October 1, 1998

Report of the Managing Director to the Interim Committee on Strengthening the Architecture of the International Monetary System


  1. Introduction
  2. International Standards and Transparency
       The Role of Standards
       The Fund's Role in Relation to Standards
       The Fund's Progress in Developing Standards
       Measures to Increase Transparency and Accountability
  3. Strengthening Financial Systems
  4. Promoting Orderly Integration of International Financial Markets
  5. Involving the Private Sector in Resolving and Forestalling Crises
       Preventing Crises
       Resolving Crises
     Statement of the Interim Committee on the Liberalization of
     Capital Movements Under an Amendment of the Articles


  1. Collaborative Efforts to Strengthen Financial Standards
  2. Efforts to Improve Reserves and External Debt Data
  3. Efforts to Improve Transparency
  4. Key Elements of a Sound Financial System




Report of the Managing Director to the Interim Committee on Strengthening the Architecture of the International Monetary System

I.  Introduction

1. The globalization and integration of international capital markets has contributed to higher investment, faster growth and rising living standards in many countries. In the current environment, we must not lose sight of these real gains. But, as recent developments have shown, increased capital mobility and financial market integration also pose difficult challenges for policy makers, not only in countries reliant on capital inflows but also more generally. The still unfolding effects of the Asian crisis, the more recent turmoil in Russia, and their spillover to other markets, have imposed significant costs on individual countries and on the world economy. This underscores both the need to address policy weakness at the national level and the importance and urgency of our work on the international architecture.

2. The Interim Committee in April called on the Executive Board to consider steps to strengthen the architecture of the international monetary system.1 Since then, progress has been made on several fronts, but further work on many aspects of this complex challenge will be necessary in the period ahead.2 There is already broad agreement that:

3. The complexity of the tasks ahead underscores the importance of collaboration within the international community. Much valuable work related to the architecture of the international monetary system is ongoing in other fora, and this will be reflected in the forthcoming work of the Executive Board. Increased efforts on the part of national authorities and other agencies—both public and private—will be needed to ensure a profound and durable strengthening of the international architecture. There is a shared responsibility for all— national authorities, the international financial institutions, especially the Fund, and the private sector—to address urgently the issues involved in this complex task.

4. It would be unrealistic to expect that a strengthened international architecture will prevent all crises from occurring; indeed, our understanding of the causes and transmission mechanisms of financial crises is still imperfect. However, it is imperative that, in addition to striving urgently to resolve the current crises, we strengthen the international monetary system to prevent crises where we can, and seek to put in place strong mechanisms to deal with them when they do occur. Priority also needs to be given to ensure that the necessary tools are available. In particular, ensuring that the Fund has adequate resources and expertise is an integral element of the efforts to strengthen the architecture and is vital for the Fund to be an effective partner with its membership.

5. This report focuses on the main—and interrelated—areas covered by the Executive Board in relation to the agenda on international architecture, laying out key issues and priorities for the work that remains ahead on strengthening that architecture.

II.  International Standards and Transparency

6. Recent events have demonstrated that markets operate better when information is abundant, institutions are strong, legal underpinnings are enforced, and transparency and accountability prevent decision makers from favoring particular groups at the expense of the community at large. Moreover, the stability of financial systems requires that sufficient attention is paid to ensuring that all market participants operate in a transparent environment and under an internationally accepted set of principles or standards.

The Role of Standards

7. The development, dissemination, and adoption of internationally accepted standards, or codes of good practice,4 can make an important contribution to the better working of markets by allowing participants to compare information on country practices against agreed benchmarks of good practice. The adoption of standards can also improve transparency and good governance, and increase the accountability and credibility of policy. However, it is not sufficient simply to develop and disseminate standards.

The Fund’s Role in Relation to Standards

8. The intensity of the Fund’s involvement with standards should relate to the Fund’s mandate and technical expertise.

Box 1. Collaborative Efforts to Strengthen Financial Standards
Efforts are under way among international organizations in the following areas:

  • The Basle Committee on Banking Supervision is helping countries implement the Core Principles for Effective Banking Supervision including through the recently established Institute for Financial Stability. Fund staff will be intensifying its efforts to promote the effective dissemination of these principles, including through Article IV consultations, and provide practical guidance as necessary.

  • The International Organization for Securities Commission (IOSCO) has adopted and is now promoting Objectives and Principles of Securities Regulation, and Fund staff are expected to contribute to the promotion of these principles.

  • The United Nations Commission on International Trade Law (UNCITRAL) has made some progress toward harmonizing cross-border bankruptcy laws. UNCITRAL has prepared a model law designed to promote judicial cooperation and greater predictability regarding the recognition of creditor actions across jurisdictions. Fund staff, along with the staff of other international organizations, have increasingly been providing technical assistance in the design and implementation of effective bankruptcy systems.

  • A Financial Sector Liaison Committee between the Fund and the World Bank has been established to improve operational coordination by facilitating early and continuing agreement on the delineation of work of the Fund and the Bank staff on the financial sector in individual country cases and to help optimize the use of staff and experts in both institutions. Among its functions will be to facilitate the dissemination of good practices and standards, and harmonize views on recommendations and approaches regarding financial sector issues.

The Fund’s Progress in Developing Standards

9. Progress is under way on developing and refining standards in the Fund’s core areas:

Box 2. Efforts to Improve Reserves and External Debt Data
The Executive Board has addressed the need for better information regarding countries’ international reserves and external debt positions on three fronts:

Data Availability

Directors agreed that:

  • There were serious limitations to existing data on reserves and external debt in many countries.

  • The concepts of reserve assets, reserve-related liabilities, supplementary items and the treatment of financial derivative activities, need clarification. The Fund will take the lead role in developing guidelines for standardized reserve-related data, for which international agreement would be sought in the coming year.

  • Improvements in the compilation of external debt data will be given high priority, with the Inter-Agency Task Force on Finance Statistics, recently reconvened by the Fund, expected to play a lead role in coordinating the activities of various international bodies in improving compilation and providing technical assistance.

Modifications of the Special Data Dissemination Standard (SDDS)

  • It was agreed to strengthen the SDDS category for international reserves and associated components of central government debt by prescribing comprehensive coverage of reserve-related liabilities and financial derivative positions, and substantially improving periodicity and timeliness. It was agreed to aim at reporting weekly data with a maximum one-week lag. However, the sequence of steps to achieve this will need to be further elaborated.

  • Specific decisions on these modifications will be taken at the time of the Second Review of the SDDS in December 1998. It is envisaged that a transitional period, likely to be at least 12 months, will be needed to enable SDDS subscribers to come into observance with the modifications in the Standard.

  • While recognizing the complexities involved, and the resource implications for national authorities and international agencies, consultations are to begin on a two-stage process to improve external debt statistics, in the framework of the SDDS.

  • Preliminary work on indicators of financial soundness is underway in the context of the Basle Committee on Banking Supervision. Clarification is needed inter alia on the definitions of non-performing loans and other macro prudential data before soundness indicators could be considered for inclusion in the SDDS.

Provision of data to the Fund

  • There is general support for a minimum standard - of weekly data with a maximum one week lag - for the periodicity and timeliness for which data on international reserves and related items need to be provided to the Fund by members. Notwithstanding the imperfect status of current data systems, immediate efforts are underway to improve the timeliness and comprehensiveness of external debt data to improve the monitoring of capital flows.
Measures to Increase Transparency and Accountability

10. Better transparency, in both economic policy and in data on economic and financial developments, can strengthen the markets’ ability to undertake appropriate credit risk assessment and so reduce the likelihood of crises and mitigate their severity when they do occur. Information must be suitable for use by financial markets, and used effectively to discriminate between potential borrowers.

11. The Executive Board has adopted a series of concrete measures to improve the transparency of members’ policies and data, and to enhance the transparency of the Fund’s own policies and operations (Box 3).

Box 3. Efforts to Improve Transparency
The Executive Board has agreed to:

  • actively encourage members to consent to the release of Public Information Notices (PINs) following Article IV consultations and to take steps to accelerate their release. PINs will also be used to inform the public of the Board’s conclusions following policy and regional surveillance discussions in addition to following Article IV consultations;

  • more clearly calibrate the Fund’s expressions of concern over a member’s policies to help improve the effectiveness of the Fund’s surveillance. The current practice of conveying concerns already resembles a system of tiered response, but this is to be strengthened by ensuring the early involvement of the Board and the use of special and supplemental consultations in selected cases. Publication by the Fund of a report expressing its concerns should remain a last resort;

  • strongly encourage members to publish Letters of Intent and Policy Framework Papers underpinning Fund-supported programs;1

  • release HIPC documents and the internal and external evaluations of the ESAF - these documents are already on the Fund’s website - and solicit public comments on the tentative conclusions of those reviews;

  • conduct an external review on Fund surveillance in the coming year (work is already underway); and

  • publish information on the Fund’s liquidity position.

The Board also considered a number of issues where it concluded that further deliberation and analysis were necessary before decisions could be reached, notably:

  • whether to release staff reports, on a voluntary and case-by-case basis, and how to balance the Fund’s responsibility to oversee the international monetary system with its role as a confidential advisor to its members;

  • the extent to which PINs could be issued following the approval and review of the use of Fund resources;

  • whether further information could be released regarding the analytic underpinnings of individual Fund-supported programs;2 and

  • whether the waiting period for access to the Fund’s archives should be reduced, and whether the Board’s work program should be released.

1Program documents were published in almost 40 percent of all Fund-supported programs in place at August 31, 1998.
2Reviews of the design of programs and the experience of member countries under Fund-supported programs are already published in the context of ESAF reviews and the Reviews of Programs under Standby and Extended Arrangements.
III.  Strengthening Financial Systems

12. The Asian crisis and the banking sector problems faced by a large number of Fund members have highlighted the critical importance of concerted action to strengthen financial systems. Building on initiatives taken following the Mexican crisis in 1994–95, the Fund has intensified its financial sector surveillance activities, improved its internal capacity to provide technical assistance on banking sector and related issues, and contributed extensively to the financial sector restructuring and reform programs in Asia. The Fund’s efforts have involved stepped-up collaboration with other international bodies and groupings, notably the World Bank.

13. Efforts to promote strong financial sectors have been intensified in all member countries. During the past few years, the Fund, World Bank, other key international groupings, and financial supervisors from various regions have identified key ingredients of sound financial systems in both mature and emerging markets (Box 4), and established a framework for financial stability, in part by distilling international principles and good practices for sound banking.11 The Fund, together with national supervisors, regulators, and other members of the international community, is now in the process of disseminating and refining these international principles and good practices.

Box 4: Key Elements of a Sound Financial System
The main characteristics of a sound and well-supervised financial system are:

  • an adequately capitalized, well-functioning banking system, supported by an environment in which market discipline promotes high quality bank governance, strong liquidity and currency risk management, effective internal controls, and an appropriate balance between risk and return;

  • a well-defined exit or restructuring policy for under-capitalized, weak, or insolvent institutions;

  • a financial safety net that promotes confidence in the financial system while limiting public sector distortions and moral hazard that can arise, for instance, in some deposit insurance arrangements and from the improper use of lender-of-last resort facilities;

  • an autonomous regulatory and supervisory structure with the necessary levels of expertise and resources to enhance the stability of financial institutions through the use of prudential regulations such as capital requirements, the authority to conduct on-site inspections, or to delegate this authority to competent external auditors, and the ability to intervene early in cases of unsound practices or emergency situations; and

  • a well-functioning underlying financial infrastructure, including an effective payments system, an effective legal structure for contract enforcement and bankruptcy proceedings, and rules governing transparency and disclosure of information for effective corporate governance.

14. Fund staff, in close collaboration with the World Bank, has also strengthened its capability to provide advice and expertise to countries working to develop strong and sound financial systems. Within the context of Fund work with individual member countries, bilateral surveillance and technical assistance have been refocused to address the challenges.

IV.   Promoting Orderly Integration of International Financial Markets12

15. The Executive Board has considered a number of issues related to the globalization of financial markets since the last Interim Committee meeting and has reaffirmed the conclusion that financial integration, including capital account liberalization, brings substantial benefits by:

16. Nevertheless, capital account liberalization carries risks and needs to be carefully managed. Sound macroeconomic policies consistent with the attainment and maintenance of financial stability are necessary, but not sufficient, for successful liberalization. Macroeconomic stability must be firmly supported by strong financial and banking systems endowed with adequate prudential and supervisory regulations; and the pace of capital account liberalization must take into account the ability of financial intermediaries and other market participants to manage risk. Recent crises, in particular, have highlighted the problems associated with short-term debt inflows and their volatility, especially in the presence of weak domestic financial sectors.

17. The current crisis has given rise to the temptation, in some countries, to consider the reimposition of controls. While there is a need to carefully evaluate the experience of countries during the crisis to distill lessons for the future, what appears clear is that unilateral measures could carry a considerable cost for the country involved, both in terms of domestic economic activity and—very likely—for future access to international capital markets. Moreover, such unilateral actions, through their effects on investor attitudes and confidence, have clearly imposed significant risks and costs on other members of the international community.

18. The Executive Board has reached agreement on a number of key conclusions regarding the pace and scope of capital account liberalization.

19. Prudential controls are critical in managing and containing the risks associated with an open capital account. The imposition of capital, liquidity, reserve, and open-position requirements governing the composition of the balance sheets of banks are key risk management instruments. While such measures are directed toward banks, short-term foreign currency borrowing by nonbank firms can also give rise to systemic risk and need to be better monitored. More generally, experience suggests that the risks associated with short-term inflows can be reduced by prudent borrowing by the sovereign, sound management and regulation of the financial system, and incentives for corporate borrowers to manage risks appropriately. A number of countries have allowed greater exchange rate flexibility to help adjust to large swings in capital flows and to encourage the appropriate hedging of foreign currency borrowing.

20. A number of Fund members have adopted prudential capital controls to discourage undue reliance on short-term capital inflows to reduce external vulnerability. When these controls are not a pretext for delaying reforms, they may be viewed as contributing to an orderly liberalization process. Their desirability needs to be considered on a case-by-case basis and there is a presumption in favor of market-based rather than administrative measures. Capital controls, however, tend to lose their effectiveness over time and cannot be a substitute for rapid progress toward strong fundamental and financial sector reforms.

21. As regards capital outflows, a distinction needs to be made between the maintenance of controls on certain capital outflows as part of an orderly liberalization process and the sudden reimposition of controls in periods of market turbulence. While the maintenance of existing controls does not raise new issues, the sudden reimposition of controls by a country that has already substantially liberalized capital outflows is likely to impose large costs, including through reduced access to international capital markets. There is also the risk that the uncertainty generated will cause contagion to other countries under similar pressures. The reimposition of controls is generally undesirable, and should be considered only in the most extreme circumstances and in close consultation with the Fund. The commitment of the membership to maintain the degree of financial market integration that they have achieved is evident by the fact that so few countries have reimposed controls during the recent unsettled conditions in international financial markets.

22. Further efforts will be made in the period ahead to ensure that the Fund’s surveillance focuses on the appropriate sequencing of capital account liberalization, that effective safeguards are in place to help ensure the resilience of the economy, particularly the financial sector, to possible shocks, and to review promptly the experience of countries with controls on capital inflows and outflows. Work to improve the reporting and monitoring of capital flows will also continue. The Executive Board has discussed the issue of an amendment to the Articles of Agreement to address liberalization of capital movements. Future consideration of possible proposals to amend the Articles of Agreement would have to take account of recent experience.

V.  Involving the Private Sector in Resolving and Forestalling Crises

23. It is of critical importance that ways be found to better involve the private sector in forestalling and resolving financial sector crises. The Executive Board and other fora have been giving active consideration to how this might be done, with the recent crises providing a number of lessons. Different mechanisms have been employed in Korea, Thailand and Indonesia, with varying degrees of success, in an attempt to achieve the voluntary and cooperative participation of the private sector in providing relief to unsustainable debt positions. The Board has reached agreement on some guiding elements that should underlie measures to involve the private sector.

Preventing Crises

24. Prevention must continue to be the first line of defense against crises. In addition to measures to improve transparency and to adopt commonly accepted standards, crisis prevention depends critically on a range of other measures intended to improve the efficiency of domestic and international capital markets. The Board has agreed that key in this respect are:

25. Nevertheless, members will continue on occasion to experience balance of payments difficulties stemming from changes in capital flows. Consideration is being given to a range of mechanisms that could be designed ahead of time to ensure the timely involvement of the private sector in resolving difficulties while also reducing moral hazard. Such ex ante measures would be agreed between creditors and debtors in normal times with the aim of providing liquidity support from private creditors in times of stress. The challenge now is to reach consensus on the most practical measures from the menu of proposals that is emerging. The Executive Board will continue its discussion of various options, including:

Resolving Crises

26. The Fund has a central role in helping members confront pressures that develop in the financial markets and correct balance of payments imbalances without resorting to measures destructive of national and international prosperity. In this context, the involvement of the private sector can often be secured through the Fund’s traditional catalytic role and its support for the authorities’ policies aimed at restoring stability and rebuilding confidence. Uncertainties at the start of an arrangement concerning member’s access to capital markets can put official resources at risk. There may be a temporary reduction in the exposure of private creditors during Fund arrangements associated with delays in restoring or deepening access to international capital markets. Nevertheless, these risks must be taken, within carefully considered limits, to help countries resume market access through means that limit, as much as possible, interference with the workings of markets. Some of the ex ante measures under consideration would be consistent with this objective and help ensure an early involvement of the private sector.

27. However, the international community is not prepared to provide official resources, beyond certain limits, that may serve to bail out private sector lenders. Accordingly, in cases of severe balance of payments difficulties it may be necessary for the country, in the context of an early approach to the Fund, to approach its private creditors—perhaps using the good offices of the Fund—for a concerted restructuring of foreign and, in some cases, local debts so as to provide breathing room while corrective policies take hold. In such circumstances:

The agreements to restructure debt reached in the cases of Korea and Indonesia suggest a number of lessons regarding the timing of contact with creditors to help develop an understanding of what needs to be achieved, and the consequences of offering sovereign guarantees.14 These experiences need to be further evaluated.

28. The Executive Board has agreed that mechanisms to help coordinate debtor-creditor relations could be instrumental in resolving crises and that many of these could be implemented ahead of time. Further analysis and discussion in relevant fora are required to carry forward various options, including:

The potential for such creditor groups to serve as fora for renegotiating debt contracts in the context of a given country case would depend on their composition. More generally, issues regarding selectivity and privileged access to information would also need to be considered.

29. In extreme situations, where pressures on the exchange rate and reserves reach extraordinary levels and it is not possible to reach agreement on a voluntary debt restructuring, countries may find it necessary to put in place a moratorium on sovereign and/or nonsovereign debt service payments. A moratorium on servicing nonsovereign debt would likely entail the imposition of exchange controls. An early approach to the Fund would be critical in the event that countries found themselves confronting such an extreme situation. The Executive Board has agreed that:

The recent experience of Russia demonstrates the high price likely to be paid by a unilateral declaration of a moratorium—not only by the subject country but by others through contagion effects in international markets.

30. Against this background, and in circumstances where all other possible alternatives have been exhausted, it would be critically important for the authorities to move expeditiously following the imposition of a moratorium to adopt a collaborative market-based approach to debt restructuring, while exercising extreme caution regarding the assumption by the government of commercial risks on nonsovereign obligations.

31. The Executive Board has agreed that the Fund should be willing, under carefully designed conditions and on a case-by-case basis, to consider extending the 1989 decision on lending into arrears in order to provide support for members with sovereign arrears to private creditors (including bond holders), and members with nonsovereign arrears to private creditors stemming from the imposition of exchange controls. In both cases, Fund support would need to be considered essential for the successful implementation of the member’s adjustment program, and the member would need to be making good faith efforts to reach or facilitate a cooperative resolution of the arrears situation. Drawings under a Fund arrangement supporting the member’s program should be made subject to financing reviews to provide an opportunity to bring developments in the member’s relations with its creditors to the attention of the Executive Board.

32. Both of the cases discussed above assume that negotiations will lead to a satisfactory outcome that avoids disruptions to the financing of a member’s program. However, with limited experience of debt standstills in recent years, there are important uncertainties regarding how debtor/creditor relations would unfold. Some consider that, in line with experience during the 1980s debt crisis, creditor litigation is unlikely to give rise to significant difficulties. Others, however, consider that there is risk that with the shift toward securitized debt instruments and away from syndicated bank loans, creditor litigation and its possible disruptive effect on trade and financing may play a more prominent role following either a sovereign default, or a nonsovereign default stemming from the imposition of exchange controls. Widespread creditor litigation that undermined the external financing of a program would make the resolution of a crisis more difficult. In this context, the Executive Board has given preliminary consideration to the official sanctioning of a stay on creditor litigation, so as to facilitate agreement on a collaborative debt restructuring. One potential mechanism for imposing such a stay would be through an amendment of Article VIII, Section 2(b) of the Fund’s Articles of Agreement. At the current stage of the debate, some Executive Directors consider that such an amendment could provide a clear and effective response to the threat of disruptive litigation, while others consider that it would be unnecessary or damaging.

33. Extreme measures for extreme circumstances are not to be entered into lightly. In considering the issues laid out above, the international community and, most importantly, the Executive Board of the Fund must give the highest priority to the design of preventative measures to forestall crises, and ex ante measures to assure as orderly a process of resolution as possible in the event that pressures develop and a crisis occurs. We must be continually vigilant in order to detect and correct the pressures that, if unattended, can lead to crises. But we must also be ready with the needed tools in hand to deal with the crises that will inevitably occur.


Statement of the Interim Committee on the Liberalization of
Capital Movements Under an Amendment of the Articles

Hong Kong SAR
September 21, 1997

1. It is time to add a new chapter to the Bretton Woods agreement. Private capital flows have become much more important to the international monetary system, and an increasingly open and liberal system has proved to be highly beneficial to the world economy. By facilitating the flow of savings to their most productive uses, capital movements increase investment, growth, and prosperity. Provided it is introduced in an orderly manner, and backed both by adequate national policies and a solid multilateral system for surveillance and financial support, the liberalization of capital flows is an essential element of an efficient international monetary system in this age of globalization. The IMF’s central role in the international monetary system, and its near universal membership, make it uniquely placed to help this process. The Committee sees the Fund’s proposed new mandate as bold in its vision, but cautious in implementation.

2. International capital flows are highly sensitive, inter alia, to the stability of the international monetary system, the quality of macroeconomic policies, and the soundness of domestic financial systems. The recent turmoil in financial markets has demonstrated again the importance of underpinning liberalization with a broad range of structural measures, especially in the monetary and financial sector, and within the framework of a solid mix of macroeconomic and exchange rate policies. Particular importance will need to be attached to establishing an environment conducive to the efficient utilization of capital and to building sound financial systems solid enough to cope with fluctuations in capital flows. This phased but comprehensive approach will tailor capital account liberalization to the circumstances of individual countries, thereby maximizing the chances of success, not only for each country but also for the international monetary system.

3. These efforts should lead to the establishment of a multilateral and nondiscriminatory system to promote the liberalization of capital movements. The Fund will have the task of assisting in the establishment of such a system and stands ready to support members’ efforts in this regard. Its role is also key to the adoption of policies that would facilitate properly sequenced liberalization and reduce the likelihood of financial and balance of payments crises.

4. In light of the foregoing, the Committee invites the Executive Board to complete its work on a proposed amendment of the Fund’s Articles that would make the liberalization of capital movements one of the purposes of the Fund, and extend, as needed, the Fund’s jurisdiction through the establishment of carefully-defined and consistently applied obligations regarding the liberalization of such movements. Safeguards and transitional arrangements are necessary for the success of this major endeavor. Flexible approval policies will have to be adopted. In both the preparation of an amendment to its Articles and in its implementation, the members’ obligations under other international agreements will be respected. In pursuing this work, the Committee expects the IMF and other institutions to cooperate closely.

5. Sound liberalization and expanded access to capital markets should reduce the frequency of recourse to Fund resources and other exceptional financing. Nevertheless, the Committee recognizes that, in some circumstances, there could be a large need for financing from the Fund and other sources. The Fund will continue to play a critical role in helping to mobilize financial support for members’ adjustment programs. In such endeavors, the Fund will continue its central catalytic role while minimizing moral hazard.

6. In view of the importance of moving decisively towards this new worldwide regime of liberalized capital movements, and welcoming the very broad consensus of the membership on these basic guidelines, the Committee invites the Executive Board to give a high priority to the completion of the required amendment of the Fund’s Articles of Agreement.

1"Communique of the Interim Committee of the Board of Governors of the International Monetary Fund " (Press Release No. 98/14, 4/16/98).
2The summings up from the relevant Executive Board meetings are being circulated separately to the Interim Committee.
3The Executive Board will examine the experience of Fund-supported programs in the Asian crisis countries following the Annual Meetings.
4The term "standards " is used to cover a broad range of concepts, from very specific requirements for actual practices to broad guiding principles or good practices, which are less prescriptive and require judgmental consideration to assess observance.
5For example, regulators of major financial centers could raise the capital adequacy requirements on banks' lending to institutions or to countries that have not adopted certain international standards, while securities regulators could require that information on compliance be included in any prospectus. However, such measures need to be carefully designed to be effective and to avoid giving regulators a false sense of security or leaving investors with the perception that they are less exposed than is actually the case.
6Bank-Fund collaboration will be taken up as a separate agenda item for discussion by the Interim Committee.
7The difficulties with monitoring standards should not be underestimated—it will require detailed knowledge of both the standard and the professional practices to which it is relevant, but also detailed understanding of actual country practices.
8The Special Data Dissemination Standard, aimed at market-borrowing countries, and the General Data Dissemination System, the broader tier of the Fund's data dissemination standards, are both intended to enhance the availability of timely and comprehensive statistics.
9The Bank for International Settlements (BIS) is actively working to improve the collection of short-term debt and other financial sector data from central banks with a view to the provision of more timely and comprehensive data on external debt. In addition, consideration is being given to having central banks (coordinated through the BIS) collect and publish aggregate data based on the consolidated books of major global derivative dealers.
10In addition, a draft questionnaire has been designed to allow members to assess how their fiscal management practices compare to those in the Code. The draft manual and questionnaire are to be posted on the Fund's website to seek feedback from country authorities and others.
11Much of this framework is articulated in the Fund's Toward a Framework for Financial Stability, the Basle Committee on Banking Supervision's Core Principles for Effective Banking Supervision, and a G-10 Working Party paper Financial Stability in Emerging Market Economies.
12The Statement of the Interim Committee on the Liberalization of Capital Movements Under an Amendment of the Articles, issued in Hong Kong SAR on September 21, 1997, is attached.
13Pegged exchange rate arrangements have, in some cases, been perceived as a kind of guarantee of official support. Some argue this has contributed to recent crises. Others, however, have noted that the adoption of more flexible exchange rate regimes provides no panacea.
14In the case of Korea, both the authorities and the private creditors recognized the need to roll over interbank lines of credit in order to restructure the maturity profile of that part of Korea's outstanding foreign debt. In late 1997, Korea offered a sovereign guarantee as an inducement to private creditors to accept the restructuring of their claims. While the granting of government guarantees results in the socialization of private sector debt, it may be warranted where it is used to obtain a quid pro quo in terms of pricing, maturity or other terms. However, it is difficult to judge the effect of the Korean authorities' guarantee on the restructuring as an unspecified guarantee had been announced earlier in the year.