Transcript of a Conference with the Media and Civil Society Organizations on the Launch of the Revised IMF Fiscal Transparency CodeWashington, D.C.
Tuesday, May 15, 2007
MS. BISPING: Good morning, everyone, and good afternoon to those in Europe. Welcome to media and civil society organizations to this conference call on the release of the Revised Fiscal Transparency Code and Manual. My name is Jenny Bisping of the External Relations Department of the IMF. I am joined by Richard Hemming, who is the Deputy Director of the Fiscal Affairs Department. Also present are Jon Shields who heads the Department's Fiscal Transparency Unit, his colleague Lynn MacFarlane, and Conny Lotze, also of the External Relations Department. We would like to encourage all participants to ask questions during this call.
Before we open the floor to questions, Mr. Hemming will make some opening remarks. Mr. Hemming, please go ahead.
MR. HEMMING: As Jenny indicated, this is effectively the public unveiling of the 2007 Code of Good Practices on Fiscal Transparency. I am just going to make a few introductory remarks about the revised code.
This is the second revision of the Code which was introduced in 1998. The first revision was in 2001 but that was relatively minor. This revision is very significant. It is based in part on extensive public consultation with governments, international organizations, civil society, academics, and other people interested in fiscal transparency.
So what is different about the revised Code? The organizing framework of the code remains broadly unchanged but it has been slightly restructured. The main difference is that good practices in the Code have been reformulated and added to, among other things, to place more emphasis on resource revenue transparency, on the government's contractual arrangements with resource companies, on the legal basis for the private use and sale of government assets, on revenue collection, on the impacts of budget measures, on public consultation on legal and regulatory changes, on long-term public finances, and on the Citizen's Guide to the Budget.
The Manual on Fiscal Transparency and the Guide on Resource Revenue Transparency have also been revised, the Manual quite extensively to reflect information that has been complied over recent years on good fiscal transparency practices across the IMF membership, and the Guide mainly to ensure consistency with the revised Code.
Why is the Code important? In our view, the Code provides real value added because of the link between fiscal transparency, good governance and accountability, the quality and credibility of fiscal policy, and economic performance. It is because of this strong link that the Code is one of the core economic and financial standards by the Reports on the Observance of Standards and Codes, or ROSCs. Fiscal transparency ROSCs have been prepared on a voluntary basis by 86 industrial, emerging market, and developing countries worldwide and they have proved useful in identifying shortcomings in fiscal transparency and establishing priorities. These are discussed in the context of IMF surveillance and reforms to increase fiscal transparency and especially to increase budget transparency in many countries being supported by IMF technical assistance. ROSCs have also been used by markets to inform investment and rating decisions. Suffice it to say we are looking forward to applying the revised Code in particular in those countries that have yet to agree to a fiscal transparency ROSC, but also to update past ROSCs.
With these introductory remarks, I think we are now ready to take your questions.
QUESTIONER (CSO/Publish What You Pay U.S.): I just first wanted to say it was great to see a lot of the broader recommendations from the resource guides included in the fiscal Code. I just wanted to ask a question on implementation because I think many member organizations of Publish What You Pay have expressed some concern in the past over the issue that although these recommendations are fantastic, they may not be implemented in the same way in different countries. So perhaps if you could speak a bit to that.
MR. SHIELDS: The recommendations or the guidelines in the Code represent good practices. They say what should be done and what we believe are realistic policies to make sure that fiscal policy is clear and provide the basis for establishing good fiscal policy implementation. They are not necessarily best practices although in both the Manual and the Guide we do give examples of what we consider to be best practices both describing them and also giving examples of countries that carry them out. But essentially implementation will vary from country to country depending on their legal framework, depending on their background, depending on their constitutional structure, and the relative importance they attach to different aspects of economic policy and fiscal policy in particular. So it is not a one-size-fits-all approach, it's a set of guidance and principles.
We look at how countries perform in the context of IMF Article IV surveillance, and report on that. When it comes to the fiscal transparency ROSCs, asking for a ROSC is a voluntary decision by governments and the idea is that participation in that involves country ownership and, therefore, part of that is those countries may have different approaches in implementing them. But there is a strong incentive to follow the good practices and if possible best practices.
MR. HEMMING: I think another very important point to remember is that fiscal transparency is only one aspect of the quality of fiscal transparency and fiscal institutions and the Fund is advising and working with countries on a whole range of fiscal policy issues. While we might undertake a ROSC in a country and identify a number of areas where countries could introduce improvements to increase fiscal transparency, this may not be the priority vis-à-vis other areas where improvement is needed. So the Fund in terms of prioritizing how we help countries in prioritizing their needs, fiscal transparency may be an issue. It may be the most important issue in some countries and recommendations and a ROSC will be implemented quite quickly, it may be a little further down the pecking order in some other countries where you desperately need to work on strengthening the tax system and broadening the tax base or controlling public expenditure. So there will be differences in the degree of implementation for that reason.
QUESTIONER(CSO/TANSPARENCY INTERNATIONAL U.S.): We feel that the Code is such a valuable piece of work and you have talked a little bit about how it informs the dialogue between the IMF and the government, but where we really see the potential value of it, both the Code itself and the ROSCs, is in the potential for giving the citizens a tool to demand accountability from their governments on fiscal issues. So as several of you know, we have been in to meet with you to discuss this issue of how you can give it greater prominence and how there can be more outreach to civil society in country to help them understand the code or the ROSCs and how they can use them to inform their approaches to government to try to demand accountability. I don't know who is on the call, but we have been talking with Fund people about hosting a meeting here in Washington to kind of roll out the Code and get the word out here, but we hoping that that will be the beginning of a series of events that would lead to more publicity and outreach about it in the affected countries.
MR. HEMMING: I was involved in the preparation of the first code in 1998 and although I thought then that we attempted some outreach, I think we were fairly naïve and we didn't devote enough resources to that. We intend to do much more this time and we are particularly looking forward to the meeting that will be hosted by Transparency International.
You mentioned the importance of getting information to the population so that they can be informed about what the government is doing and about budgetary choices that are being made and so on and so forth, and I think one important new good practice that we introduced into the Code based upon a recommendation that came out of the public consultation was to put in as a good practice the publication of a Citizen's Guide to the budget and I think that is a very important new practice.
QUESTIONER(CSO/TRANPARENCY INTERNATIONAL U.S.): Yes, and that is something we have suggested, so we appreciate that you have taken our comments to heart on that.
MR. HEMMING: And obviously we very much appreciate the suggestion.
QUESTIONER (CSO/PUBLISH WHAT YOU PAY U.K.): A few questions, though I hope you will appreciate that I haven't had the chance to go through the whole thing line by line. The main thing I wanted to ask firstly, could you describe what new examples of best practice resource revenue transparency that you have included in the guide.
The second question is more technical and that is that you kept the definition of resource-rich countries receiving a total fiscal revenue of at least 25 percent or from total export proceeds in a country, but you have changed it to between 2000 and 2005. This definition of resource-rich is a question that comes up to me quite often and we simply use the IMF definition of it to help understand what exactly is a resource-rich country. I just wanted to know just simply why you have kept it at that definition and what you are prepared to do if people want to question whether that is a useful way of categorizing those countries.
The third question is just again what kind of updating have you done to reflect the new changes in evolving standards within EITI given that there is a sort of new validation and other sorts of standards that being developed under that process.
Sorry to lump these, but might as well lump them all together, but the fourth one is, it has been touched upon I think earlier, but it is just about what internally within the Fund is being done to absolutely make sure that there is sufficient staff, resources, and time and budget to really roll out the Guide. While we appreciate it being revised, it would be a shame not to have the revisions of the Guide really actually being put into practice. So again I just wondered if you could talk a little bit more about internally within the Fund what's being done to make it useful. Thanks.
MR. SHIELDS: There are four questions there. In terms of what we've done to expand the Code or actually make more explicit aspects of the Code, there are nine additional good practices. Some cover aspects as Richard mentioned before to do with natural resource revenue and relationships with natural resource companies. So we say that the contractual arrangements between the government and public or private entities-including both resource companies and other government concessions-such as PPPs those should be clear and publicly accessible. And also that it is important that there be a solid and explicit legal basis for granting rights to use or exploit public assets essential for mineral exploitation.
And we also go into aspects of the budgetary process, make sure that there is time for consideration of the budget. It is all very well for the executive to present a draft budget to the legislature, but that needs to be done in adequate time for proper discussion and consideration and in some countries revision therefore of the budget. And when it comes to supplementary proposals for revenue and expenditure, often one way in which transparency gets diluted is countries may be very forthcoming about the initial budget, but then through the fiscal year they keep on making supplementary proposals which aren't presented in the same way and it is difficult to understand really what is happening and what the intentions are. So while on one side we recommend to keep those supplementary budgets to a minimum, if they do happen they should be presented in a way which is fully consistent with the budget.
Another way we've pushed the envelope a little bit is on long-term reports. We're saying there should be periodically, not necessarily every year, but every few years, a report on long-term public finances. Implicit in this is that these reports should look at some fundamental issues like aging and environmental change so that there is really an underlying long-term framework to the short- and medium-term activities. Those are some of the highlights of what we're doing in terms of good practices, and we have also broadened some of the existing practices.
In particular we have tried to make sure that all information is accessible. It's not enough that actions should be recorded somewhere in a gazette of which there are usually two or three copies and you usually can't get hold of, but there be an effort to make sure the public hears of it, and the manual goes into detail actually about providing information on the Internet. There is also more on revenue than there was before and the importance of understanding about tax systems and nontax revenue and taxpayers' rights. There is quite a large array of 20 or 25 practices that have been broadened.
The question about definitions of resource-rich countries, I think-yourself about precisely how to determine this. Any definition is going to be fairly arbitrary setting specific limits. The initial limits were set with a view to a fundamental feeling of what a critical level was that was going to make these things important to the budget as a whole and to macroeconomic management, but also looking at the distribution of the countries, a sensible point to make sure that you didn't lose a few critical countries in setting a level. Having established that, and since there is bound to be some arbitrariness in it, didn't seem a good idea to make a fundamental reconsideration about it. The same principles are maintained this time. We have a longer data set. Obviously these things vary very much from year to year so that the longer the period you can look at the better. So we have extended the data period now to look at the whole of 2000 to 2005. So that is the principle behind the changes there. Obviously we've got more recent data and we hope we've got better base data there. But if there are any strong views about those definitions, we will be happy to hear about them and also look at different distributions there, but I think it certainly has been very useful to civil society to see those.
EITI has been critical in terms of raising public awareness of the issues, of establishing procedures, of getting countries committed to realizing what needs to be done to implement good practice. We see the Guide in particular as being consistent with all the aims and needs of the EITI. It obviously covers a much wider spectrum of activities than the EITI does, but within that the principles of the EITI are embodied.
In the Guide we give a bit more coverage now to what's happened with the EITI since the Guide was first published in 2005. So we record what is happening in the validation process, and I think implicit is all this encouragement for it, but it is not explicit in terms of the Guide on Good Practices. So the Code itself isn't explicit, but the Guide by describing these and justifying them I hope gives an extra push to these activities.
MR. HEMMING: I can address the resource question. The work on fiscal transparency is obviously competing along with a lot of other things in the Fund for limited resources, but my judgment is that it is actually competing quite well. One thing we have now which we didn't have when we introduced the first Code is a dedicated unit working on fiscal transparency issues and on the fiscal ROSC program. When we did this in 1998 we were a group of people doing this as a part-time job. So I think we are in a much better position now to carry the work on fiscal transparency forward and on the new code starting with the outreach.
But equally important is what I refer to as inreach. The truth is that the people who are working on fiscal transparency are not in day-to-day contact with the Fund and with the Fund membership. It's the economists in the country departments who are in day-to-day contact with the countries. Therefore, what we really have to do is devote considerable attention to in-reach. That is, making sure that the people in the country departments know about the code, know about ROSCs, know about EITI, because if we're going to convince countries to undertake ROSCs and undertake updates and to introduce measures to improve transparency, for many countries is the country departments that are going to be the main avenues though which this done.
But I don't think we should underestimate the challenge ahead and particularly in terms of expanding the countries where we have undertaken ROSCs. By definition because the ROSC is a voluntary exercise, if countries agree to be assessed under the Fiscal Transparency Code, by definition the countries who have done it already are the willing volunteers. We are increasingly trying to expand the ROSC program to what you might call the less-willing volunteers and is going to be more of a challenge and we are going to have to devote a lot of resources now to selling the new code and expanding the range of ROSCs using the new code to a new set of countries.
QUESTIONER (CSO/NEW RULES FOR GLOBAL FINANCE): Good morning, and thanks Jenny for a good job as usual.
First, I am absolutely thrilled with what the Fund is doing in this regard. I do have-I guess the format now is four questions. One is in follow-up to the question of inreach to the country departments, I am curious as to know the role of this good practice document in country surveillance in the standard Article IV work of the Fund. Related to that, in looking at a country's budget and the amount of money that is off budget in terms of foreign aid coming into countries, looking recently especially at the money coming in for health in low-income countries, significant amounts of money are off budget, what is being done about off-budget money coming from donors who are major shareholders of the Fund?
The third is what kind of outreach has been done or do you anticipate doing with parliaments? I know the Fund has an office or a person tasked with this duty what would be done in that regard.
And finally, do you anticipate any funding for low-income countries to enable them to implement this set of good practices? Thank you.
MR. HEMMING: On the question on inreach, not only the Fiscal Transparency Code, but all the Standards and Codes that are covered by the ROSCs, and also a much wider range that are part of the core standards of the Financial Stability Forum, have all played an increasing part in surveillance in various areas to which they relate. So it is quite common in surveillance activities in industrial countries and emerging markets countries and emerging markets to refer to shortcomings in fiscal transparency where these hinder either the country's ability to design and implement sound fiscal policy or the Fund's ability to monitor and report on fiscal policy, it is common practice to refer to the Code of Good Practices when indicating to the countries where they need to do something to improve the surveillance of their fiscal accounts and the transparency of fiscal operations.
A lot of our area department colleagues already know a lot about the Code. Quite often economists from our own Fiscal Affairs Department are part of surveillance missions and they can look after this aspect of an Article IV consultation, so a role is being played.
QUESTIONER(CSO/NEW RULES FOR GLOBAL FINANCE): Not in low-income countries?
MR. HEMMING: I'm going to come to low-income countries separately.
In fact, a number of ROSCs have been undertaken for low-income countries and in particular there have been applications of the Resource Revenue Guide in low-income countries that are resource rich.
You raised the specific question about off-budget activities and aid. One of the things that has been pushed in the Transparency Code since the very start and in fact was being pushed before the Transparency Code and was in fact one of the motivations for it was that it is critical that all fiscal activities and that means all sources of revenue and all sources of government are reflected in the fiscal accounts. Matter of fact, it is very difficult to find anybody who would dispute that very basic proposition. So you say if there is other aid and other flows coming into countries in particular related to the various health initiatives around the world, if these are to finance government activities, absolutely they should come through the budget and I cannot imagine that-you don't need a ROSC to be able to make that point, our country teams are making that point in all the countries concerned.
As regards to the resources available to help countries in effect implement the good practices in the code, the first thing is for low-income countries, but for countries with weaker institutions you have to prioritize. While I think Jon said earlier this is a good practice and not a best practice standard, in some of the good practices are-a number of low-income countries are going to have to wait a while before they contemplate some of these good practices while some other ones are rather urgent for low-income countries and those are the ones which get the priority. And we have technical assistance resources available to any member country who wants to implement some of the good practices in the code.
MS. WHITE: This is Kathleen White of the IMF. I'm responding to one of the questions about parliamentary outreach. Yes, indeed, the Revised Code will be flagged on our website. We have a page dedicated to parliamentarians, specifically for the issues that we care about so much in the Fund. Secondly, for our various seminar outreach events, we will make this a standard element in the menu of items that we would like to discuss with parliamentarians. We hope that they will be as enthusiastic as we are about the Citizen's Guide in particular.
QUESTIONER(CSO/NATIONAL BUDGET GROUP AZERBAIJAN): My question is do you have any specific focus for oil-rich transition countries which will be I think relevant for our oil situation when we should have established some linkage between the fiscal transparency policy and EITI issues? We have I think a very positive experience in our country like pilot countries in the EITI and in current levels we are going to held some validation process of EITI (off mike) our current achievements. Maybe we should think about a linkage between budget policy, fiscal transparency policy and EITI achievements and some of EITI's elements which now we have in the transparency area, shift to budget policy in our country. How do you think, is this possible to check and to prepare some elements in fiscal policy for our countries like the oil-rich countries, not just for our country, for maybe Kazakhstan or for some of the other oil-rich countries?
MR. SHIELDS: Yes, I think there are many dimensions to this. As you say, Azerbaijan has been in the vanguard as far as EITI implementation is concerned setting up a procedure to confirm the revenue figures, figures coming from companies are the same as those coming from the government and therefore making sure that there is a regular flow of checks to confirm information on the revenue side. But as you say, there are a lot of other aspects of transparency to make sure that the revenue is well used which is a question of budget formulation and practice, expenditure, commitment, expenditure execution processes. Many of these other elements are dealt with under the Fiscal Transparency Code and elaborated both in the guide which looks at issue particularly important to oil-rich and mineral-rich countries, but also in the manual which looks very much at detailed budget practices and availability of information.
I think as Richard was saying earlier, a very important way in which we have tried to put these ideas across is through the regular surveillance, the Article IV surveillance which Azerbaijan and like all countries participates in, and in general Article IV are published, and also through the fiscal ROSCs. Azerbaijan had one carried out several years ago and also an update of that ROSC, and they look at all these practices. But it is very much I think a continued process. These good practices are always evolving. Even developed countries that have been at the forefront are still moving and finding better ways of informing their budget processes making sure that budgets are conducted in a medium-term framework, that the public has full access to information, that they're looking at long-term implications policies. So these things are continually changing and improving.
And also I think it is very important that both governments and civil society check that progress that has been made is maintained, that there is no slipping back over time, and I hope we're providing a lot of instruments to help in that process.
QUESTIONER(CSO/NATIONAL BUDGET GROUP AZERBAIJAN): For the country I thought about EITI positive experience, I think in this case we need to include civil society groups to budget issues and fiscal transparency more actively like in the EITI process. You know validation of the EITI, consider it exactly the role of civil society like as of one of the important [inaudible] I think the same should be embodied in the fiscal transparency issue because now we have some lack of very weak role of civil society in the fiscal transparency issues in Azerbaijan. I think it considers it to clarify the role of civil society in fiscal transparency more actively and more importantly. Without it will be not full transparency on budget issues. Do you agree with me?
MR. SHIELDS: Absolutely. I think that more involvement with a well-informed civil society the better the situation is going to be. Civil society needs it to keep the public informed and involved, and government needs it because that's one route to understanding what people want and to make sure that policies are well understood. Sometimes outside groups in the public have extensive expectations about what governments are doing and sometimes it is quite useful to get information about what the limitations might be, and that is why I think on the revenue side, the resource revenue, again it is a two-edge coin. On the one hand, people want to know what's available, but on the other hand, sometimes they think until the situation is transparent that there is much more than there really is. So I think this is very positive for the whole process.
QUESTIONER(CSO/TRANSPARENCY INTERNATIONAL U.S.): I was just hoping that maybe you could elaborate a little bit on the consultation process. For example, I hear from everyone we've heard from here on the phone here today is supporting more and more transparency and getting more information out there and changing and evolving the code to move in that direction. Do you also get comments from governments that you consult with that are the reverse, that say we really shouldn't have to the major budget public or that kind of thing that are seeking to contract the code and how have you handled those issues?
MR. HEMMING: I am trying to think back. Mainly for industrial countries, I have done ROSCs for the United States, for Japan, I have done ROSCs for India, Hungry, and maybe one other which I can't remember. In none of those countries do you have discussions about the validity of the code and the validity of fiscal transparency, nor have I heard from my colleagues involved in other ROSCs that you get that.
You do sometimes have discussions about the validity of individual good practices, and certainly in the early days when we put together the first code, there were certain good practices that we were highlighting, but in those days you pretty much found there was a handful of countries, in particular, the countries were in the forefront in this days were Australia, New Zealand, and the United Kingdom, and there were a number of countries including other industrial countries who said just because Australia, New Zealand, and the United Kingdom does it, does that mean it's right for all other countries? We really thought through some of these issue rather carefully and we changed our tack on certain issues.
But I do not recall outright hostility to any particular good practice. There was always a reasoned discussion about the validity of particular practices. I don't think I've ever had to go in there and forcefully defend what we were trying to do either in general or in terms of specifics.
QUESTIONER(CSO/TRANSPARENCY INTERNATIONAL U.S.): And in this most recent round of the revisions, did you shop it around to member governments and get their comments and see any of that in this most recent round?
MR. HEMMING: Did it go to all countries or only the ones who've had-yes, it went to all the countries for which a ROSC had been undertaken. Whether there was any negative reaction, everybody is indicating no. No negative reactions I think either in general or to specific practices.
MR. SHIELDS: That is absolutely right. It was a very, very positive response overall to specific practices. I think one of the areas where the code is now pushed a bit forward is an area where there are still some countries that clearly have hesitations, in that I am talking about details of contracts particularly in terms of ore exploitation and mineral exploitation, and clearly there are reservations by some countries there concerned with commercial details between themselves and contractors. So this is an area where the discussion is still carrying on and I think more and more countries are being convinced. The code talks about contractual arrangements, in other words, making sure that the terms of contracts are available, and I think there is widespread agreement on that. When it comes down to specific contracts there are still obviously some hesitation in some places.
MR. HEMMING: As an example of that, outside the work on the code, we have been doing quite a lot of work recently on public-private partnerships for infrastructure. One of the things that we were pushing in the very early days was publication of contracts because a lot of the information you needed to understand the nature of these arrangements between the governments and the people that were giving concessions to was in the contract, and we were pushing that. One thing that struck me, actually it was brought to my attention and as soon as it was brought to my attention I saw it immediately was, there were two things. One is for the uninitiated it is awfully difficult to read one of these contracts and to understand anything that's in them. They are horrendously complicated.
The second is they clearly do contain information that could either put the government or the private party at a competitive disadvantage in negotiating future contracts. So we came up with a compromise in that case where what we said was that governments should produce some sort of template where they have the key elements of the contracts in this template on a government website but not the contracts themselves. So that all the relevant information that you need for an outsider to understand the nature of the contractual arrangement is there but the details that might be commercially sensitive are not. That turned out to be a reasonable compromise in terms of these concession type arrangements and I think it's a reasonable compromise in terms of governments' contractual arrangements with the private sector in general.
MS. BISPING: I thank you all for participating. This was a very informative conference call.
[End of conference call.]
IMF EXTERNAL RELATIONS DEPARTMENT
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