Reports on Observance of Standards and Codes

Public Information Notice: Assessing the Implementation of Standards--An IMF Review of Experience and Next Steps, March 05, 2001

Comments can be sent to:
Coordination and Standards Division
Policy Development and Review Department
International Monetary Fund
Room 5-100
700 19th Street, NW
Washington, DC 20431

What do you think of Reports on the Observance of Standards and Codes?

Experimental IMF Reports on Observance of Standards and Codes
Overview And Invitation to Comment

September 21, 1999


Widespread adoption of internationally recognized standards, or codes of good practices, can make an important contribution to improving policy making. In the context of its surveillance activities, it is important for the IMF to appreciate the extent to which standards have been developed in various areas, what needs to be done to further strengthen and improve various standards, and what is required to encourage their adoption and implementation by countries. The IMF also needs to understand country practices in the areas covered by international standards in order to help assess vulnerabilities. Some in the international community have called on the IMF to go further and to prepare and publish reports - referred to by the G-22 as "transparency reports" - that summarize the extent to which countries observe internationally recognized standards.

To help focus on the practical issues involved in preparing such reports, the IMF staff (in conjunction with the authorities of the economies involved) has embarked on a series of experimental Reports on the Observance of Standards and Codes (ROSC). To date, reports have been prepared for a range of countries. These reports, together with three IMF staff papers, are being made available on this web site. The first paper describes the experience gained by IMF staff in preparing the case studies in the period up to September, 1999, and lays out the conceptual and practical issues associated with assessing countries' observance of standards. The Summing Up of the IMF Executive Board discussion of this paper is also provided. The third paper, prepared in March, 1999, provides background information on the development of standards in various areas.

It is generally agreed that the adoption of internationally accepted standards, or codes of good practice, can make an important contribution to the better working of markets and a strengthening of the architecture of the international monetary system.1 Allowing market participants to compare information on potential borrowers--both public and private--against agreed benchmarks should lead to better-informed lending and investment decisions. To the extent that the goals and instruments of policy are known publicly, and country authorities are credible in their commitments, reports on the observance of standards should increase the accountability of policy makers and contribute to better policy-making and improved economic performance. In any event, assessments of countries' observance of standards, whether made available to the public or not, should be of considerable benefit to government authorities by providing a desired benchmark for policy-making.

Standards relevant for the functioning of domestic and international financial systems cover a range of areas, including data dissemination, fiscal, monetary and financial policy transparency, banking regulation and supervision, securities and insurance regulation, accounting, auditing, bankruptcy and corporate governance.2 The IMF's responsibility for macroeconomic and financial sector surveillance has increasingly required staff to evaluate whether institutional structures and policy practices are consistent with an effectively operating financial sector. Assessing the observance of standards has, therefore, become an increasingly important element of surveillance.

Effective surveillance requires the IMF to understand thoroughly country practices in areas of its direct operational concern, such as data dissemination, transparency of fiscal, monetary and financial policies, and banking supervision. However, countries' practices in the areas of accounting, auditing, bankruptcy, corporate governance, and the like, have also had an increasing bearing on issues arising in Fund surveillance and Fund-supported programs. To conduct effective surveillance, it is necessary that the IMF has sufficient an understanding of practices in these areas to be able to assess vulnerabilities and to understand the implications of particular developments for the effective operation of domestic and international financial systems.

Many in the international community are looking for the IMF to go further in monitoring countries' observance of international standards. The Report of the G-22 Working Group on Transparency and Accountability (October 1998) noted that, while no one organization has the requisite expertise and resources to assess the observance of all relevant standards, the IMF should prepare a transparency report "that summarizes the degree to which an economy meets internationally recognized disclosure standards". This view was endorsed subsequently by the IMF Interim Committee, and G-7 Finance Ministers and Central Bank Governors on October 30, 1998 and again in June, 1999 (see Box 1).

By highlighting actual practices and identifying those in need of improvement, transparency reports could reduce the likelihood that market participants are uninformed or misled, and enhance the credibility of those national authorities following sound practices. In doing so, such reports may contribute to better economic performance while also reducing the frequency and severity of future crises. However, the degree of expertise required for surveillance, particularly in areas outside of the Fund's direct operational focus, is markedly less than that required to prepare independent assessments of economies' observance of particular standards.

Box 1: Recommendations of the G-22 and the G-7

The report of the G-22 Working Group on Transparency and Accountability (October 1998) recommended that:

The IMF, in the context of its Article IV consultations, prepare a report–a Transparency Report–that summarizes the degree to which an economy meets internationally recognized disclosure standards.

The Working Group proposed that Transparency Reports be published, noting that:

"Publication of Transparency Reports should not be voluntary; it would be paradoxical for a Transparency Report to be kept confidential."

The Declaration of G-7 Finance Ministers and Central Bank Governors (October 30, 1998) called on:

  • the IMF to monitor in close co-operation with the standards-setting bodies the implementation of these codes and standards as part of its regular surveillance under Article IV 1;

  • the IMF to publish in a timely and systematic way the results of its surveillance of the degree to which each of its member countries meets internationally recognized codes and standards of transparency and disclosure in the form of a Transparency Report; and

  • the Fund, World Bank and OECD and the international regulatory and supervisory organizations to work closely together to provide advice and, where necessary, assistance to countries to help them meet these internationally agreed codes and standards.

The Report of G-7 Finance Ministers to the Köln Economic Summit on Strengthening the International Financial Architecture (June 18, 1999) reinforced their earlier views by placing high priority on the following:

  • developing a system for surveillance of implementation of the codes and standards, built on the Article IV process of the IMF, involving close collaboration with the World Bank and the standards-setting bodies; and,

  • systematic incorporation of information on a country's observance of transparency standards in the Fund's regular Article IV surveillance reports, as well as in special reports on country transparency practices prepared by the staff.

1The G-7 communique refers to standards related to fiscal transparency, transparency of monetary and financial policies, data dissemination, accounting standards, corporate governance, and disclosure standards for private sector financial institutions involved in international capital flows.

In considering what role could be played by the IMF in expanding the type and scope of the monitoring of international standards, it is useful to draw a distinction between those areas which are core and non-core to the Fund's daily operational focus.

  • In areas of direct operational concern, the IMF has the technical expertise to play the lead role in the monitoring the observance of standards. These core areas include both those where the Fund has the lead role in developing the standard--data dissemination, fiscal transparency, and monetary and financial policy transparency--and one particular area--banking supervision--where others have played the lead role in development, but the Fund uses the standard on a regular basis and can monitor observance through its surveillance activities.

  • Non-core areas are considered to be those which, while important for the effective operation of financial systems, are outside of the direct operational focus of the IMF. In areas such as accounting, auditing, securities market regulation, bankruptcy, and corporate governance, the Fund has little role in developing standards. Many of these areas have been envisaged by proponents as part of transparency reports, yet the Fund lacks the technical expertise to make independent assessments of the extent to which the standards are observed in these areas. Other institutions and organizations, in particular the World Bank, have expertise in these areas and experiments are underway to determine the respective roles of these institutions and the Fund in preparing assessments. However, it needs to be recognized that, at this stage, no international institution or group of institutions, can provide assessments for all countries and for all non-core standards. This suggests that preparation of assessments in the non-core areas will proceed slowly in the period ahead.

Experimental case studies

To assist in understanding the modalities involved in the preparation of Reports on the Observance of Standards and Codes (ROSCs), IMF staff, in conjunction with the relevant national authorities, prepared a series of experimental case studies. The first group of studies - for Argentina, the United Kingdom, and Australia - was completed in March, 1999. The second group of studies - for Bulgaria, Cameroon, the Czech Republic, People's Republic of China-Hong Kong Special Administrative Region, Tunisia and Uganda - were completed by September, 1999. With the exception of the Australian report, which is a self-assessment prepared by the authorities with input from IMF staff, these reports were prepared by IMF staff on the basis of information provided by, and in close cooperation with, the authorities.

The process of implementing standards is likely to be ongoing and there may be advantages for some countries in staggering the process of producing material on the adherence to standards by preparing separate modules on each particular standard. For example, it may make sense to prepare a self-assessment report on data dissemination and fiscal transparency practices today, with modules on banking supervision and monetary and financial transparency to be prepared at a later time. This approach was in fact adopted for the Cameroon and Ukraine reports, for which only a module on fiscal transparency was prepared.

These studies do not exhaust the possibilities in terms of either form or content and are not intended to prejudge the desirability of producing ROSCs. Other possibilities in terms of form and content include an approach that combines a self-assessment prepared by the authorities with an independent evaluation of that self-assessment. This could take the form of members' preparing an Australian-style self-assessment with IMF staff commentary on observance of the IMF's core standards modeled on the Argentina and United Kingdom reports.

A range of country studies have now been released along with the most recent staff policy paper and the concluding remarks from the Executive Board discussion of that paper. The IMF is inviting public comment on the structure, content and value of ROSCs to market participants and national authorities. Comments can be sent or e-mailed to:

Standards and Coordination Unit
Policy Development and Review Department
International Monetary Fund
Room 5-100
700 19th Street, NW
Washington, DC 20431

e-mail Address:

1See for example, the IMF Managing Director's Report on Strengthening the International Architecture (October 1, 1998), the Summary of Reports on the International Financial Architecture prepared by the G-22 (October 1998), the Declaration of G-7 Finance Ministers and Central Bank Governors (October 30, 1998), and the APEC Leaders' Declaration (November 18, 1998).

2See the accompanying paper, Progress Report: Developing International Standards, which indicates that progress in developing standards across these areas has been mixed.