October 30, 1998
To: The Managing Director
Members of the Executive Board
From: Ms. Lissakers (U.S.) and Messrs. Bernes (Canada), Esdar (Germany), Grilli (Italy), Milleron (France), Pickford (U.K.), and Yoshimura (Japan)
Subject: Work Program on Strengthening the Architecture of the International Monetary System

The leaders of our countries and our Finance Ministers and Central Bank Governors have issued statements today on the world economy and reforms to the international financial system. As representatives of our countries in the IMF, we would like to take this opportunity to propose some priority reforms for consideration as we develop the work program of the Executive Board to address these issues. Working in close cooperation with other members of the Executive Board, we will support and act to implement the following reforms to improve the effectiveness of the IMF, including transparency and accountability of the institution and its lending policies.


The importance of standards and codes of good practice in improving the functioning of markets and promoting transparency and good governance in the public sector is widely recognized. The IMF plays a leading role in developing standards on data dissemination and monetary, financial and fiscal policies. We look forward to decisions by year end on strengthening the Special Data Dissemination Standard (SDDS), particularly the publication of timely, accurate and comprehensive information on official foreign exchange reserves, including forward positions. We should also complete work on the proposed code on monetary and financial policy by the spring 1999 meetings. Finally, the Executive Board should consider the publication, in a timely and systematic way, the results of IMF 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.

Transparency and accountability

There is growing awareness that public institutions, including the IMF and other IFIs, need to enhance their accountability through greater transparency about their operations, objectives and decision-making processes. We believe that, as a general principle, the IMF should adopt a presumption in favor of the release of information, except where release might compromise confidentiality. The Fund should establish, announce and periodically review an agreed definition of the areas in which confidentiality should apply and the criteria for applying it in order to facilitate the release of information.

The Interim Committee has endorsed increased IMF transparency, including wider use of Public Information Notices (PINs), broader publication of Letters of Intent (LOI) and Policy Framework Papers (PFPs), and more public information on and evaluations of the Fund’s operations and policies. The discussions in the Executive Board suggest that concrete actions are both desirable and feasible which could build on the substantial progress achieved in recent years to make the Fund a more open institution. To this end, Fund policies should provide that full written summaries on a broader range of Executive Board meetings are made available to the public by issuing PINs following a discussion of: an IMF program or program review in which there is a LOI, Memorandum of Understanding (MOU) or PFP; changes in general Fund policy; and Article IV consultations. Fund policies should also make provision for the timely release of LOIs, MOUs, or PFPs following Board consideration.

The concerns which have been raised in previous discussions about the potential effects of a wider publication policy could be addressed by providing flexibility in the timing of PINs and relevant document release, possibly involving delays of up to three months following the Board discussion, and by deleting market sensitive, national security or proprietary information.

The IMF should also develop a formal mechanism for systematic evaluation, involving external input, of the effectiveness of its operations, programs, policies and procedures.

Terms and Conditions on IMF Loans

The pursuit of sound monetary, fiscal and exchange rate policies is an essential prerequisite for crisis prevention and resolution. However, recent experience demonstrates that structural reforms and a solid institutional framework are also needed to make markets more flexible and open to competition; to eliminate systemic government subsidies and regulations which distort the allocation of resources; and to provide a well-functioning financial infrastructure.

The IMF plays an important role in this effort both through its consultations and surveillance activities as well as its financial support. The recent review of Fund programs indicated, inter alia, that greater emphasis needs to be given to reducing trade barriers and unproductive expenditures. Moreover, one of the key lessons from the current crisis is the importance of having robust insolvency arrangements as a means of achieving an orderly and equitable resolution of debt problems. Therefore, the policies on the use of IMF resources should include requirements that the borrower, in accordance with a schedule for action, adopt policies to:

  • liberalize restrictions on trade in goods and services, consistent with the terms of all international trade agreements of which the borrower is a signatory;

  • eliminate the systemic practice or policy of government-directed lending on non-commercial terms or provision of market-distorting subsidies to favored industries, enterprises, parties or institutions; and,

  • provide a legal basis for non-discriminatory treatment in insolvency proceedings between domestic and foreign creditors and for debtors and other concerned persons.

All members, including our countries, should be encouraged to adopt such policies.

Achieving greater involvement of the private sector is also of critical importance both in preventing and resolving financial crises. We recognize that the issues involved in this area are complex but believe it will be essential to develop effective mechanisms to involve the private sector in crisis management, with an appropriate financing role. In this connection, the Executive Board should consider how to, under carefully designed conditions and on a case-by-case basis, extend the Fund’s policy on lending into arrears.

The terms on which the IMF extends financing can also help to reduce moral hazard, provide an incentive for early IMF repayment and encourage a return to private market financing. Therefore, Fund policies to provide loans from general resources to countries experiencing balance of payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence should provide for the imposition of a surcharge of at least 300 basis points as an adjustment for risk and shorter maturities of 1-2 years.


We look forward to working closely with you to strengthen the Fund’s capacity to deal with the challenges facing the world economy.