July 12, 2002
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At its recent meeting, the IMFC welcomed the catalytic role that the Fund has been playing in promoting a recovery in the global economy and endorsed the Fund's ongoing work to help safeguard the stability of the international financial system. The key challenge is to reinforce progress toward broad-based sustainable growth and an improvement in all our members' prospects, including low-income countries. Building on the direction given by the IMFC, we will continue working to improve the Fund's capabilities for crisis prevention, develop a stronger framework for crisis resolution, including the resolution of sovereign debt crises, and help to secure progress in durable poverty reduction. The Fund will also be expected to continue to provide support—consistent with its mandate and expertise—to the international efforts to combat money laundering and the financing of terrorism.
I am pleased to submit this statement on the Executive Board's Work Program for discussion on May 22, 2002. The statement covers in detail the period up to the 2002 Annual Meetings and identifies additional items until the Spring 2003 meetings.1 This is obviously an ambitious program, which will require prioritization of discussion items under each of the headings noted below.
The main items on our work program are:
In addition, the Board will carry forward its work on the Twelfth General Review of Quotas; review the Fund's technical assistance policy; discuss the Fund's external communications strategy; and consider the first of a series of reports by the Independent Evaluation Office.
A. The Global Outlook and Policy Responses 2
The IMFC welcomed the markedly improved prospects for the world economy since the meeting in Ottawa, and stressed that the challenge now is to make growth in the global economy more robust and dynamic, based on continued vigilance and a further strengthening of medium-term policy frameworks focused on tackling underlying imbalances. In these areas, the Fund must continue to shape its role as lead contributor. Discussions on the quarterly Global Financial Stability Report (GFSR) are planned for May 29 and late August, and sessions on World Economic and Market Developments (WEMD) will take place in late June and early September, the latter in conjunction with the next semi-annual World Economic Outlook (WEO) discussion. As we move forward, the staff will enhance its coordination of the coverage and analysis of topics addressed in the GFSR and the WEO papers, and increase the complementarities between them. Drawing upon the results of a broad-ranging research project, an informal Board seminar on exchange rate arrangements in developing countries is planned for early 2003.
It is my view that an important element of making globalization work for all will be greater efforts, particularly by the industrial countries, to ensure that developing countries secure improved market access for their exports. In this regard, the IMFC stressed the vital importance of open trade, and our work on trade issues will advance on several fronts going beyond the 2002 Annual Meetings, in close cooperation with the World Trade Organization and the World Bank. The Fall WEO paper will include a chapter on trade. Just ahead of the Spring 2003 meetings and the Fifth WTO Ministerial Meeting, the Board will consider the progress with the Doha agenda, including implications for the Fund's work. The Board will also have an opportunity to review two background papers. The first, in July, will update the paper circulated last year on Market Access for Developing Countries' Exports, and provide expanded coverage of agriculture and textiles. The second, in January, will examine Fund-supported programs containing trade conditionality and assess the implementation, sequencing, and impact of trade liberalization with a view to refining our trade policy advice.
B. Strengthening Fund Surveillance and Crisis Prevention3
Surveillance remains central to the Fund's mandate to promote sustained economic growth and financial stability, and to help prevent crises. The substantial program of Article IV consultations, together with discussions on use of Fund resources, will continue to be our key instrument for assessing the soundness of economic policies in individual members and regions.
The recent discussion on the biennial surveillance review highlighted that effective surveillance and crisis prevention has two key ingredients: improving the quality of the Fund's advice and enhancing its impact. As the IMFC emphasized, we need to focus on strengthening quality in the areas of, inter alia, vulnerability assessments, with particular attention to debt sustainability and the private sector's balance sheet exposure; the financial sector; exchange rate policy; institutional capacity; and the systemic impact of policies in large economies. We will also be examining ways to strengthen the impact of surveillance in generating a timely policy response and will be providing the Board with concrete proposals in this area, including on the conduct of surveillance. A follow up discussion to the Biennial Surveillance Review on June 28 will consider concrete guidance for the staff and any necessary legal decisions on proposed changes in surveillance procedures.
Sound policy advice requires adequate data provision. Following on the annual review of data provision to the Fund on May 10, proposals for strengthening the application of Article VIII, Section 5 will be circulated this summer for discussion following the Annual Meetings.
One important area identified in the biennial surveillance review is financial sector surveillance. The broader work on financial sector surveillance issues will continue and involve several Board discussions. A joint Fund/Bank paper reviewing the experience under the FSAP (including guidelines for the period ahead) will be considered after the Annual Meetings. The paper will draw lessons from the FSAP and discuss the modalities of assessments, reassessments, and updates, as well as financial constraints. The paper will draw together the financial sector surveillance framework that emerges from the FSAP and other financial sector work, and follow up work in the context of technical assistance. A related staff paper will review the experience with the Basle Core Principles assessments. A paper for discussion in a seminar following the 2002 Annual Meetings will examine consolidation in the financial services industry, including international trends in the industry and their implications for the surveillance of financial systems. Following on the discussion on macroprudential indicators in June 2001, the Board will consider a paper in January reviewing progress on financial soundness indicators.
Addressing institutional weaknesses is another important element of effective surveillance and crisis prevention. A paper on the review of the standards and codes initiative, to be circulated to the Board in August and discussed after the 2002 Annual Meetings, 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. In response to interest expressed by Executive Directors during the October 2001 discussion on approaches to vulnerability assessment for emerging market economies, the Board will consider, in the period following the 2002 Annual Meetings, a paper on a liquidity management framework, integrating the existing work on reserves adequacy and debt management into a consistent, policy-oriented framework.
Gains in transparency have played an important role in enhancing the impact of our advice. Our transparency and publications policies will be discussed on June 12, together with a paper on the policy on side letters.
Building on the discussion on staff-monitored programs at the biennial surveillance review, we will also consider, in the period after the 2002 Annual Meetings, a paper on monitoring members' policies for the purpose of providing a signal to public or private creditors; this paper will examine how we can best respond to members' requests for such monitoring, while ensuring that the nature of the Fund's involvement and the quality of the authorities' policy program are properly understood.
It is important that the work on surveillance and crisis prevention strengthen the incentives for strong policy across our membership. In this context, we are preparing a review of the Fund's Contingent Credit Line (CCL) that will examine whether and how it can be modified to serve this objective.
C. Strengthening Crisis Resolution4
In parallel with crisis prevention, we must work on ways to strengthen our capacity to assist members to handle crises appropriately when they occur. A key direction of our work in this area will be to provide members and markets with greater clarity and predictability about the decisions the Fund will take in a crisis.
This work will focus on four broad areas: increasing the Fund's capacity to assess debt sustainability, clarifying the Fund's access policy, strengthening tools for securing private sector involvement in crisis resolution, and the creation of a more orderly and transparent legal framework for sovereign debt restructurings. On June 14, the Board will discuss assessing debt sustainability and the balance sheet approach to resolving financial crises, together in a seminar session. Over the Summer, the Board will hold an initial discussion of staff papers on access to Fund resources for members facing financial crises, including considerations relating to access and financial programming issues in lending into arrears. We will return once again to consider the policy on access before the Annual Meetings. As part of the Fund's continued work on tools for securing private sector involvement, a paper on cooperation between debtors and creditors in the context of lending into arrears will be also be considered this Summer. A paper on a financial policy framework for management of systemic banking crises will be circulated in September, for discussion after the Annual Meetings.
The IMFC encouraged us to continue to examine ways to strengthen the legal framework that governs sovereign debt restructurings, working on two complementary approaches: a statutory approach which would enable a sovereign debtor and a supermajority of its creditors to reach an agreement binding all creditors, and a contractual approach that would seek to incorporate collective action clauses into sovereign debt instruments. The next step in this process will be a discussion, also in the course of the Summer, on the issues that would arise in the creation of a statutory framework, focusing on initial consideration of the issues related to creditor coverage, and on how to pursue the contractual approach. Work on the latter will look at the design of collective action clauses in sovereign bond contracts—including the design of more innovative clauses, as well as policies to encourage the broader use of such clauses.
In the period leading up to the Fall 2002 ministerial meetings, the Board will consider a progress report to the IMFC on crisis prevention and resolution, including private sector involvement in the resolution of financial crises.
D. The Fund's Role in Low-Income Countries—PRSP, PRGF, HIPC5
The IMFC endorsed the Monterrey Consensus, which has reaffirmed that sound economic policies and institutions, together with strong, broad-ranging international support, are the twin pillars on which to achieve enduring poverty reduction. The Fund will continue to use the PRGF and the PRSP process to nurture poverty reduction and economic recovery and growth in low-income countries. A PRSP progress report will cover issues faced by countries in developing and implementing their PRSPs, including poverty and social impact assessments, and sources of growth. In the lead up to the Fall ministerial meetings, the Board will consider a progress report on the HIPC initiative, which will look at the issue of completion points and debt sustainability, as well as operational modalities relating to the completion point. My statement to the IMFC on low-income countries will summarize the conclusions of these reports. In July, the Board will also have before it a paper, for lapse of time consideration, on the HIPC/PRGF investment strategy.
Following on the recent review of the PRGF, a paper reviewing Fund assistance to low-income countries will be prepared for Board discussion in December. The paper will consider the diverse circumstances of these countries, including countries with no balance of payments need for Fund resources, countries affected by commodity or other shocks, and post-conflict countries.
Discussion of experience with action plans to strengthen the capacity of HIPC countries to track poverty-reducing expenditure, and Bank/Fund collaboration in the area of public expenditure management, is planned on the basis of joint papers with the World Bank in early 2003.
E. Streamlining Conditionality and Enhancing Ownership6
The IMFC encouraged the Fund to make further progress toward enhancing the effectiveness of Fund-supported programs through enhancing ownership of economic reforms and through streamlined and focused conditionality, and requested a progress report, including on the Fund's consideration of new conditionality guidelines, at the committee's next meeting. The Board will have an initial discussion aimed at clarifying guidance on the design and implementation of conditionality in June. This will be followed by Board consideration of the draft guidelines on conditionality in August. In the period leading up to the Fall meetings, progress reports on IMF/World Bank collaboration and on streamlining and focusing conditionality and enhancing ownership will be considered.
F. Combating Money Laundering and the Financing of Terrorism (AML/CFT)7
The Fund will continue to make further progress on all elements of its work program on anti-money laundering and combating the financing of terrorism, consistent with its mandate and expertise, including in particular the completion of a comprehensive AML/CFT methodology and the development of assessment procedures compatible with the ROSC process.
There are several outstanding issues in the preparation of a Fund/Bank draft AML/CFT methodology to assess the FATF 40+8 recommendations, especially the treatment of the implementation of the legal and regulatory framework, options for involving the Fund, Bank, and the FATF in an assessment process that is voluntary, uniform and cooperative, and the issue of adding the AML/CFT standard to ROSC coverage. A seminar is planned for June 10 to lay the groundwork for Board consideration of proposals on these matters on July 26.
A joint Fund/Bank progress report on the implementation of the intensified AML/CFT work program, including technical assistance to support AML/CFT, will be considered in September.
G. Other Policy Items8
The IMFC stressed the importance of capacity building, and a discussion on the Fund's Africa Capacity Building Initiative, including financing for the African Regional Technical Assistance Centers (AFRITACS), took place on May 10. On June 7, we will review the Fund's technical assistance policy, including experience in refocusing TA on the Fund's main programs and key policy initiatives, issues related to Technical Consultations (TCs) and Technical Cooperation Action Plans (TCAPs), new initiatives to manage TA more efficiently, and the policy on publication of TA reports.
Following up on last year's initial discussions on quota formulas and the issues related to the Twelfth General Review, the Board will discuss further considerations with respect to quota formulas on June 3 and the Twelfth General Review of Quotas on September 9.
A discussion on the Fund's external communications strategy will be held after the 2002 Annual Meetings.
The next review of the strategy on overdue financial obligations to the Fund will take place in August.
The Board will review the Compensatory Financing Facility in early 2003.
The Independent Evaluation Office will circulate an evaluation of prolonged use of Fund resources, for a Board discussion if possible prior to the 2002 Annual Meetings. A progress report on the activities of the Independent Evaluation Office will be circulated prior to the Fall meetings.
H. Administrative and Other Topics9
In preparation for the annual Board discussion in April on the FY 2004 Administrative and Capital Budgets, the Budget Committee will consider a paper on medium-term resource plans in February.
The periodic reviews of the Fund's income position will take place in December (lapse of time) and April.
The relevant committees will consider proposals concerning the Staff Retirement Plan and the Medical Benefits Plan.
