Report of the Managing Director to the Interim Committee
on Progress in Strengthening the Architecture of the International Financial
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
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
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
|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
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
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
- 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
1Details are available on the Fund's website at /external/pubs/ft/extev/surv/index.htm
Efforts to Improve Transparency and Accountability Within the
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
- 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.
Progress in Developing International Standards
- The experience with the release of various IMF documents (the Chairman's
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
- 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.
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.
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
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.
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
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
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
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
|Box 3. Key Issues Covered in an FSAP
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
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
- Bank exit policies and developments in bank resolution and liquidation.
- Status and developments regarding guarantee schemes and deposit
V. Key reforms to reduce vulnerabilities in the financial
system and to minimize systemic risks
- Appraisal of key structural vulnerabilities and deviations from best
- 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
- 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
- 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
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
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
- 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
- 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
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
- 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
- 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
- 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;
- 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
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
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
- 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
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
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
||Action Taken up to April
||Executive Board's View
||Progress Since April 1999
I. Transparency, Standards and
A. Transparency and
|Public Information Notices (PINs).
Release PINs following Article IV consultations.
Extend use of PINs to policy papers.
|Agreement to release PINs following
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
|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
|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
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
|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
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
|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,
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
IMF Executive Board to
take stock of independent evaluation process toward the end of 1999.
|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
|Reports by BCBS and IOSCO (February 1999) on standards
financial relations with HLIs.
||There are important gaps in this
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
National authorities and
standard-setting bodies (BCBS, CGFS, IAIS, IASC, and IOSCO) to pursue ongoing
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.
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
|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
Template for reporting data on international reserves approved in March
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
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
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
|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
The GDDS will move into its
operational phase starting in 2000.
|Code of Good Practices on Fiscal
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
|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.
|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.
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
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
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
Basel Committee to finalize handbook.
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.
bodies to continue work.
|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
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
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
|Review initiated by Executive Board.
||Review completed and preliminary discussion by
||Executive Board to return to
issues during forthcoming internal review.|
|Comprehensive reporting on capital account.
Develop mechanisms for better assessing capital flows and external
|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
|Executive Board endorsed these
||Work is ongoing to increase timeliness and quality of
Technical assistance by IMF to members in improving data and monitoring
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
|High-frequency debt monitoring.
Develop systems to monitor short-term private debt on a high-frequency
|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
Encourage other borrowers
to implement systems. IMF to provide technical assistance as requested.
|Improved debt assessment and management by
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
||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
||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
|Data provision to the IMF.
Reach agreement on minimum standard for reporting of reserves and
|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
|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
|Early Warning Systems.
Develop and test empirical models to help predict balance of payments
|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
|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.
||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)
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
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
||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
||Most Directors saw merit. Urged
consideration on fast track with goal of early implementation of proposals that can gather
||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
|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
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")
||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
Establish regular dialogue between members and creditors.
|Institute for International Finance
proposed four-phase framework including closer contact with creditors before and during
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
Encourage other members to strengthen
relations with creditors.
Decision on desirability of such committees, and their nature and
||The Executive Board has noted that
creditor committees could have a role to play in effectively resolving financial
IMF staff is continuing to study analytical
basis for committees.
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
||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
|Lending into sovereign arrears.
Allow IMF to lend into sovereign arrears to private bondholders to support
|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
||Revised in June 1999. Implemented in Ukraine and Russia
in June/July 1999.
Apply on a case-by-case
|Lending into nonsovereign arrears.
Allow IMF to lend into nonsovereign arrears arising from the imposition of
|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
||Revised in June 1999. Implemented in the case of Russia in
Apply on a case-by-case
|Litigation stays to facilitate orderly nonsovereign debt
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
||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.
V. Strengthening the
International Monetary System--Systemic Aspects
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
Resolution prepared and forwarded to
the Interim Committee for consideration.
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.
VI. IMF's Financial Facilities
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
||Fund staff has begun preliminary discussions with a few
members that might be interested in entering into an arrangement with CCL
The CCL will be reviewed in early
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.
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
|IMF Executive Board has been
discussing status of financing.
||See previous column.
Continue efforts to secure full
financing of these initiatives.
|APEC ||Asia Pacific Economic Cooperation|
|BCBS||Basle Committee on
Payment and Settlements Systems|
|CGFS||Committee on the
Global Financial System|
Association of Insurance Supervisors|
|IATF||Inter Agency Task
Force on Finance Statistics|
|IIF||Institute of International
Organization of Securities Commissions|
Economic and Financial Policies|
Economic Cooperation and Development|
|PFPs ||Policy Framework
|UFR||Use of Fund
|WEMD ||World Economic and Market
|Developing International Standards
Outside the Fund's
Direct Operational Concern
||Key Agency (s)
|Securities Market Regulation
||International Organization of Securities Commissions
||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
IOSCO is a forum for cooperation between national securities regulators.
Its recommendations are meant to be advisory, rather than binding, on the membership.
||International Association of Insurance Supervisors
In September 1997 the IAIS issued the Insurance Supervisory Principles, a
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
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
||International Accounting Standards Committee (IASC),
International Federation of Accountants (IFAC), Basel Committee on Banking Supervision
||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
||International Federation of Accountants
||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
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.
||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
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
||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
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
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 http://www.imf.org/external/country/index.htm.
3Information is available on each of these standards and codes at http://www.imf.org/external/standards/index.htm.
4This page can be found at: http://www.imf.org/standards/index.htm.
5See International Standards and Fund Surveillance-Progress and Issues
1999) and individual country reports, all available at http://www.imf.org/standards/index.htm.
6The IMF will be solely responsible for assessments of industrialized
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).