IMF Executive Board Approves New Framework for Enhanced Engagement on Governance

IMF News, April 22, 2018

Source details

Canonical URL

IMF Executive Board Approves New Framework for Enhanced Engagement on Governance

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: April 22, 2018

Adoption and purpose

• Press Release No. 18/142; April 22, 2018.
• Contact: IMF Communications Department; MEDIA RELATIONS; PRESS OFFICER: Raphael Anspach; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
• On April 6, 2018, the Executive Board adopted the policy framework set out in the staff paper “Review of 1997 Guidance Note on Governance—A Proposed Framework for Enhanced Fund Engagement.”
• The new Framework supplements “The Role of the IMF in Governance Issues: Guidance Note” (1997 Governance Policy) and responds to the July 21, 2017 Board review (“The Role of the Fund in Governance Issues—Review of the Guidance Note-Preliminary Considerations”).
• Objective: promote more systematic, effective, candid, and evenhanded engagement with member countries on governance vulnerabilities, including corruption, when these are judged to be macroeconomically critical.

Framework elements

• The Framework consists of four elements:
  • Element 1: Enable the Fund to assess the nature and severity of governance vulnerabilities—including corruption—by assessing state functions most relevant to economic activity: (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) Anti-Money Laundering and Combatting the Financing of Terrorism. The assessment will also examine the severity of corruption.
  • Element 2: Guide the Fund’s assessment of the macroeconomic implications of governance vulnerabilities taking into account the applicable standards for surveillance and the use of Fund resources; the paper lays out empirical evidence of the negative impact of governance vulnerabilities on economic performance.
  • Element 3: Provide a framework for policy advice and capacity development support to members where Fund engagement is warranted.
  • Element 4: Focus on measures designed to prevent private actors from offering bribes or providing services that facilitate concealment of corruption proceeds.

Executive Board assessment — main findings and guidance

• Directors welcomed the review of the 1997 Governance Policy and the adoption of the Framework for Enhanced Fund Engagement, noting the need for further guidance to enhance Fund engagement.
• Directors concurred that the 1997 Governance Policy remains an appropriate basis, and that the Framework will promote more systematic, candid, and evenhanded engagement on governance issues, including corruption.
• Reputational and resource risks: In circumstances where corruption is systemic, failure to address these issues in surveillance and Fund‑supported programs gives rise to reputational risks and could undermine safeguarding of Fund resources.
• Scope of analysis:
  • The state functions identified are appropriate given the Fund’s mandate regarding economic activity.
  • Analysis of rule of law should focus on aspects critical to economic performance, particularly protection of property and contractual rights.
  • Governance vulnerabilities may manifest as regulatory capture, including in financial sector oversight.
• Evidence and thresholds:
  • Assessments should be holistic, relying on both quantitative and qualitative information.
  • Staff should rely, where possible and relevant, on information already obtained by the Fund; data gaps should be specifically acknowledged.
  • Use of third‑party indicators should be consistent with Fund policy and should complement—not displace—Fund and other international organizations’ analysis.
  • The Fund should not publish country rankings of corruption or other general governance vulnerabilities.
• Surveillance and use of Fund resources (UFR):
  • The Fund should address governance issues and corruption in surveillance when the applicable standard of the Integrated Surveillance Decision has been met.
  • Determination of relevance to surveillance is based on whether governance and corruption vulnerabilities are sufficiently severe to significantly affect prospective or present balance of payments and domestic stability.
  • Flexibility in timing of inclusion in Article IV consultations is supported, in line with the approach for other long‑term issues.
  • For UFR, reforms to address governance and corruption vulnerabilities should be conditions for UFR when vulnerabilities are assessed as severe and addressing them is critical for achieving program goals.
  • Staff should recognize ongoing governance reforms in the member country; primary responsibility for governance lies with national authorities.
• Policy advice and capacity development:
  • Advice should be informed by the diagnosis, be specific and tailored to member circumstances and implementation capacity, and account for inherent complexity.
  • Emphasized importance of early and close engagement with authorities; authorities’ views should be adequately reflected in staff reports and informed sufficiently in advance.
  • Discussions should be open, transparent, candid, and use clear and direct language.
  • The Fund should continue to rely on expertise of other institutions (especially the World Bank) where it lacks comparative advantage, and collaborate to minimize duplication (e.g., AML/CFT responsibilities with FATF and other assessor bodies).
  • Capacity development support should be prioritized and well‑integrated into surveillance and UFR, anchored within a longer‑term framework, especially in fragile states.
• Transnational dimensions and private sector measures:
  • Directors supported increased emphasis on measures to prevent private actors from offering bribes or facilitating concealment of corruption proceeds, helping to reduce illicit financial flows.
  • Several jurisdictions volunteered to have legal and institutional frameworks assessed in future Article IV consultations; other jurisdictions are encouraged to volunteer.
  • Assessments will determine whether: (a) they criminalize and prosecute the bribery of foreign public officials; and (b) they have an effective AML/CFT system designed to prevent foreign officials from concealing the proceeds of corruption; assessments should take into account effectiveness of implementation.

Implementation, governance, and follow‑up

• Management plan: adopt a centralized institutional process for assessing the severity and impact of governance and corruption vulnerabilities to ensure similarly‑situated countries are treated similarly in both surveillance and UFR.
• Implementation mechanism: the centralized process will be implemented by a standing Working Group with a key role in ensuring evenhanded implementation of the Framework.
• Resource assessment and review timeline:
  • Management intends to assess the resource implications of applying the Framework in the Administrative Budget for FY 2020.
  • Directors looked forward to regular updates from staff on implementation and a review by the Executive Board within three years of adoption.

International Monetary Fund

Content in this bundle

• Policy Paper
  • Policy Paper (Markdown version)
  • Policy Paper (PDF)

References

• Review of 1997 Guidance Note on Governance - A Proposed Framework for Enhanced Fund Engagement
• IMF Blog: Shining a Bright Light into the Dark Corners of Weak Governance and Corruption
• The IMF and Good Governance -- A Factsheet
• IMF Surveillance -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home