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Press Release: Statement by IMF Managing Director Rodrigo de Rato on the Work Program of the Executive Board, November 9, 2005
December 1, 2005
A. Introduction
1. The September 2005 meeting of the International Monetary and Financial Committee (IMFC) and the discussions during the Annual Meetings set the stage for our work program in the period ahead. The IMFC meeting focused on three aspects of the IMF's work:
• It assessed the outlook and risks facing the global economy and financial markets, and called on the IMF to promote members' adoption of appropriate policy responses to mitigate those risks, including the risks of a disorderly unwinding of global imbalances.
• It endorsed the progress made on new instruments to strengthen IMF support for low-income countries, and called on the Executive Board to complete its approval of the arrangements to deliver debt relief by the end of 2005.
• It supported the broad priorities set forth in the Managing Director's report on the Fund's medium-term strategy, called on the Fund to continue to work with members within its mandate to meet the economic challenges of globalization, and looked forward to specific proposals and timelines on the main tasks identified in the medium-term strategy in the Executive Board's work program.
B. Key Priorities in the Work Program
2. In the coming period, the work program will have three key priorities:1
• First, to aim to develop, on the basis of a broad consensus among the membership, operational plans and practical guidance in each of the key areas identified as priorities in the medium-term strategy, which include: (i) making surveillance more effective; (ii) adapting to new challenges and needs in different member countries; (iii) helping to build institutions and capacity; (iv) prioritizing and reorganizing the IMF's work within a prudent medium-term budgetary framework; and (v) addressing the issues of fair quotas and voice.
• Second, to carry out the Fund's responsibilities, both for country, regional, and multilateral surveillance drawing on the conclusions reached during the 2004 Biennial Review of Surveillance, and for Fund financial support and signaling in accordance with established policies.
• Third, to make progress on its ongoing agenda involving policy reviews, external evaluations, and budgetary and administrative decisions to ensure the effective functioning of the institution.
C. Making the Medium-Term Strategy Operational
3. Work on the medium-term strategy will have three equally important and interrelated facets: (i) making operational the medium-term strategy; (ii) completing the review of employment, compensation, and benefits (ECBR); and (iii) putting in place the medium-term budgetary framework (MTBF).
4. As Directors are aware, I have constituted seven small groups of senior Fund staff to develop details and operational guidance in the areas identified as priorities in the medium-term strategy. They are tasked to (i) develop specific steps to increase the effectiveness of surveillance; (ii) suggest actions to enhance the Fund's role in emerging markets, including consideration of issues of insurance and lending into arrears; (iii) identify further steps to define and strengthen the Fund's role in low-income countries; (iv) identify a set of coherent actions in the area of capacity building, including technical assistance, training, and standards and codes; (v) examine options in the area of quotas and voice; (vi) develop suggestions for streamlining procedures and paper flow; and (vii) develop a medium-term budgetary framework that takes fully into account the work in each of the above areas. The groups will submit concise reports to management in late 2005/early 2006, and I expect to bring to the Board a series of recommendations drawn from this work beginning in February 2006. A review has been launched with the Bank aimed at a clearer division of labor and more effective collaboration with the World Bank.
5. Recommendations stemming from the review of the Fund's employment, compensation, and benefits will be under consideration by management shortly. Three informal seminars in October provided a forum for informal exchanges of information and views on key aspects of staffing and compensation. Management will present its proposals to the Executive Board in November. The aim will be to reach decisions in December on the compensation system, key staff benefits, and the relationship between the compensation system and the administrative budget. Throughout this exercise, our focus will need to be on enhancing the flexibility of the institution, while ensuring that the Fund can continue to recruit, retain, and motivate an internationally diverse staff of the highest caliber in support of its evolving priorities over the next 5-10 years.
6. A crucial element in translating the medium-term strategy into an operational plan will be the development of a MTBF, which will align the priorities identified by the strategy in terms of outputs and resource inputs, in the context of the Fund's income outlook, in a multi-year framework. Preliminary discussions on the MTBF will begin in the Board Committee on the Budget in November and, building on the findings of the relevant medium-term strategy staff group, will be followed up with the establishment of an agreed MTBF before the beginning of fiscal year 2007.
D. Country Work
7. The Executive Board is expected to be called upon to carry out its normal workload in relation to country matters. In the period January-September 2005, Executive Board meetings took up nearly 300 hours, with 45 percent devoted to country items. In recent years, the use of grays has allowed Board business to be conducted in fewer meeting hours. The Board's country work is distributed throughout the course of the year, with special attention being paid to keeping the period immediately ahead of the Spring and Fall ministerial meetings free for policy issues to be referred to the IMFC, use of Fund resources requests, and urgent administrative decisions.
E. Other Elements of the Ongoing Agenda
8. The work program also includes a relatively heavy agenda of other Board discussions that follow up on the normal surveillance and policy work under way, or initiatives recently launched. The following paragraphs provide highlights of key non-country discussions being planned. A comprehensive list of items is described in Table 4. In addition to the items outlined below, several policy issues under development will need to be framed and sequenced as conclusions are reached on steps to make the medium-term strategy operational. These include follow-up discussions on surveillance, including financial sector surveillance, in light of the report of the Review Group on the Organization of Financial Sector and Capital Markets Work (McDonough group); the role of the Fund in the poverty reduction strategy process and its engagement with donors; the review of the Supplemental Reserve Facility; Fund charges and maturities, and the review of the Fund's finances and financial structure; lending into arrears; and quota and voice issues. I expect the Board's discussions beginning in February 2006 to set the stage for establishing the placement of these topics on the Board's work program. In light of this, this round of the work program exercise calls for additional flexibility. It may be useful to review the work program again in February, to reset the work program priorities ahead of the Spring 2006 meetings as needed.
Surveillance
9. Multilateral, regional, and bilateral surveillance have key roles to play in advancing understanding aimed at mitigating the risks posed by the global imbalances and preventing crises. Key discussions will include a World Economic and Market Developments (WEMD)/Financial Markets Update in November and the World Economic Outlook (WEO)/WEMD and Global Financial Stability Report discussions in time band 2. These remain the central vehicles for assessing world economic and financial market developments and policy responses. The forthcoming WEO will focus on globalization and inflation, and include further analysis of global imbalances, oil markets, and savings issues. In addition, the Fund will continue to deepen its analysis of globalization and work toward developing its strategy for responding to the long-term challenges it poses.
10. Regional surveillance and outreach have considerable potential for complementing the WEO exercise and strengthening buy-in for sound policies by officials and the public. We will need to continue to reflect on the most efficient ways of conveying our policy messages in regional contexts, drawing on the experience with regional presentations in October. An informal seminar on the Regional Outlook for Sub-Saharan Africa is planned in time band 2.
11. Enhancing the effectiveness of surveillance remains a priority. A paper on Assessing the Effectiveness of Bilateral Surveillance, focusing on the methodology for assessments of effectiveness, will be discussed in January. This will be preceded by consideration of the Independent Evaluation Office (IEO) Evaluation of the Fund's Experience with Financial Sector Assessment Programs (FSAPs). In time band 2, the Board will take up the IEO Evaluation of Multilateral Surveillance, which will draw on an assessment of the forces driving the world economy and global vulnerabilities as a basis of evaluating surveillance policies, especially for systemically important countries. A Board discussion based on a joint Fund/Bank paper on the Quality and Consistency of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Assessments is also planned for time band 2.
12. A series of seminars and discussions will broaden understanding in a number of surveillance-related areas. In October, the Board considered Implementation of Basel II—Implications for the World Bank and IMF. In November, a seminar on Growth in the New European Union Member States will examine the growth experience of Central and Eastern European countries and evaluate the factors influencing the catch-up process. In December, a discussion of Capital Account Liberalization—Issues and Considerations will draw on an analysis of the links between financial globalization and capital account liberalization, and approaches to dealing with related macroeconomic and financial challenges, including an orderly sequencing of liberalization with reforms in other areas aimed at reducing the frequency and severity of crises.
Low-Income Countries
13. The IMF has established a far-reaching work program to strengthen support for its low-income members' efforts to achieve the Millennium Development Goals (MDGs). Immediately following the 2005 Annual Meetings, the Executive Board took the formal actions needed to implement the policy support instrument, and pressed forward with discussions to establish the exogenous shocks facility under the Poverty Reduction and Growth Facility (PRGF) Trust and follow up on the multilateral debt cancellation initiative. Further follow-up discussions to address issues arising from decisions on debt cancellation and the establishment of the exogenous shocks facility, including on the finances of the PRGF going forward, will be scheduled as required. In time band 2, the Board will be requested to decide on the Final List of Countries Eligible for Heavily Indebted Poor Countries (HIPC) Initiative Assistance under the extended sunset clause and its financing implications, on the basis of a paper prepared jointly with the World Bank. In addition, a joint Fund/Bank Review of the Operational Framework for Debt Sustainability for Low-Income Countries will look at experience with the implementation of the new debt sustainability framework and the preparation of debt sustainability analyses, and propose any modifications warranted by the implementation of the multilateral debt cancellation initiative.
Use of Fund Resources and Crisis Resolution
14. Work in this area will include further consideration of ways to adapt the Fund's financing instruments and apply the lessons learned for the use of Fund financial support in the new world of large-scale private capital flows. Work on crisis resolution will include continued monitoring of the implementation of the IMF's lending into arrears policy. The modality and frequency of progress reports on crisis resolution remain under consideration. Table 4 includes a description of items envisaged to be taken up under this heading.
Building Institutions and Capacity
15. Efforts to increase the effectiveness of technical assistance and training in helping to build institutions necessary to meet the economic challenges of globalization will remain a key medium-term priority. New operational procedures are being put in place to follow up on IEO recommendations for strengthening the Fund's technical assistance based on the recent Board discussion. Beyond this, the principal objectives of the work program in this area will be to improve the provision of guidance on market and policy development, while targeting enhanced fiscal transparency and governance which are crucial to the development of broad economic institutions. Table 4 includes a description of a series of seminars planned under this heading.
Quotas, Voice, Organization, and Processes of the Fund
16. A key challenge in the period ahead will be to develop a broad consensus on a work process that aims at achieving fair voice and quotas for all members. In addition, in line with the commitment as part of the medium-term strategy to ensure that the Fund maintains best international practices, we will move forward with the reform of budget practices and to strengthen internal control and risk management. In the coming weeks we will come back to the Board on how to strengthen information flows on audit-related matters. Other key elements reflecting the decisions to be taken following the ECBR and in the context of the medium-term framework will be the discussions on Staff Compensation—2006 Review, and the Administrative and Capital Budgets for Fiscal Year 2007 in time band 2.
17. The terms of reference of the IEO call for an external evaluation of the IEO's effectiveness, including consideration of possible improvements to its structure, mandate, operational modalities, or terms of reference in the third full year of its operations. It is envisaged that the Board will consider the report by the panel of external evaluators on the External Evaluation of the IEO during time band 2.
1 The work program, once again, is divided into three time bands: time band 1 covers October 2005-January 2006; time band 2 covers February-mid-May 2006; and partially overlapping time band 3 covers May-September 2006. An overview of the non-country items to be taken up in the work program is provided in Tables 1-3. Table 4 provides descriptions of these items.
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