Transcript of a Conference Call on the Role of the Fund in Governance Issues (including Corruption)

August 2, 2017

MR. KANYEGIRIRE: Good morning, everyone. Thanks for joining us. My name is Andrew Kanyegirire, I'm with the Communications Department here at the IMF. Welcome to this Background Briefing via Conference Call on; ‘The Role of the Fund in Governance Issues—Review of the Guidance Note—Preliminary Considerations’. We are under embargo up to 10:00 a.m., Washington, D.C. Time, or at 2:00 p.m. GMT. The papers available via our Press Center, the Press Release, Staff Paper, and the Background Notes (are also under embargo until that time). The call is on background and so we request that for all attributions, you refer to ‘Senior IMF Official’. I will now turn over to the Senior IMF Official to make some opening remarks.

SENIOR IMF OFFICIAL: Thanks a lot, Andrew. And thanks to all of you for joining. I think you’ve received the documents under embargo, and they represent really the first step of the review that the Fund is conducting, on how it has been dealing with governance problems; and in particular, how it's been dealing with the issue of corruption. Just to give you a little bit of the context on this. The policy that it is the subject of the review was established in 1997. The policy recognizes that, in circumstances where governance problems – including corruption – have macroeconomic implications, the Fund should address it in its engagement with members – whether it be in the context of surveillance, use of Fund resources or technical assistance.

I think the key question that this paper and the discussion of the Board, seeks to address is, you know: How effective has the IMF been in implementing the policy? And, you know, the question is, why now? Well, as can be seen from both Board paper and the Summing Up, this is matter of priority because of an emerging consensus that corruption -when it is systemic - has a particularly harmful economic impact on the ability of a state to support sustainable, inclusive growth. You may have seen the Staff Discussion Note that we issued a while ago, and it basically provides an admirable framework for looking at how systemic corruption affects economic growth and how, for example, systemic corruption can exacerbate inequality by virtue of the distortions it creates in public expenditure.

So, I think there's a growing and emerging basis for us to focus, in particular on corruption. Some key takeaways from the paper and the Board discussion as to the findings of this review, on how the governance policy has been applied include some positive aspects and areas for improvement from our perspective. On the positive side, since the 1997 Policy, the Fund has launched a range of initiatives, which, while not specifically targeted at corruption, are essential ingredients to any anti-corruption strategy. For example, the Fund has been conducting fiscal transparency evaluations designed to enhance fiscal management and accountability among its members. And I think as you will see from the Staff Discussion Note that I referred to, increasing transparency has a number of general benefits: providing information to economic actors and increasing efficiency by decision-making. And it also has a particular benefit with respect to preventing corruption. So, it's a broader set of initiatives, but they do have positive effects in an anti-corruption strategy.

Secondly, on the positive side, it's clear from the review, that there are a number of cases where corruption has been so systemic that we have actually had a very explicit anti-corruption strategy as part of our programs. In other words, in the context of IMF conditionality, most recently in the case of the Ukraine, you may have seen that this is a very important part of our program, and the fact the Fund published, co-published a diagnostic study, with the authorities on the extent of corruption in Ukraine. I think it's actually one of the most frank analyses of corruption that's ever been published. But also, historically, there are other cases, Indonesia, during the Asian financial crisis; there was an explosive anti-corruption campaign to the program there. And we also identify some cases where we actually held up a program because of the lack of progress in this area; this is the case, for example, most recently in Mozambique.

That being said, I think that the survey also identifies areas for improvement - we collected a sample of Staff Reports during the period of 2005 and 2016, and it was clear that there are areas where we need to do better. Let me just identify some of the takeaways. First, the review raised questions regarding the evenhandedness of the Funds engagement on corruption issues, in the sense of treating similarly situated countries in a similar manner. In particular, the review made it clear that variation in treatment of corruption issues across countries with high levels of corruption was not clearly explained.

Secondly, the Fund has tended to engage most specifically and continuously on the part of corruption, the coverage was more episodic in context of surveillance. And this can be, explained in part because the Fund typically does engage more extensively in the context of programs that we devote our resources to, but there is a recognition that, in a number of cases, the treatment of corruption in the context of surveillance was deficient. This gives the impression that poor governance is an occasional event, rather than a well-established problem. So, that's an issue that we will need to address.

And further, there is an issue of greater clarity in our reports. In some cases, where corruption has been systemic, indirect language has been used. Use of terms such a ‘uncertain” investment climate” or “need for a level playing field” – while they may help address sensitivities - can also limit the impact of our policy recommendations.

So, in light of these – and other – findings, the Board has agreed – as a second step of the Review – to consider proposals that would strengthen Fund engagement on corruption issues. We have a second step, and this is going to be the next stage in our own analysis and discussion. And there is an agreement that the existing policy should be revisited in a number areas, with a view to providing more specific Board-endorsed guidance on how the Fund should handle corruption in a manner that ensures even handed and consistent treatment. So, I don't want to prejudge the outcome of that second step.

Let me just identify several issues that we'll be focusing on in that context. What we need to develop is a more detailed and consistent methodology that will enable us to assess both the severity of corruption in a country and the nature and extent if it is not economic impact. This is an area where the 1997 policy was general and where we think we basically need to get more specific guidance from the Board. In particular, a key objective and a key challenge for the next stage will be the development of appropriate third party indicators that would be supplemented by staff analysis and dialogue with member countries.

And secondly, it will also be important - as we move forward, to engage on corruption in a more consistent, granular and sustained way - for us to collaborate with other institutions that have expertise in this area, including the World Bank and the Regional Development Banks.

And finally, and this is an issue that was given particular emphasis during the Board meeting. We're going to basically need to develop an approach that recognizes the extent to which corruption is a global problem. And in particular, it requires addressing what some experts and in the field, call the ‘supply side’ of the problem. For example, making sure that private actors are appropriately penalized when they offer bribes to foreign officials and also making sure that legal frameworks globally ensure, for example, disclosure of beneficial ownership in (inaudible) vehicles.

So, these are some of the issues that we're going to tackle at this next stage which we hope we'll be able to bring to the Board very early next year. This was a paper that was on co-authored both by the Strategy Policy and Review department and by the Legal Department and our two departments along with the Fiscal Affairs Department will be taking the next paper going forward.

QUESTIONER: Thanks for this, such an important topic. I wonder if we could have a little more than 10 minutes. One question is, have you faced any pushback from some members of the Board on how the IMF should engage on this issue. Are you guys considering building your own name and shame ranking? And I didn't quite understand what you were talking about third party indicators being supplemented by something, I didn't catch that.

SENIOR IMF OFFICIAL: Sure. Thanks for these questions. I think, you know, obviously, the Executive Board deliberations are confidential, but I think that through the Summing Up which is part of the documentation that you've seen, you will be able to get some sense of where the Board is. I would say that there is broad support for us to engage on this issue. In part, because the problem we even have is one which is experienced by those countries who feel that they may have been unfairly picked on. So, one of the objectives is providing more specific guidance so that we can actually enhance uniform treatment and therefore the perception of fairness as we go forward.

On the issue of name and shame, no we are not intending to come up with our own ranking for naming and shaming. That would be, I think, a counterproductive approach to this. That being said, we obviously need to come up with indicators that help us with judgement as to how serious corruption is in the country. And the Fund wants to leverage all the work that has been done by other organizations who have developed these indicators, for example, the World Bank. And you will see from the paper that reviews the World Bank indicators - one of the things that the paper emphasizes and which the Board also points out is that there will be no automaticity here. The indicators will be one input into the analysis that we will bring to bear when we basically assess both the nature of corruption and the extent of that macroeconomic impact. So, we think it will be an input but it will not be the only thing that we will look at. We will also be doing our own analysis based on our own information and, of course, we will be focusing on the non-economic impact. One of the issues that we will need to be looking at in that context, is the timeframe that we would be using to assess macroeconomic implications. Because one of the things that has become clear is that while standard corruption can have a devastating economic impact on a country, sometimes it takes time for this impact to manifest itself. And the question is, is that a timeframe that is currently picked up on in our surveillance work? That is one of the issues that we're going to have to look at.

QUESTIONER: My question goes to the Fund's motivation in this matter. It seems to me that one issue, which you didn't discuss that much and I'm curious why you did not, is protecting the Fund resources. This is certainly a big motivation for the Bank's anti-corruption policy. Is there a concern at the Fund that, in extreme cases, Fund resources can be at risk in very corrupt countries? Countries where the Central Bank is part of the game and is this part of the motivation for the policy, and is there also an explicit motivation focused on social welfare and poverty reduction? I think this is tied into the point about the timeframe for assessing macroeconomic impact. So, if you could just talk about those two particular issues that could or might not be driving the policy.

SENIOR IMF OFFICIAL: First of all, the Fund does recognize the risk that where corruption is systemic, it may indeed have an impact on the safeguarding of the Fund's resources. That is why we actually have safeguard assessments that are conducted by the Fund with respect to countries that we have programs with. And we identify that program in the paper and in the staff discussion as the important component of any anti‑corruption strategy. But of course, our motivation is much more than that because when we provide financing, we don't lend just to get the money back. We lend to actually help the country overcome its problems. And we're concerned that when corruption is systemic, you cannot address the fundamental drivers of the economic problem in some cases unless you address corruption.

So, that is indeed ‑‑ it's a broader motivation, and this is the point that we try to make both in the paper and in the staff discussion note. And that is that, while poor governance and economic inefficiency can also create problems, one of the most pernicious aspects of corruption as being an element or a type of poor governance is the extent to which it exacerbates inequality because it distorts expenditure decisions, and we tried to elaborate on this in the paper. So yes, this ties in very much with the Fund's work on the issue of inequality that we have been doing which ‑‑ and the Communications Department can also give you papers on this. And there is a strong relationship between the work we're doing in the area of anti‑corruption and the work that we're doing in the area of inequality.

And the issue of the time frame is relevant in both those cases. So, that's another good point that you make which is sometimes the extent to which inequality can exacerbate economic performance may take time to manifest itself just as in the case of corruption.

QUESTIONER: So, in terms of your transparency in disclosure of corruption, are you thinking about describing this in a sort of ‑‑ only in a macro way that there ‑‑ you know, say that there is systemic corruption, or like in the case of, I think in Ukraine, are you going to call out specific names, networks and people that are found by the IMF and others to be facilitating corruption?

And secondly, in terms of the disclosure of the beneficiary investments, are you thinking along the lines of the ‑‑ what was it ‑‑ the BEPS Project, where you got a G‑20 engagement and basically, you're trying to get an entire globe to have much better beneficiary disclosure laws and then you isolate the folks ‑‑ the countries that are hold‑backs?

SENIOR IMF OFFICIAL: First of all, and it's a good thing that you raise these questions. We will not be involved in calling out specific individuals. We would be precluded in doing that. We are not an investigative agency. We are going to be identifying where corruption is systemic and how the system can be improved to address it. So, we're going to be approaching this on a systemic level. We are not going to basically insert ourselves into the investigative or prosecutorial process. That would be inappropriate.

Secondly, on the issue of beneficial ownership, indeed, this issue is part of a broader set of initiatives. You mentioned the BEPS Project. I would also mention, and this is highlighted in the paper, as you know, the Fund is probably one of the leading international innovations along with the FATF, the Financial Action Task Force, that basically assesses countries against anti‑money laundering standards. And one of the key elements of that standard is to ensure you have a legal framework that ensures disclosure of beneficial ownership and also that ensures that financial institutions and professionals, including the legal professions, basically follow an obligation to basically report information that is related to that. So, that is indeed a (inaudible) broad set of initiatives. This is a good example of broader initiatives that are not anti‑corruption ‑‑ they're not limited to anti‑corruption, but have a major impact on anti‑corruption.

QUESTIONER: But would that assessment include not just that you have standards on the books, but that you're applying them ‑‑ implementing them aggressively? I mean, there are a lot of countries that have the most excellent constitutions ‑‑ freedom of religion, freedom of speech, etcetera ‑‑ on the books, but then the judicial system doesn't apply them in any way, shape, or form.

SENIOR IMF OFFICIAL: Indeed. In fact, this is the issue ‑‑ or this is one of the issues that applies, not only in terms of beneficial ownership, but corruption more generally. I mean, you will have countries where there may not be many convictions of corruption, not because there's no corruption in the system, but because some of the institutions that are charged with the prosecutorial and conviction process are in themselves compromised.

So, we have to look at not just the legal framework but the institutional framework that basically makes any anti‑corruption strategy effective. And if you look at the AML, Anti‑Money Laundering Framework that has been set up, the standard has been revised to explicitly make it clear that any assessment has to take into account not just technical compliance of the legal framework but the extent to which it's effectively implemented. So, a major component of the standard now that is applied is on implementation. So, we completely agree with you that it is not effective just to look at essentially what the laws are on the books.

MR. KANYEGIRIRE: Thank you very much for your time and for joining us.

IMF Communications Department

PRESS OFFICER: Andrew Kanyegirire

Phone: +1 202 623-7100Email: