rise to a need to use IMF resources. The member should not already be facing contagion-related balance of payments difficulties.

Economic performance should have been assessed positively by the Executive Board in the last Article IV consultation and its policies should have continued to be assessed favorably thereafter. In assessing the member's performance the IMF will take into account the member's progress in adhering to relevant internationally accepted standards.

The member should have constructive relations with private creditors and should have made satisfactory progress in limiting external vulnerability through the management of the level and structure of its external debt and international reserves. The former involves the member's current standing in capital markets and efforts to ensure private sector involvement in the resolution of a possible crisis. In assessing vulnerability, a range of sustainability checks will be taken into account.

The member should submit a satisfactory economic and financial program, including a quantified framework which the member stands ready to adjust as needed.

Enhancing the IMF's Resources

40.  IMF resources have been substantially strengthened, given the effectiveness of the Eleventh General Review of Quotas in early 1999 which has allowed early repayment of the General Arrangements to Borrow (GAB) and the newly approved New Arrangements to Borrow (NAB). In view of the quota payments and sizeable repurchases by borrowing members, the IMF's liquidity ratio has risen from below 30 percent in late 1998 to over 100 percent at August 31, 1999. The financing of the ESAF and the IMF's participation in the HIPC Initiative has been under active consideration in the Executive Board and will be discussed further during the forthcoming meetings.

41.  With regard to the special "equity" SDR allocation, 89 members, accounting for almost 50 percent of the voting power, have communicated to the IMF their acceptance of the Fourth Amendment of the Articles of Agreement, which would double the amount of SDRs in the system. Further efforts will be needed to secure acceptance by the required two-thirds of the membership with 85 percent of the voting power.


Progress in Strengthening the International Financial Architecture
Proposal/Action Required Action Taken up to April 1999 Executive Board's View Progress Since April 1999 Next Steps

I. Transparency, Standards and Surveillance

A. Transparency and Accountability

(i) IMF

Public Information Notices (PINs).

Release PINs following Article IV consultations.

Extend use of PINs to policy papers.

Agreement to release PINs following Article IV consultations.

Executive Board agreed in April 1999 on procedures for the release of PINs following discussions of policy papers.

Executive Board endorsed both proposals. Executive Board took decision on June 3, 1999 on new policy agreed earlier.

PINs released for 80 percent of Article IV consultations from January-August 1999. Lags shortened and number of modifications reduced.

Since March 29, 1999, PINs released for discussions on SDDS reserves data, HIPC Initiative modifications, transparency initiatives, and monetary and exchange rate policies of Euro area.

National authorities being actively encouraged to allow release of PINs following Article IV consultations.

IMF Executive Board's next review of PIN policy planned for April 2000.

Article IV staff reports.

Allow voluntary release of staff reports.

In April 1999, the Executive Board agreed to implement an eighteen-month pilot program for the voluntary release of Article IV staff reports.

Majority in favor but views differed widely.

Executive Board took decision on June 3, 1999 on new policy agreed earlier.

By September 15, 1999, 45 members had volunteered to participate. Sixteen staff reports have been published or authorized for publication.

National authorities encouraged to volunteer for pilot.

IMF Executive Board to review experience with pilot project before the 2000 Annual Meetings. A progress report will be issued to the Executive Board for information shortly.

Use of Fund Resources (UFR)

(i) Publish Chairman's statements after Board discussions in UFR cases; (ii) publish LOIs/MEFPs and PFPs; and (iii) voluntary release of UFR staff reports.

In April 1999, the Executive Board agreed to: (i) establish a presumption that LOIs/MEFPs and PFPs would be released, subject to a review after one year; and (ii) release Chairman's statement in UFR cases, on understanding that the question of UFR PINs and release of UFR staff reports would be revisited in October 1999.

See previous column.

Executive Board took decision on June 3, 1999 on new policy agreed earlier.

As of September 15, 1999, more than 25 sets of program documents have been issued under the new policy. Others are in the process (and a few countries have released some but not all, documents).

IMF Executive Board to review policies next year. In addition, issues may be reviewed in light of experience gained in transparency in other areas.

National authorities are presumed to release LOIs/MEFPs and PFPs.

Access to IMF's archives.

Allow accelerated public access to the IMF's archives.

Executive Board decided in March 1999 to shorten time limits from 30 years to 5 years for access to Executive Board documents; and to 20 years for other archival documents.


New policy went into effect on September 9, 1999.

IMF Executive Board to review policy in two years, with view to possible further liberalization.

Enhanced evaluation of IMF's activities.

Systematic evaluation of IMF activities.

A series of evaluations had been undertaken, including internal and external evaluations of ESAF-supported programs, and a preliminary assessment of IMF-supported programs in Asia.

Diverse views on how evaluations should be conducted. Directors have agreed to take stock, following completion of current program of external reviews.

External evaluation of IMF surveillance and economic research activities issued in July 1999 and discussed by Executive Board in September 1999.

IMF Executive Board to take stock of independent evaluation process toward the end of 1999.

(ii) Private Sector

Private sector operations.

Assess how operations of key financial market participants could be improved through, inter alia, greater disclosure requirements.

Highly leveraged institutions (HLIs).

Assess appropriate supervisory regulatory structure and disclosure to markets.

Reports by BCBS and IOSCO (February 1999) on standards for banks' financial relations with HLIs. There are important gaps in this area.

Most Directors saw this as a particularly important area for improved supervision/ regulation, but recognized difficulties with design and measurement.

FSF working groups on highly leveraged institutions, offshore financial centers and capital flows have commenced work, and draft status reports have been prepared.

National authorities and standard-setting bodies (BCBS, CGFS, IAIS, IASC, and IOSCO) to pursue ongoing work.

FSF working groups to report in early 2000.

National authorities and standard-setting bodies to further develop and implement standards for banks' relations with HLIs. Consideration of public data disclosure requirements for HLIs.

FSF working group preparing report on systemic issues associated with HLIs and their impact on small and medium-size markets. The report is expected to be ready in early 2000.

B. Developing Standards


Strengthen SDDS prescriptions for:

(i) international reserves and related items; and

(ii) external debt and debt service.

Consider inclusion of macro-prudential indicators of vulnerability in SDDS.

In March 1999, the Executive Board agreed to strengthen SDDS prescriptions in the areas of debt and international reserves.

Procedures for monitoring observance of the standard were also established.

Template for reporting data on international reserves approved in March 1999.

Supportive. Some Directors concerned about degree of detail, costs of observance, and lack of symmetry in publication of data by private sector.

The Executive Board agreed that the SDDS prescription should be for dissemination of full data corresponding to the new template on a monthly basis, with a lag of no more than one month, although data on total reserve assets would still be prescribed for dissemination on a monthly basis with a lag of no more than one week. The dissemination of data for the full template on a weekly basis, with a one-week lag, was to be encouraged.

Some countries have begun disseminating information according to the reserves template. By end-August 1999, Canada, France, Germany, Switzerland, and the U.K. had started disseminating reserves data in accordance with template.

Agreed monitoring procedures for the SDDS are being implemented.

SDDS-subscribers to adhere to revised standards for reserves by March 31, 2000. Others to consider subscribing to SDDS and take necessary steps to this end. IMF staff to collaborate with other international organizations to prepare operational guidelines for reserves template.

Executive Board to set benchmarks for provision of international reserves data to the IMF by members.

IMF staff to consult with compilers on debt transition period (will report to Executive Board by end 1999).

Executive Board to review data standards to discuss a number of developments related to SDDS, including possible use as a criterion for minimum risk weighting for bank capital ratios under a revised Basel Accord.

IMF staff to collaborate with BCBS to try and develop core set of macro-prudential indicators. Executive Board to examine advantages and disadvantages of including macro-prudential vulnerability indicators in SDDS.


Approve, implement GDDS as framework for statistical development. Target countries not in position to subscribe to SDDS.

Board approved GDDS in December 1997.

Supportive. Directors recognized that for many countries data quality improvements necessary precursor to enhanced public dissemination.

By end-1999, seminars will have been held in all regions of the world and most potential GDDS clients will have participated. Metadata prepared for 13-14 countries.

The GDDS will move into its operational phase starting in 2000.

Code of Good Practices on Fiscal Transparency.

Approval, endorsement, and implementation of Code.

Code endorsed by Interim Committee. Manual to assist implementation approved by Board. Manual, questionnaire and self-evaluation posted on web site in 1998.


Countries being encouraged to make assessments of fiscal transparency. Ten countries have completed questionnaires.

National authorities to aim at adhering to Code.

IMF staff working on pilot assessments of fiscal transparency.

Code of Good Practices on Transparency in Monetary and Financial Policies.

Approval, endorsement, and implementation of Code.

Draft Code prepared and reviewed by Executive Board. Comments solicited from public and other institutions.

Agreement on principles.

Code finalized and approved by the Executive Board on July 9, 1999.

Code to be considered for adoption by Interim Committee in September 1999.

IMF staff preparing, in cooperation with other international and national institutions, a supporting document to the Code to guide members in implementation.

Banking supervision.

Address gaps in existing standards. Review 1988 Capital Accord.

Identify areas where further work could help countries achieve compliance with the Basle Core Principles.

BCBS Task Force established to review the 1988 Capital Accord.

A working group, including the  IMF and the World Bank, commenced work on developing a handbook on methodology for assessing implementation of the Basle Core Principles.


New framework proposed by BCBS in Consultative Paper on a New Capital Adequacy Framework to replace 1988 Accord.

Draft handbook on methodology developed by working group being reviewed by BCBS for final approval. IMF, independently and jointly with World Bank, has undertaken several assessments of countries' compliance with the Core Principles.

IMF and others to provide comments to BCBS on new framework by March 2000.

Task force to have concrete proposals to improve capital accord by December 1999.

IMF and World Bank likely to be main agencies responsible for assessing compliance with Core Principles. IMF will continue both independently and jointly with World Bank, to assess countries' adherence to the Core Principles.

Basel Committee to finalize handbook.

Other standards.

Relevant standard-setting bodies to complete work on developing other standards relevant for the functioning of financial systems.

Progress in developing standards in following areas: accounting, auditing, bankruptcy, corporate governance, insurance regulation, payment systems, and securities market regulation.


See Appendix II.

Relevant standard-setting bodies to continue work.

C. Surveillance

Assessing International Standards.

Better integrate use of standards into IMF surveillance.

In April 1999, Executive Board considered IMF's role in preparation and publication of reports on standards and codes.

Experimental case studies prepared for Argentina, Australia, and the United Kingdom, and released on IMF's web site.

Supportive of staff's initial experimental studies. Encouraged staff to proceed with assessment of what is feasible and to develop specific proposals for extending work. Second round of case studies published for diverse group of countries: Bulgaria, Cameroon, Czech Republic, Hong Kong SAR, Tunisia, Uganda, and Ukraine.

Executive Board considered proposals on how to proceed based on experience from two rounds of experimental case studies and an outreach program to private financial market participants and other standard setting bodies.

IMF staff to continue experimenting with the modalities involved in preparing such reports on standards. Staff to conduct assessments for a range of countries. Comprehensive reports to be built up on a modular, standard-by-standard, basis. World Bank to consider what role it can play in preparing assessments in areas outside Fund's core operational concerns.

The experience will be further reviewed in mid-2000.

External Evaluation of IMF Surveillance.

Review commenced.

Review initiated by Executive Board. Review completed and preliminary discussion by Executive Board. Executive Board to return to issues during forthcoming internal review.

D. Vulnerability Assessment

Comprehensive reporting on capital account.

Develop mechanisms for better assessing capital flows and external vulnerability.

Staff has expanded reporting to Executive Board, through WEMD, reports on financial market developments, and published reports on international capital market developments.

Enhanced creditor-side data on external debt and internal system for disseminating detailed BIS data came on line on Internet in March.

Executive Board endorsed these efforts. Work is ongoing to increase timeliness and quality of creditor-based data.

Technical assistance by IMF to members in improving data and monitoring systems.

IMF staff to continue work to implement detailed recommendations of task force.

Efforts to strengthen data systems on external debt and reserves and further public dissemination of data (see SDDS) to be continued by national authorities.

IMF to collaborate with international organizations on IATF to widen coverage of creditor data systems, shorten publication lags.

FSF expected to prepare report on short-term capital flows in early 2000.

High-frequency debt monitoring.

Develop systems to monitor short-term private debt on a high-frequency basis.

Systems to monitor interbank lines have been or are being established in Argentina, Brazil, Ecuador, Indonesia, Korea, Mexico, the Philippines, Thailand, and Turkey. Directors urged staff to continue assisting members in this area. Systems continue to be implemented and upgraded.

Encourage other borrowers to implement systems. IMF to provide technical assistance as requested.

Improved debt assessment and management by countries.

Avoid excessive levels of short-term debt; maintain adequate reserves; limit use of put options in emerging market debt instruments; avoid rigid or inflexible debt structures; promote greater debtor-creditor risk sharing so that debt-service burden adjusts with borrower's capacity to service debt, as appropriate.

IMF has begun assessing external vulnerability in the course of Article IV and multilateral surveillance, taking into account these factors. Executive Board encouraged members and IMF staff to give more attention to the vulnerabilities arising from debt and reserve management, and encouraged members to explore options for shifting risk with creditors. Work is continuing in this area. Related efforts include joint Financial Sector Assessment Program (FSAP) with the World Bank and Financial Sector Stability Assessment (FSSA) reports.

Official community: work with emerging market economies to promote best practices; continue to develop analytical basis for assessing vulnerability.

IMF staff to prepare paper on reserve adequacy by 1999.

Data provision to the IMF.

Reach agreement on minimum standard for reporting of reserves and related items.

Executive Board reached agreement on minimum standard.

IMF staff reports for surveillance and UFR discuss members' data provision practices, and summings-up systematically include a discussion on data provision to the Fund.

Most Directors were supportive of principle, but had differing views on content, reporting frequency, and lags. IMF staff developing a detailed reporting table based on SDDS reserves template.

IMF Executive Board will consider a paper on a minimum standard for reporting of reserves to the IMF in November 1999.

Early Warning Systems.

Develop and test empirical models to help predict balance of payments crises.

Develop, for use within the IMF, prototype operational models to predict crises. Saw merit in continued research; cautious about reliance as predictor of crises, concerned about publishing results in absence of a track record of reliability. IMF staff has implemented, on an experimental basis, prototype enhanced models. Forecasts from these and existing private sector models have been presented to the Executive Board in the context of the WEMD session.

IMF staff to continue to use and assess performance of existing models and develop possible improvements. Results to be periodically presented to Executive Board, consistent with concerns regarding confidentiality and the uncertainty of the forecasts.

II. Strengthening Financial Systems

Financial market supervision and development.

Strengthen focus of IMF surveillance on vulnerabilities in financial sector. Enhanced technical assistance on a wide range of financial sector areas.

Work begun on strengthening surveillance of countries' financial systems in the context of Article IV consultations.

Financial Sector Liaison Committee (FSLC) established in 1998 to enhance collaboration between the World Bank and the IMF.

Supportive. FSLC has initiated actions to enhance coordination and effectiveness of work programs, and developed guidelines.

Joint IMF-World Bank Financial Sector and Assessment Program (FSAP) initiated.

FSLC will continue to coordinate the work of IMF and World Bank in this area.

Pilot program of FSAPs begun. Experience with FSAP under pilot program will be reviewed by IMF Executive Board in early 2000.

III. Capital Account Issues

Capital controls.

Identify circumstances when there may be a role for capital controls, and approaches to achieving orderly liberalization.

Executive Board reached agreement on broad principles but differences remain on operational questions about the use and effectiveness of capital controls. Capital controls cannot substitute for sound macroeconomic policies although they may provide breathing space; prudential policies play important role in orderly capital account liberalization; case-by-case approach needed. A stronger emphasis than was previously placed on the need for a case by case approach and on the adoption of improved prudential policies to manage the risks from international capital flows.

Work in IMF and other international fora to concentrate on improving the financial systems' ability to manage risks associated with cross border flows, including through strengthening of prudential regulations and supervision both in creditor and debtor countries.

IV. Involving the Private Sector

Eliminate regulatory bias towards short-term interbank credit lines.

Make capital requirements a function of type of funding; have monetary authority charge banks directly for existence of sovereign guarantee; and, on the lending side, assign higher risk weight to short-term interbank credit lines under Basel Accord.

Broad international support indicated. Various proposals to provide more appropriate incentives for short-term lines advanced. Most Directors saw merit. Urged consideration on fast track with goal of early implementation of proposals that can gather international support. BCBS has circulated for comments a new capital adequacy framework that better aligns capital requirements to underlying risks.

Comments from supervisory authorities, market participants, and international financial institutions requested by end-March 2000.

Private contingent credit lines.

Contract market-based contingent credit lines with private institutions to trigger liquidity support in times of crisis.

Argentina, Indonesia, and Mexico arranged credit lines; Indonesia and Mexico drew down their lines in 1998. Generally supportive with appropriate pricing, but noted that creditors may withdraw other credit lines when contingent lines are drawn, and that care was needed in design. No new private contingent credit lines arranged.

Official community: assess whether there is a role for official sector to support;

Debtor countries: discuss with creditors.

Measures to extend maturities in crises.

Embed call options in debt contracts. Proposals range from narrow (short-term interbank lines only) to broad ("Universal Debt Rollover with a Penalty") coverage.

Preliminary discussions undertaken. See next column. Executive Board discussed the issue of UDROP in September 1999. Some Directors considered that this could provide a useful device for providing liquidity in crises. Most Directors considered that the UDROP should not be pursued further, since it has certain limitations.


Improved dialogue between members and creditors.

Establish regular dialogue between members and creditors.

Institute for International Finance proposed four-phase framework including closer contact with creditors before and during crises.

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

Most Directors felt that creditor-investor contacts had proved their worth during periods of market stress in Latin America and encouraged member countries as well as the IMF to expand its regular contact with markets. Work continuing.

Encourage other members to strengthen relations with creditors.

Creditor committees

Decision on desirability of such committees, and their nature and function.

Preliminary discussions. The Executive Board has noted that creditor committees could have a role to play in effectively resolving financial crises Work continues.

IMF staff is continuing to study analytical basis for committees.

Bond covenants.

Modify terms of international sovereign bond contracts to facilitate orderly resolution of financial crises.

Broad support in international community to introduce clauses, but major emerging market borrowers hesitant to take lead. Directors supported the proposal. Many Directors suggested that industrial countries introduce such terms in their own bond issues. Discussions continue in the

G-10 Deputies meetings.

G-7 Finance Ministers to further consider the possible inclusion of such provisions in their own debt instruments.

Focus on legal and practical concerns, including through consultations with private sector players and authorities of emerging market economies.

Lending into sovereign arrears.

Allow IMF to lend into sovereign arrears to private bondholders to support adjustment.

Modify the 1989 policy to allow IMF to lend into arrears to private bondholders during negotiations. Directors agreed to extend the 1989 policy on lending into arrears on a case-by-case basis to include arrears to private bondholders. Revised in June 1999. Implemented in Ukraine and Russia in June/July 1999.

Apply on a case-by-case basis.

Lending into nonsovereign arrears.

Allow IMF to lend into nonsovereign arrears arising from the imposition of exchange controls

Extend further the 1989 policy to lend into nonsovereign arrears during negotiations. Directors agreed that the IMF should be willing to lend into arrears under these circumstances, on a case-by-case basis. Revised in June 1999. Implemented in the case of Russia in July 1999.

Apply on a case-by-case basis.

Litigation stays to facilitate orderly nonsovereign debt renegotiation.

Empower IMF to impose stays on creditor litigation. National jurisdictions to adopt foreign sovereign immunity rules to temporarily protect the sovereign and/or its assets from legal process.

National governments adopt rules. Some Directors thought that amending Article VIII, Section 2(b) warranted further consideration; others did not see the need for, or feasibility of, such action. None.

Keep under consideration.

V. Strengthening the International Monetary System--Systemic Aspects

Interim Committee.

Strengthen and/or transform Interim Committee.

Executive Board discussed various proposals including transformation of Interim Committee to Council. Unanimous on need to strengthen Interim Committee. Diverse views on how to transform Interim Committee. IMF Board paper prepared and discussed by Executive Board.

Resolution prepared and forwarded to the Interim Committee for consideration.

Exchange rates.

Study measures that could improve functioning of international monetary system. Focus on systemic issues.

IMF staff study of exchange rate regimes, asset markets, and international capital flows prepared. Diverse views on merits of fixed and floating regimes in liberalized financial markets. Executive Board had preliminary discussions on key issues concerning exchange rate regimes in an environment of increasing international capital mobility, focussing on exchange rate regimes among major international currencies and emerging market economies.

Discussions to continue.

VI. IMF's Financial Facilities and Resources


Provide IMF contingent credit lines.

In April 1999, the Executive Board created CCL to support members whose economies are fundamentally sound and well managed, but which are concerned with the potential effects of contagion on their access to capital markets. Endorsed. Fund staff has begun preliminary discussions with a few members that might be interested in entering into an arrangement with CCL resources.

The CCL will be reviewed in early 2000.

IMF Resources

Increase in IMF's quotas and entry into force of IMF's New Arrangements to Borrow (NAB)

IMF quotas increased following Eleventh General Review of Quotas.

NAB activated.

Endorsed. Implemented.

IMF Executive Board to review quota formulae in the context of the 12th General Review.


Secure full financing for interim ESAF and the IMF's participation in HIPC Initiative.

IMF Executive Board has been discussing status of financing. See previous column. Ongoing.

Continue efforts to secure full financing of these initiatives.


APEC   Asia Pacific Economic Cooperation
BCBSBasle Committee on Banking Supervision
CPSSCommittee on Payment and Settlements Systems
CGFSCommittee on the Global Financial System
FSLCFinancial Sector Liaison Committee
IAISInternational Association of Insurance Supervisors
IASCInternational Accounting Standards Committee
IATFInter Agency Task Force on Finance Statistics
IFACInternational Federation of Accountants
IIFInstitute of International Finance
IOSCOInternational Organization of Securities Commissions
LOIsLetters of Intent
MEFPsMemorandum of Economic and Financial Policies
OECDOrganization for Economic Cooperation and Development
PFPs Policy Framework Papers
UFRUse of Fund Resources
WEMD   World Economic and Market Developments


Developing International Standards in Areas
Outside the Fund's Direct Operational Concern
Standard Key Agency (s) responsible Status
Securities Market Regulation International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation (a set of core principles for securities supervision) and International Disclosure Standards for Cross-Border Offerings and Initial Listings by Foreign Issuers (a set of international standards for non-financial statement disclosure) were endorsed by the IOSCO membership in September 1998. A Task Force is developing two parallel self-evaluation exercises for IOSCO members: (i) a high-level self-assessment based on the entire set of Principles; and (ii) a more detailed self-assessment based on those Principles relating specifically to the Regulator and the Issuer. The questionnaires for the self-evaluation exercises are expected to be presented at IOSCO's Annual Conference in May 2000. The Task Force is also developing mechanisms for providing assistance to the international financial institutions and the OECD in their use of the Principles.

IOSCO has carried out a number of projects with the Basel Committee. A joint paper outlining revised recommendations on trading and derivatives disclosure should be issued during the second half of 1999.

IOSCO's Technical Committee is currently evaluating the proposed international accounting standards developed by the IASC (see below) in order to determine whether it should endorse the IASC core standards for use by foreign issuers in cross-border listings and offerings. The evaluation should be completed during the first half of 2000.

IOSCO is considering mechanisms to increase the transparency of dealings of highly-leveraged institutions (HLIs) with securities firms, and the advisability and feasibility of direct disclosure requirements for HLIs. IOSCO is also considering recommendations that would strengthen risk management processes at securities firms that act as counterparts to HLIs, and improve information flows about HLI activities to regulators, market authorities, and the public.

IOSCO is a forum for cooperation between national securities regulators. Its recommendations are meant to be advisory, rather than binding, on the membership.

Insurance Regulation International Association of Insurance Supervisors (IAIS) In September 1997 the IAIS issued the Insurance Supervisory Principles, a compendium of principles, standards and guidance papers. A Task Force has been established to prepare a methodology for monitoring the implementation of the Principles which will be prepared in close collaboration with the international organizations engaged in surveillance activities. Three additional standards were issued in September 1998 relating to licensing, on-site inspections and supervision of derivatives.

The IAIS has solicited assistance from the World Bank in distributing the principles, standards and guidance notes to insurance supervisors, and in promoting implementation of the basic standards.

The IAIS consists of insurance supervisors. It is charged with developing internationally endorsed principles and standards on insurance supervision, and with assisting insurance supervisors in implementing those principles and standards through cooperation programs and training. The IAIS recommendations are advisory, rather than binding, on the membership.

Accounting International Accounting Standards Committee (IASC), International Federation of Accountants (IFAC), Basel Committee on Banking Supervision (BCBS) A comprehensive set of International Accounting Standards (IAS) has been completed and promulgated by the IASC. If endorsed by IOSCO, these standards could be used for cross-border offerings and listings in all global markets. On June 2, 1999, IOSCO published a progress report on its Technical Committee's evaluation of IASC's core standards.

Membership in IASC is predominantly private sector and carries no requirement that IAS be used. Adoption of IAS is the decision of national authorities or, where relevant, self-regulatory organizations. Some stock exchanges require financial statements in accordance with IAS as a condition for listing.

The IFAC, in partnership with international financial institutions and the global accounting firms, established the International Forum on Accountancy Development (IFAD) in February 1999 to address issues related to the development of global financial architecture through the building of accounting and auditing capacity in developing and transitional economies.

For the public sector, IFAC is formulating accounting standards based on the IAS. Development is to be completed by 2001. The IMF and the World Bank participate on the Public Sector Committee (PSC) of IFAC.

The BCBS has identified and reviewed in its Accounting Task Force those standards of interest to bank supervisors. Its evaluation of the international accounting standards developed by the IASC should be concluded by end-1999. In July 1999, the BCBS issued Sound Practices for Loan Accounting and Disclosure which provides guidance to banks and banking supervisors on recognition and measurement of loans, establishment of loan loss allowances, credit risk disclosure and related matters. The document also serves as a basic framework for supervisory evaluation of banks' policies and practices in these areas.

Auditing International Federation of Accountants (IFAC) International standards on auditing (ISAs) and audit practice statements (IAPs) have been formulated by IFAC through its International Auditing Practices Committee (IAPC). IAPC will work with IOSCO on ISAs for cross-border offerings and reporting by foreign issuers as soon as IOSCO has completed the IASC endorsement mentioned above.

A significant number of IFAC members use the ISA as a basis for developing their own national standards. The standards developed by IFAC/IAPC have no legal force; members are simply expected to use best efforts to see that IFAC and IASC pronouncements are used nationally. However, the IFAC does encourage members to undertake self review of their domestic auditing practices to evaluate how well they compare with the ISA.

Bankruptcy United Nations Commission of International Trade Law (UNCITRAL), World Bank, International Bar Association UNCITRAL adopted the Model Law in May 1997 for cross-border insolvency and this is now under consideration in a number of countries.

The World Bank is providing information to governments on good practices for reform of insolvency systems and institutional development, including the role of specialist bankruptcy courts. Discussions are underway with the International Bar Association and multilateral organizations on an initiative to develop guidelines for sound insolvency laws and the incentives for debtors and creditors to utilize insolvency mechanisms.

The IMF has prepared a paper on effective and orderly insolvency procedures. The World Bank intends to use this report in its efforts to develop guidelines for effective insolvency regimes for developing countries. In addition, UNCITRAL has expressed strong interest in collaborating with the IMF and Bank in this area.

The International Bar Association's Insolvency and Creditors Rights Committee is developing a Model Insolvency Code, which would provide a model for countries that are in the process of reforming and updating their insolvency laws.

Corporate Governance OECD, World Bank, Basel Committee The OECD Principles of Corporate Governance were endorsed at the May 1999 OECD Ministerial meeting. The principles are non-binding on OECD members. The OECD and the World Bank are setting up, with the cooperation of other international organizations, a Global Corporate Governance Forum, a Private Sector Advisory Group and regional corporate governance roundtables to promote an effective and continuing dialogue on corporate governance.

The Basel Committee addresses corporate governance in the context of banking supervision and a report was circulated in January 1998 providing a framework for the supervisory evaluation of banks' internal controls.

The World Bank Group has:

  • Supported, through lending operations, reform of corporate governance in developing countries;

  • Undertaken corporate governance assessments (CGAs) in 8 countries under the auspices of APEC. A further 12 CGAs from all over the world are contemplated in the next 6 months; and

  • Produced policy papers on corporate governance (including a framework paper which is near completion), organized or participated in international conferences and maintained a web site on this topic.


Committee on Payment and Settlements Systems (CPSS)

World Bank, United Nations

Committee on the Global Financial System (CGFS--formerly Euro-Currency Standing Committee, ECSC)

Institute of International Finance (IIF)

The CPSS is working to improve the safety and efficiency of payments systems globally. A task force of the CPSS, comprising of G-10 and emerging market economies along with the IMF, IBRD and ECB, is working on setting out principles in this area by end-1999.

The U.N. is working on developing basic social principles and the World Bank, in collaboration with other international agencies, is developing general principles of good practices in social policies.

The CGFS acts as a central bank forum for monitoring and examining the broad issues related to financial markets and systems by elaborating policy recommendations to support central banks in ensuring monetary and financial stability. The CGFS performs the following tasks: systematic short-term monitoring of global financial systems; in-depth longer-term analysis of financial markets; and articulation of policy recommendations to improve market functioning and promote stability.

The IIF has organized a series of working groups to identify best practices and to develop standards in a number of areas. These include data standards for emerging market economies; best practices for financial firms to manage risk exposure to emerging market economies; and common financial industry definitions for non-performing loans and criteria for loan classification.


1Albania, Aruba, the Bahamas, Denmark, Estonia, Haiti, Ireland, Japan, Latvia, Lithuania, New Zealand, Malta, Sweden, Trinidad and Tobago, Tunisia, and the United States.
2Since June 3, 1999 LOIs have been published for Albania, Benin, Brazil, Bolivia, Bosnia, Burkina Faso, Cameroon, Central African Republic, Georgia, Indonesia (twice), Madagascar, Mali, Moldova, Mozambique, Peru, Romania, Russia, Senegal, Tajikistan, Tanzania, Uganda, Ukraine, Uruguay and Zimbabwe. These documents can be found on the Fund's website at
3Information is available on each of these standards and codes at
4This page can be found at:
5See International Standards and Fund Surveillance-Progress and Issues (September 1999) and individual country reports, all available at
6The IMF will be solely responsible for assessments of industrialized countries.
7The review of country case studies included in-depth studies for Chile, India and Malaysia; and case studies on the experience with the: capital control to limit short-term capital inflows (Brazil, Chile, Colombia, Malaysia, Thailand); selective controls on outflows to reduce exchange rate pressures in the context of financial crises (Malaysia, Spain, Thailand); extensive controls during financial crises (Romania, Russia, Venezuela); issues associated with the liberalization of long-standing and extensive controls (China, India) and with rapid liberalization (Argentina, Kenya, and Peru).