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.

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.

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.

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.

• 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.

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.

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.