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Press Release: Statement by Rodrigo de Rato, Managing Director of the International Monetary Fund, on the Work Program of the Executive Board, November 29, 2004
December 8, 2004
December 8, 2004
1. The October 2004 Annual Meetings provided a valuable opportunity for the membership to review the progress that has been achieved in different areas of the IMF's responsibilities. I greatly appreciated the feedback and guidance for the future our governors gave us at the International Monetary and Financial Committee and Development Committee meetings, the Annual Meetings plenary, and the numerous bilateral discussions and contacts senior IMF management had with national authorities. I look forward to the Executive Board's discussion of this work program statement covering the next twelve months, which will reflect its continuing consideration of the IMF's strategic priorities.
2. The Board's work will of course proceed on two tracks. First, as the Board considers country, regional, or global reports relating to the Fund's surveillance activities and country reports for the use of Fund resources, it will continue to seek to ensure that the policy directives it has laid down are being appropriately observed. Second, and in parallel, the Board will deliberate upon and reach decisions on further policy development on a series of interrelated and often complex topics. In both contexts, I believe that we should aim at reaching our judgments and policy conclusions on the basis of the broadest possible consensus. Needless to say, we will also need to pay attention to the efficient conduct of the Board's work. All in all, the work program of the Executive Board will remain challenging.
3. The recent IMFC meeting outlined the overall context in which our work program objectives will need to be set. Improved policy cooperation will remain a critical aim of the IMF's agenda for strengthening the global economic environment. We will continue to promote the orderly resolution of global imbalances and to strengthen the institution's capacity to encourage sound policies across the membership; work to prevent the emergence of crises while also pressing forward with our efforts to enhance the framework for crisis resolution; and strengthen our support for low-income members.
4. A key goal will be to support the efforts of our members as they strengthen fiscal positions, remove structural impediments to growth, reduce financial and corporate vulnerabilities, and accelerate poverty reduction. Systemically important countries will have a particular responsibility for action to help buttress the global recovery—softened with the rise in oil prices—and to improve their own economic prospects. For the low-income countries, broad-based and sustained economic growth will be essential, notwithstanding oil market developments. This will require further strengthening of institutions and governance, as well as more open markets for their exports, increased and better-coordinated aid and technical assistance, and debt relief. We will continue to keep track of developments and issues in the Doha Round and encourage its successful conclusion, and to advise and assist members with trade liberalization, including by providing support through the Trade Integration Mechanism.
5. In addressing the mandates set out by the membership, this work program provides for the Fund to strengthen its capacities and provide support in the following areas:
· Improving IMF surveillance and crisis prevention;
· Building capacity and evaluating technical assistance in member countries;
· Ensuring that the IMF's financing and other instruments meet the needs of the membership;
· Reinforcing crisis resolution;
· Providing effective IMF support to low-income countries; and
· Continuing to modernize and strengthen management practices in the IMF.
6. The work program set out in this statement is divided into three time bands. The calendar of country items for Board consideration, which takes up more than one-half of the Board's time, is being established in the usual way. Policy items expected to be taken up in this period are identified in the accompanying Charts 1-3, on a month-to-month basis in the first time band through January 2005 (Chart 1), and subsequently grouped in two overlapping time bands, from February through mid-May (Chart 2) and from mid-April until the 2005 Annual Meetings (Chart 3). Policy items identified for the second time band (February through mid-May, Chart 2) will, in principle, be considered by the Board prior to the Spring 2005 Meetings.1 Within each time band, the precise scheduling of individual policy items will be identified about one month in advance, so as to ensure more consistently that minimum circulation periods are respected and undue bunching in the Board calendar is avoided.
7. Looking ahead, the Secretary's Department, in consultation with the Policy Development and Review Department, the Office of Budget and Planning, and other policy authoring departments, will be developing future work programs within the overall framework of the IMF's strategic directions and the medium-term budget. It is expected that, as the medium-term strategy is given form, this collaborative effort will enhance the work program process.
I. Surveillance, Crisis Prevention, and Global Stability
8. Building on the progress made in strengthening surveillance and the steps adopted during the August 2004 biennial surveillance review to enhance its overall effectiveness, the IMFC called for continued efforts to (i) strengthen the IMF's economic analysis and policy advice; (ii) complement multilateral and bilateral surveillance with a focus on regional issues; (iii) improve the quality of the policy dialogue with members; (iv) strengthen the communication of IMF policies to markets and the public while preserving the Fund's role as confidential advisor; and (v) develop a methodology for better assessing the effectiveness of surveillance. Efforts to achieve these goals will focus on the priorities identified by the Executive Board in the recent review of surveillance and subsequently endorsed by the IMFC: sharpening the focus of Article IV consultations, including deepening the discussion of exchange rate issues, enhancing financial sector surveillance, and better integrating debt sustainability analysis and regional and global spillovers in country surveillance. Further progress in improving debt sustainability and reducing balance sheet vulnerabilities and further work on surveillance in low-income countries will also be monitored, and reviewed in the context of the next biennial surveillance review, due in 2006. Forthcoming reviews of the Standards and Codes Initiative and the Financial Sector Assessment Program will also contribute to strengthening the financial and monetary system in the context of global integration.
9. The periodic reports on the World Economic Outlook (WEO), the sessions on the World Economic and Market Developments (WEMD), the Global Financial Stability Report (GFSR), and the Financial Markets Update will constitute the principal instruments for the IMF's multilateral surveillance, and will be discussed following the calendar set out in Charts 1-3. Regular discussions of regional currency unions will cover the euro area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. A staff paper on Surveillance in Currency Unions will consider modalities for Fund surveillance over existing currency unions, as a follow-up to the Board's discussion in the context of the 2004 biennial surveillance review. In addition, the staff will provide periodic regional overviews, beginning with an informal seminar on the African Regional Outlook. Multilateral and regional surveillance will be coordinated with and complemented by Article IV country consultations. The IMF will pay close attention to the impact and policy implications of oil market developments in the context of Article IV consultations with both oil-producing and oil-consuming countries, and will stand ready to advise and assist low-income countries as needed. In addition, IMF staff are assessing modalities to support efforts underway to improve the quality and transparency of oil market data. Article IV consultations will also be expected to provide an enhanced focus on the sustainability of medium-term fiscal positions, and on policy responses to potential inflationary pressures, as called for by the IMFC.
· Several steps will be taken towards further strengthening the quality and clarity of IMF surveillance. A seminar on Using the Government Finance Statistics Manual 2001 Framework to Strengthen Fiscal Analysis in the Fund will focus on how improved compilation and presentation of fiscal statistics can add to fiscal analysis. In the area of trade, a Review of the IMF's Role in Trade will set out key challenges facing the membership in trade policy and the IMF's support efforts.
· Efforts to deepen financial sector surveillance will continue. Issues and Gaps in Financial Sector Regulation were discussed in October 2004, while a discussion on the Financial Sector Regional Project for Central America will review the development of regional supervision, cross-border transactions, and strengthened payment systems in the region. Discussions following the Spring Meetings will include a Review of the Financial Sector Assessment Program, and a Review of the Standards and Codes Initiative (both in collaboration with the World Bank), which will include a discussion of the unified insolvency standard being developed, in close consultation with the IMF, by UNCITRAL and the World Bank. A discussion of the Implications of Basel II for the Fund's Membership and its Work will cover the key lessons from the Basel Core Principles assessments, likely challenges in the implementation of Basel II, and the implications of the new accord for the work of the Fund and the World Bank.
· A seminar in October addressed crisis prevention through an application of the Balance Sheet Approach to Emerging Market Countries. Complementing this, an informal seminar on the Contingent Claims Approach to Vulnerability Analysis examined the identification of corporate sector and economy-wide vulnerabilities. An informal seminar on Liability Management—An Analytical Approach will review the experience of emerging market countries with swaps and debt buybacks, and provide an approach to quantifying the costs and benefits of such operations, and an informal seminar on the Contingent Claims Approach to the Sovereign Balance Sheet will present an approach to computing vulnerability indicators.
· The work program in other areas of surveillance and crisis prevention following the Spring Meetings will include a Review of Transparency and the Sixth Review of IMF Data Standards Initiatives. A seminar on Regional Trade Arrangements will cover recent developments in regional trade agreements, and discuss their features and relative merits. In addition, the Board will consider Independent Evaluation Office (IEO) evaluations of the Fund's Approach to Capital Account Liberalization and of the IMF's Experience with Financial Sector Assessment Programs.
II. Capacity Building
10. Recognizing that effective surveillance and improved policy performance depend on the capacity of national authorities to follow through on recommendations operationally, the IMF will continue to provide support for capacity building.
· Capacity building in recent post-conflict situations, including monetary/financial sector and fiscal policy advice and technical assistance, will be addressed in a seminar on the basis of two papers, MFD Technical Assistance to Post-Conflict Countries, and Rebuilding Fiscal Institutions in Post-Conflict Countries.
· A seminar on Fixed to Float: Operational Aspects of Moving Towards Exchange Rate Flexibility, will cover the institutional, operational and technical aspects of moves toward flexible exchange rate regimes, and examine the requirements for a successful transition to a market-determined exchange rate.
· An IEO Evaluation of the Fund's Technical Assistance Program will review the targeting and delivery of technical assistance. An Evaluation of Africa Regional Technical Assistance Centers will complete the cycle of independent evaluations of IMF regional technical assistance centers, drawing lessons to inform future developments in the regional approach to technical assistance.
· A seminar will be held on Monetary Policy Implementation at Different Stages of Market Development. Following the Spring Meetings, an informal seminar on the Lessons for Financial Sector Development and Sequencing will explore the channels through which the financial sector contributes to economic growth, and an informal seminar on the Results of a Study on Remittances and Operational Guidance will assess experiences with regulations governing remittances.
III. IMF Financing and other Instruments
11. As part of its continuing efforts to ensure that the IMF's instruments address the needs of its membership, the Executive Board will review the experience with the design of adjustment policies and the application of the 2002 Conditionality Guidelines in programs supported by IMF resources. The Board will also review the appropriateness of the maturity structure and charges under the SRF and other facilities, against the background of a review of the Fund's financing.
· A Review of the 2002 Conditionality Guidelines will incorporate the conclusions drawn in a discussion of the Design of Fund-Supported Programs. Consideration of the latter will draw on a set of background papers examining the evolution of objectives and outcomes under IMF-supported programs, the analytical underpinnings of program design, and a review of experience with macroeconomic and structural policies in IMF-supported programs. This will be followed, in the fall, by a Review of Ex Post Assessments, which will examine early experience with ex post assessments.
· A follow-up discussion on Public Investment and Fiscal Policy will draw on the ten pilot country case studies being conducted during the second half of 2004, and will address how investment in infrastructure can be strengthened while safeguarding fiscal and macroeconomic sustainability. An IEO Evaluation of Fund Assistance to Jordan will also be taken up after the Spring Meetings.
· Policies on the use and terms of IMF resources will be discussed in a review of Access Policy in the Credit Tranches and under the EFF and PRGF, and Exceptional Access Policy. Reviews of Time-Based Repurchase Expectations Policy, and of Charges and Maturities under the SRF and other Facilities will be considered together. A review of the Fund's Safeguards Policy will assess the experience to date with the safeguards policy.
12. An important component of the efforts to ensure that the IMF's instruments meet the diverse needs of the membership will be the continuing assessment of whether there are gaps in the IMF's range of instruments and policies. Further consideration will be given to the value of and approach to the Fund's intensified engagement with members outside the context of a financial arrangement, and to the current and potential roles of precautionary arrangements in signaling the strength of members' policies and providing protection against the emergence and the spread of crises. Work on the full range of issues involved, including usefulness and potential demand, will be pursued in close consultation with potential users, donors, and creditors.
· An examination of Surveillance and Signaling Modalities will follow up on the Board's consideration on the history of IMF signaling and further explore possible modalities for enhanced Fund engagement with member countries outside of Fund financial facilities.2
IV. Crisis Resolution
13. While the increased adoption of collective action clauses (CACs) in international sovereign bonds is a welcome step towards ensuring orderly crisis resolution, there remains scope for further progress on crisis resolution initiatives within the existing legal framework. In this regard, recent efforts aimed at reaching a broad consensus between sovereign issuers and their creditors on voluntary principles for emerging markets' crisis management and debt restructuring are encouraging. For its part, the Fund will keep under review the implementation of its lending into arrears policy and continue to work on issues of general relevance to the orderly resolution of crises.
· An informal seminar on Reaccess to Capital Markets by Countries Emerging from a Financial Crisis will be followed by an examination of Financial Sector Issues in the Design of Sovereign Debt Restructurings, which will address the design and modalities of restructurings and approaches to mitigating adverse effects on financial systems.
· The biennial reports to the IMFC on Crisis Resolution, to be presented in the spring and fall, will assess progress made on issues related to the orderly resolution of financial crises, including the incorporation of CACs in sovereign bond contracts and the formulation of voluntary principles for stable capital flows and fair debt structuring in emerging markets.
V. Support for Low-Income Members
14. The IMFC has reiterated the Fund's important role in supporting the efforts of its low-income members to achieve the macroeconomic stability and high growth needed to make sustained progress towards the Millennium Development Goals (MDGs). To this end, policy advice, capacity building, and financial assistance—including debt relief—will continue to form the core of the Fund's efforts. In the period ahead, work will continue on the financing and modalities of the Fund's engagement with low-income members, including the financing of the Poverty Reduction and Growth Facility (PRGF) after 2006 to maintain adequate capacity to meet future needs, instruments to help members face shocks, and ways to improve monitoring and signaling. This will be supplemented by further analysis, together with the World Bank, of mechanisms to augment aid flows. In addition, work to improve the role of the Fund in the poverty reduction strategy (PRS) process will progress. To this end, the design of policy programs supported by the PRGF will be reviewed, and the analyses of the sources of growth and the linkages between poverty reduction and economic growth will be strengthened.
· The Board will consider the IMF's Role in Signaling, Donor Coordination and the PRSP Process, with an emphasis on facilitating more effective donor coordination, particularly in the context of the PRS process. The second annual Global Monitoring Report (jointly with the World Bank) will assess progress made by the international community towards meeting the MDGs, drawing on the experience of the staff, reports of the IEO and World Bank's Operations Evaluation Department (OED), and other sources in reviewing support by the IFIs for the achievement of the MDGs.
· Following up on the recent Board discussion on a new debt sustainability analysis (DSA) framework for low-income countries, Debt Sustainability in Low-Income Countries will further refine thresholds indicating debt distress, revisit the issue of discount rates used in valuation, and propose modalities for Bank-Fund collaboration in the preparation of DSAs.
15. Regarding the HIPC Initiative, whose eligibility deadline has been extended for two more years, the identification of countries that could qualify for HIPC debt relief based on end-2004 data will proceed, along with work on issues related to further debt relief and its financing. The Annual HIPC Progress Report, to be prepared jointly with the World Bank and presented in the fall, will provide an update.
16. In the period following the Spring Meetings, a review of PRGF Program Design will draw on papers on a range of topics, including: growth, institutions, and the role of the Fund; monetary and fiscal policy design in countries where stabilization has been achieved; and the macroeconomics of higher aid flows. In the fall, a Comprehensive Review of Experience with the PRSP Approach, 2002-05, prepared jointly with the World Bank, will review the implementation of the PRSP process during 2002-05.
VI. Managing an Effective Institution
17. Consideration of the key issues surrounding the Fund's strategy, communications, and governance will continue in the period ahead. The IMF will move to a strategically oriented budget process that will facilitate prioritization. Work is underway on the Fund's Medium-Term Strategy outlining priorities for the next three years, based on policies already approved or under discussion, and recent and expected international developments. Work is also underway on the development of the FY 2006 budget and the medium-term budgetary framework. The Board will take up the regular Staff Compensation—2005 Review, prior to its consideration of the Administrative and Capital Budgets for Fiscal Year 2006. Executive Directors will be kept informed of progress on the review of employment, compensation, and benefits. During the first part of 2005, the Board will also discuss the Fund's External Communications Strategy.
18. A Review of the Fund's Finances and Financial Structure, planned for early 2005, will be preceded by an informal Board seminar in November, and will provide inputs into the next annual Review of the Fund's Income Position, as well as for the review of charges and maturities. The Fund's External Audit Arrangements will be discussed during the first part of 2005. The five-yearly Review of the Valuation of the SDR and SDR Interest Rate will be undertaken after the Spring Meetings. Oversight of the IMF's finances will be supported, in addition, by various regular periodic reports, including those on the Fund's liquidity position, PRGF-HIPC financing and investments, and the arrears strategy.
The IMFC encouraged the Board to consider further issues of voice, quotas, and participation, while noting—as the Board had agreed—that progress will require broad consensus among the shareholders. In light of this, I would welcome Executive Directors' views on how these issues may be carried forward during the next six to 12 months.
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