December 20, 2001
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At its recent meeting in Ottawa, the IMFC underscored the need for a determined and cooperative policy response to address the challenges facing the world economy in the wake of the September 11 terrorist attacks. It agreed that the IMF has a central role to play in that response, by safeguarding the stability of the international financial system, by promoting and supporting policies to restore global growth, and by maintaining the momentum of the fight against world poverty. Now more than ever, the Committee felt that it is crucial for the IMF to help guide and shape the process of globalization and ensure that it works for the benefit of all.
In light of the IMFC discussion, it is clear that the IMF will need to widen its contributions to the international effort against money laundering and the financing of terrorism, while also intensifying its work in a number of other key areas. Given the brief period remaining between now and the Spring meetings, it will be therefore crucial for the Fund's Work Program for the coming months to be strictly prioritized, concentrating on the following policy areas:
The IMFC stressed that the Fund should respond flexibly and proactively to the needs of its members in the current environment, and this will be reflected in discussions of country items, new programs, and program reviews in the months ahead.
I am pleased to submit this statement on the Executive Board's Work Program for discussion on December 10, 2001.1 The statement covers in detail the period up to the Spring 2002 meetings and provides an indication of items until the Fall meetings. We have a relatively brief period in which to complete a heavy work load before the Spring meetings. In particular, the Secretary will keep under close review the feasibility of the Board work schedule in the period March-April. Some of the planned Board discussions may need to be put back until after the Spring meetings.
A. The Global Outlook and Policy Responses2
Even before the September 11 attacks, economic activity was weakening throughout the world, and the risks and uncertainties have clearly increased since then. We continue to expect that there will be a recovery during the coming year, but there is also the possibility of a worse outcome, involving an even deeper and more prolonged downturn and increased financial strains in many countries. In this situation, the major industrial countries have a particular responsibility to rebuild the momentum of global growth and safeguard financial stability, both by taking advantage of the room to maneuver on monetary and fiscal policy, and by more ambitiously removing structural impediments to the realization of stronger economic growth potential. For their part, emerging market and developing countries will need to pursue growth-oriented policies while recognizing that there will be little market tolerance for weak fundamentals. A discussion of the interim World Economic Outlook (WEO) is scheduled for December 11. The main semiannual WEO discussion is planned for March, just prior to the Spring meetings.
In the intervening period, the Fund will continue to pay close attention to developments and prospects through multilateral and country surveillance. We will look for an opportunity in the first quarter of next year to update the Board on actions taken in the framework of my October 5 statement3 on the response to weaknesses in the world economy and new risks in the outlook. A key aspect of this framework is the contributions from other institutions and member countries, and the Board will need to encourage these as it oversees the Fund's own response. In February, the International Capital Markets Department will present its first Global Financial Stability Report (GFSR). This report, to be produced on a quarterly basis, will be the key vehicle for Fund surveillance of the international capital markets, allowing prospects for emerging market financing to be assessed in the context of global market developments.4
The substantial program of Article IV consultations, summarized in Table 1 of the Secretary's supplementary note on the work program, and discussions relating to the use of Fund resources will provide further vehicles for assessing developments in individual countries and regions, and engaging members in a proactive dialogue on confidence-building policies.
B. Strengthening and Focusing Fund Surveillance5
Building on the guidance of the IMFC, the Fund has, over the past three years, adopted a series of initiatives to strengthen surveillance, particularly its focus on crisis prevention. It has developed new analytical tools for assessing external and financial sector vulnerability, including the Financial Sector Assessment Program (FSAP); promoted transparency; and played a central role in the development and implementation of internationally recognized standards and codes. These initiatives are designed to strengthen Fund surveillance and help countries and the international financial system become more resilient to shocks.
The Board's next biennial review of surveillance, in March, will seek to define an appropriate profile for surveillance and strengthen its focus and effectiveness going forward. It will seek to establish clearer priorities for the work of the Fund concentrating on policies that are critical to building greater resilience in national economies and financial systems. As important, we need to explore ways to heighten the impact of Fund surveillance in bringing about early and preemptive policy action. The review will examine the conduct of surveillance in relation to program activities (surveillance in program countries, post-program monitoring, and staff-monitored programs) and take up possible changes in consultation cycles and other procedures. The review will take stock of how the Fund's work in the financial sector and in promoting best practices through the initiatives on standards and codes can be further integrated into surveillance. The IMFC called on the Fund to strengthen its surveillance of trade issues and to help promote international efforts to open markets and eliminate trade-distorting subsidies, particularly in the advanced countries, and against this background, the review will examine how trade policy should be treated in the Fund's work.
Ground for the biennial review of surveillance will have been prepared by two preceding Board discussions, also in March, on a range of related topics. The first discussion will involve the review of data provision to the Fund and proposals for strengthening the application of Article VIII, Section 5 (related to the furnishing of information by member countries about their activities). The second will consider the Fund's transparency and publications policy and the policy on side letters.
Reflecting the Fund's strengthening of surveillance of international capital markets, the staff will make two technical presentations in May and September, respectively, exploring facets of capital flows to emerging markets. These will provide briefings or seminars on the composition of the investor base for emerging markets and on the role of local securities markets in the intermediation of capital flows.
Improved opportunities for trade and foreign direct investment in developing and emerging market countries, including better access to industrial countries' markets, are among the most important contributions to making globalization work for the benefit of all. A paper describing the outcome of the WTO's Ministerial Conference in Doha and indicating the initial implications of the new trade round for the work of the Fund will be issued for information in December. Staff will continue to keep the Board informed as progress is made in the new WTO round.
In July, a review of the standards and codes initiative will assess the experience with ROSCs and the evidence on the role of standards in preventing crises and promoting institutional development and improved economic performance.
C. Crisis Prevention and Resolution: Private Sector Involvement and Access in Capital Account Crises6
The Fund's role in the prevention and resolution of financial crises will remain a critical priority going forward. The focus of our work will be the development of a stronger framework of presumptions to guide the Fund's role in crises and to help facilitate orderly sovereign debt restructurings that would benefit both debtors and creditors, and promote the stability of the international financial system. By developing a more transparent and more predictable framework for action, we hope to contribute to a process for cooperative and constructive engagement with the private sector. A series of Board discussions and seminars on crisis resolution and sustainability are planned to provide the basis for the development of a stronger foundation for judgments about sustainability, stronger tools for facilitating sovereign debt restructurings where such action is necessary, and a broader consensus on the criteria that should guide access to Fund resources in capital account cases. This series will start with the informal briefing on December 6 on a new approach to restructuring sovereign debt. A discussion on this topic will be held in January, at which those issues on which further work is needed will be identified.
In January, the Board will discuss techniques for complementing the catalytic approach, including the scope for voluntary and market-based operations to provide breathing space and reprofile debt-service obligations, and for moral suasion and regulatory actions to secure private sector involvement. Issues related to the restructuring of international sovereign bonds will also be addressed in January on the basis of a paper that will carry forward the analysis of these issues under the current legal framework, including the spillover effects of debt restructuring on the domestic economy.
In February, the Board will discuss the balance sheet approach to assessing vulnerability to crises as well as balance of payments sustainability, as possible contexts for making decisions on access to Fund resources in capital account crises.
A progress report by the Managing Director to the IMFC on private sector involvement will be considered in April.
Building on the above discussions and the experience in country cases, the Board will, in mid-2002, discuss access to Fund resources in capital account crises.
D. Financial Sector Work, Including the Fund's Action Plan for Combating Money Laundering and the Financing of Terrorism7
Over the past two years, the Fund has developed a comprehensive approach to promoting the stability of members' domestic financial sectors, as an essential element in fulfilling its responsibility to safeguard the stability of the international financial system. Following the events of September 11, 2001, an action plan was formulated by the Fund to intensify its contribution to the global efforts to combat money laundering and the financing of terrorism.
The IMFC supported the international efforts to combat money laundering and the financing of terrorism, and endorsed the Fund's action plan to intensify its involvement in these areas, consistent with its mandate and expertise. It agreed that the Fund should extend its efforts to include the countering of terrorism financing and to expand its anti-money laundering work to cover legal and institutional frameworks. Fund staff, in collaboration with Bank staff, will jointly draft an expanded anti-money laundering methodology document that will be used in all forthcoming FSAP and offshore financial center assessments; canvass members in a related voluntary questionnaire circulated in the context of Article IV missions; accelerate the assessments of offshore centers; and increase technical assistance. In addition, staff will enhance its collaboration with the Financial Action Task Force (FATF) aimed at converging towards a global standard covering all FATF recommendations and working to apply the standard on a uniform, cooperative, and voluntary basis. Since all these tasks produce a significant additional workload, we will need to come back to the Fund's resource requirements in the forthcoming discussions of the administrative budget.
The Board will be kept informed about the progress in implementing the Fund's action plan. By end-January, the Board will receive for information the draft of the expanded anti-money laundering methodology document, and related questionnaire, which will take account of legal and institutional issues and anti-terrorist financing elements; comments received from standard-setters on the earlier draft circulated to the Board in August; and lessons from the first pilot cases. The Fund's efforts will extend into legal and institutional issues, and it will avoid becoming involved in law enforcement issues.
In March, the Board will receive, for information, a progress report on the offshore financial centers assessment program and related technical assistance. In April, the Board will consider an interim report to the IMFC that provides an update on progress in the implementation of the Fund's action plan.
In advance of the Annual Meetings, a full report for the IMFC will be prepared on the implementation of the Fund's action plan covering experience with the usage of the expanded Bank/Fund methodology document; convergence with FATF on a ROSC module on a global anti-money laundering standard covering the FATF Recommendations; delivery of relevant technical assistance; and progress with the acceleration of the assessments of offshore financial centers.
The Fund's action plan should be seen as part of international efforts in this area. As stated by the IMFC, the fight against money laundering and the financing of terrorism requires the active participation of both financial intermediaries and the public sector. Therefore, the Committee urged further action, calling on all countries to establish Financial Intelligence Units, make provisions to ensure the sharing of information and deploy appropriate technical assistance. Responsibility for implementing, monitoring, and assessing progress with regard to these actions rests with national authorities and the relevant specialized agencies (i.e., the UN, the Egmont Group, FATF, UNDCP, and others).
Simultaneously, the Fund's broader work on financial sector issues will be ongoing. In May, the Board will discuss a financial policy framework for the management of systemic banking crises, and the necessary elements to avoid such crises. In June, Directors will review the experience under the FSAP and consider guidelines for the period ahead on the basis of a joint Fund-Bank staff paper.
A paper on consolidation in the financial services industry, reviewing international trends in the industry and their implications for the surveillance of financial systems, assessments of systemic risk potential, and regulatory and supervisory arrangements, with particular emphasis on developing countries and FSAP assessment methodologies, will also be discussed in June.
E. Focusing Conditionality and Fostering Ownership8
In our ongoing examination of Fund conditionality, there is broad agreement that the objective is to make Fund-supported programs more effective by concentrating on the priorities in the Fund's core areas of responsibility, and above all by fostering country ownership of reforms. We have already begun to address key aspects, including streamlining structural conditionality, Fund/Bank collaboration, and feedback from external consultations.
In January, the Board will discuss the modalities of conditionality-further considerations, including the scope for results-based conditionality, the use of prior actions, waivers, program reviews, and the role of financing assurances. In February, the Board will consider a paper distilling the lessons from the review of conditionality over this year, including issues raised in previous Board discussions and by outside commentators. We will use these discussions and lessons from the initial experience as a basis for proposals to the Board before the Annual Meetings on new and concrete guidance to the staff.
F. Sustaining Poverty Reduction9
The IMFC also stressed the critical importance of sustained international support for efforts in low-income countries to reduce poverty and achieve debt sustainability. Meaningful progress will require a renewed and strengthened commitment by low-income countries and the international community as a whole. To this end, prior to the Spring meetings, the Fund and the Bank will sponsor an international conference on the PRSP approach and the PRGF on January 14-17. In March, the Board will consider a joint Fund/Bank staff paper containing a comprehensive review of the PRSP approach and a Fund staff paper on a review of the PRGF, drawing on the views of member countries, international institutions, donors, academics, and civil society. An outline of the staff plans for the PRGF review was recently circulated for information. For the Spring meetings, the IMFC will review the Fund's assessment of the situation in these countries and our ongoing efforts under the PRSP approach and the PRGF/HIPC Initiatives.
Several additional staff papers will address HIPC issues. In March the Board will discuss a paper, prepared jointly with the Bank, on progress in implementing the HIPC Initiative. Two related papers, on action plans for strengthening public expenditure management capacities and external debt management in HIPCs, will be circulated to the Board in the first quarter of 2002. An update on the financing of the Fund's participation in PRGF/HIPC Initiatives will be discussed in March, while the investment strategy and guidelines for both initiatives will be discussed in July.
In January the Board will consider three papers concerning information reporting in HIPC cases. The first, a joint Fund/IDA paper, will contain proposals covering corrections or other revisions to data underlying debt sustainability analysis at the decision point, or to information used to assess a country's track record. The second paper will address possible changes in the Fund's legal framework to enable the Fund to respond when assistance committed at the decision point was based on incorrect information. The third paper will address general principles of law that could apply to cases of misreporting prior to the adoption of the new misreporting scheme.
The Fund, together with the World Bank, the EBRD, and the Asian Development Bank is launching an initiative to focus attention on the low-income CIS countries. A paper on the promotion of growth and poverty reduction, incorporating the previously announced progress report on debt sustainability in these countries, will be circulated for information in January and will inform the February 2002 Bank/Fund sponsored meeting with the CIS officials, donors, creditors, and international organizations. Following consideration of the next steps under the initiative at this meeting, the staff will report to the Board.
I consider the review and further improvement of the effectiveness of the PRSP process as an important contribution by the IMF to the UN's Conference on Financing for Development in Monterrey in March 2002. More broadly, the Fund should be as proactive and constructive as possible to help make this conference a step forward in the efforts to fight poverty and promote broadly shared prosperity in the world. Management will continue to keep Directors informed of the progress on the preparations. Early next year we would also propose to host another meeting of Executive Directors with the Financing for Development Bureau involved in the preparatory process.
G. Other Items10
Technical Assistance
I believe that the Fund must remain vigilant in ensuring that its technical assistance (TA) is well prioritized, efficiently managed, and closely integrated with the core activities of the Fund. It can thereby make an effective contribution to the reform and capacity building efforts of member countries. At the same time, demands on the Fund's limited TA resources have again grown sharply in recent months, highlighting the need for additional resources. In March, the Board will review the Fund's technical assistance policy and experience. Following from the January 2001 Board discussion of TA policy, the paper will review experience in refocusing TA on the Fund's main programs and key policy initiatives, address issues related to Technical Consultations (TCs) and Technical Cooperation Action Plans (TCAPs), report on new initiatives to manage TA more efficiently, review and make proposals regarding the policy on publication of TA reports, and discuss resource issues related to intensified technical assistance priority areas.
Quotas
Following on the recent discussion on alternative quota formulas, the Board will hold a seminar in January for an initial review of the issues relating to the 12th quinquennial review of quotas. Thereafter, a follow up paper on quota formulas will be considered by the Board.
SDRs
The Board will consider on December 12 a paper on basic considerations concerning a general allocation of SDRs prior to the start of the next basic five-year period on January 1, 2002; further discussions may be required.
Overdue Financial Obligations
The next review of the strategy on overdue financial obligations to the Fund will be conducted in August, although, at Directors' request, a review of the fundamental issues related to Sudan's arrears will be held in advance of that discussion.
Administrative, Financial, and Other Topics
On December 13, the Budget Committee will be presented with the proposed budget reforms for the overall FY 2003 budget and medium-term framework, in preparation for a committee discussion in February on the framework that will include a review of the Fund's medium-term information technology strategy. The Administrative and Capital Budgets will be discussed in April. In June, the Board will consider the proposed budget for the HQ2 building project.
The relevant committees will consider proposals concerning the Staff Retirement Plan, the Medical Benefits Plan, and selected aspects of the staff compensation system.
The periodic reviews of the Fund's income position will take place in December and April.
In March, the Board will consider the experience with, and next steps in the area of, the safeguard assessments of central banks that were introduced in July 2000 on a pilot basis. This examination will take place together with a review of the results of an independent evaluation of safeguard assessments by a panel of experts.
The work program of the Independent Evaluation Office for the coming three years, as well as the budget of the office, were discussed on December 5. A progress report to the IMFC on the office's activities will be for consideration in April.
A paper on the Fund's external communications strategy will be discussed in the Spring.
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1 This statement should be read in conjunction with attached Charts 1 and 2, which provide an overview of the main policy items proposed for discussion, as well as Tables A through G, which detail the items in the proposed Work Program.
