Transcript: US Treasury's Summers Speech to IMF
Text: Treasury's Summers Speech to IMF Interim
(Says IMF should focus on poverty, corruption) (6650)
Secretary of Treasury Lawrence Summers says the International Monetary Fund (IMF) needs to add growth, poverty reduction and anticorruption to its core objectives.
"The IMF, in cooperation with the World Bank, needs more actively to press countries to channel scarce public funds away from unproductive purposes such as showcase projects and excessive military spending towards priorities that support growth and poverty reduction," Summers told the IMF's policy-making Interim Committee September 26.
"To make progress in this area, there will need to be greater transparency in and accountability for government spending, including military spending," Summers said in a wide ranging speech.
The IMF must also give more explicit consideration to the problems of governance and corruption in all its country programs, while at the same time strengthening safeguards on the use of resources provided by the IMF, Summers added.
"This point merits special emphasis. It is entirely appropriate for the IMF Executive Board ... to block or suspend financing in cases where there are serious governance or corruption concerns, even if other factors would support providing assistance," Summers said.
"When borrowers misuse financial assistance provided by the IMF, this not only sets back the economic stabilization and development objectives but also undermines the will and ability of donors to provide assistance," he said. The IMF needs to "urgently follow through" with certain steps that include the use of audits as a routine safeguard in IMF programs, helping recipient countries addresses problems such as weaknesses in foreign exchange and payments systems that could facilitate corruption and strengthening other IMF capacities to deter and respond to misuse of IMF funds.
Following is the text of Summer's speech as prepared for delivery:
STATEMENT BY TREASURY SECRETARY LAWRENCE H. SUMMERS TO THE IMF INTERIM COMMITTEE WASHINGTON, DC
I would like to extend a warm welcome to our new Chairman, Gordon Brown. We look forward to working together at a time when the Interim Committee is undergoing an important process of change that we believe will make it more effective in its oversight of the IMF.
When we last met in April, Secretary Rubin began with a note of caution: While welcoming a number of positive developments during the preceding year, he underlined that serious challenges remain and expressed his view that the balance of risks for the global economy remained on the downside.
Today, there is again reason to welcome a number of positive developments. IMF staff has recently revised upward their projections for global growth. Capital flows to emerging markets are showing signs of recovery. A number of countries which were in the midst of crisis one-year ago have stabilized and are taking important steps towards recovery.
And yet a cautionary note is still appropriate. While the balance of risks for the global economy may have tilted somewhat in the right direction, it would be a mistake to see this trend as in any way inexorable. Economic conditions in a number of countries and regions are still fragile. As discussed further in he following section, near-term action on a number of fronts is necessary if we are to see a sustained and better balanced global economic recovery.
To take a longer term perspective, as we meet for the last time in this century and on the threshold of a new millennium, it is appropriate to take stock of where we have come, in those areas that concern us here, and what remains to be done. If we think back to the world in which the IMF was founded in 1945, and recall the purposes for which the Fund was created, we can justifiably say that the IMF has contributed to an international financial and trading system that is far stronger than the system that prevailed during the first half of this century and before.
Thanks to the IMF, the "machinery for consultation and collaboration on international monetary problems," as it is described in Article I of the Articles of Agreement, now encompasses virtually the entire world and helps ensure serious, constructive deliberation on such problems, even if the solutions are sometimes elusive. The destructive competitive exchange rate devaluation of the early 1930s is now rare. Exchange restrictions, once a thicket obstructing trade and payments, have been substantially thinned if not eliminated over the years. Perhaps most important, by offering constructive policy alternatives, backed by financing, to countries facing balance of payments or broader economic problems, the IMF has made adjustment less painful and facilitated an extraordinary expansion of international trade, which has contributed to employment creation, to growth, and to peaceful relations among nations.
However, we can also see that the challenges ahead will require further, substantial reforms in the IMF. A changed IMF is needed for the changed world that we now have. We have made a good start in many areas, but much more remains to be done. As we look to the future we need to redouble our efforts to find better approaches if not answers to fundamental questions.
-- How do we strengthen the international financial system against crisis and develop better mechanisms to deal with crisis when it occurs?
-- How can we help ensure that international assistance in all its forms -- from debt relief, to balance of payments support, to technical assistance -- is used to its greatest effect to promote sustainable, broad-based growth that benefits the poor?
-- How do we balance concerns about intrusiveness in national affairs and a desire to promote national "ownership" of reform programs with a desire to see governments take bolder steps to, for example, build stronger social safety nets, implement core labor standards, empower civil society groups, reduce the role of government in the economy, and address critical issues related to governance, corruption and crony capitalism?
-- How do we promote genuine collaboration among international institutions on issues of common concern without compromising their ability to deliver in areas where they have a comparative advantage?
-- What must we do to strengthen the fight against corruption and build better safeguards on the use of international public funding to avoid its misuse or diversion?
A strong and effective IMF, working in concert with other institutions, will be an important part of our efforts to address these questions. Going forward, the IMF will, in particular, need to:
Elevate the importance of growth and poverty reduction among the IMFs core objectives. As discussed further below, there is need for greater consistency and mutual support between a country's social sector/poverty reduction objectives on the one hand, and ESAF-supported policies and financing on the other. The IMF, in cooperation with the World Bank, needs more actively to press countries to channel scarce public funds away from unproductive purposes such as showcase projects and excessive military spending toward priorities that support growth and poverty reduction. Ensuring adequate funding for high-yield investments in human resources must be a higher priority. To make progress in this area, there will need to be greater transparency in and accountability for government spending, including military spending.
Give greater attention in IMF program design to social sector, labor and environmental concerns. The goal is to design programs in a way that preserves and strengthens critical social safety nets, with due attention to core labor standards, and protects as far as possible the poorest and most vulnerable members of society, as well as environmental programs, from the costs of economic adjustment.
Push forward with steps underway to increase transparency. This effort should continue until we reach a point where certain key documents, notably Letters of Intent and related program documents, are systematically released without exception.
Reinforce incentives to sustain good performance. To maximize the benefits of countries' adjustment efforts and IMF assistance, there should be stronger incentives to maintain good performance as long as possible. Towards this end, the IMF should enhance its monitoring of policy commitments while a country's drawings on the Fund are outstanding, even after program conditions have ended. Consideration of new lending commitments should be fully informed by past performance.
Give more explicit consideration to problems of governance and corruption in all its country programs, while strengthening safeguards on the use of resources provided by the IMF. This point merits special emphasis. It is entirely appropriate for the IMF Executive Board (as well as the Boards of other IFIs) to block or suspend financing in cases where there are serious governance or corruption concerns, even if other factors would support providing assistance. When borrowers misuse financial assistance provided by the IMF, this not only sets back economic stabilization and development objectives but also undermines the will and ability of donors to provide assistance. The IMF needs urgently to follow through with and build upon a number of general and specific step to address this problem, focusing on three critical areas:
-- Systematic use of central auditing requirements as a routine safeguard in IMF programs. Whenever the IMF provides finance in an environment where there is a risk that those funds will be misused, it should require external audits of the recipient's central bank. More generally, the IMF has to be moving to a point where this is a routine practice. There is also need for a clear understanding of the IMF's ability to insist on external audits of other parts of the government when there are reasonable grounds for suspicion that they are involved with the inappropriate use of IMF funds.
-- Broader consideration of IMF program requirements and other policies that would enhance the recipient's internal safeguards against the misuse of official funds. Audits are an important tool, but they are not enough. The IMF also needs to upgrade its capacity to spot potential weak points in the program country's foreign exchange and payments system and help countries to address those weaknesses as part of IMF programs. Especially relevant in this context would be lack of transparency and accountability in the central bank's reserve management procedures, intervention in the foreign exchange markets, and off-market provision of foreign exchange to commercial banks, all of which provide opportunities to divert funds for improper purposes or provide preferential access to hard currency to favored groups. More broadly, the IMF must encourage countries to comply with the principles in the, Code of Good Practices on Transparency in Monetary and Financial Policies.
-- Strengthening the IMF's capacity to deter and respond to misuse of its funds, including in post-programs cases where disbursements have been completed. Under present policies the IMF's capacity to respond to cases where countries have permitted the misappropriation or misuse of official funds comes down to the capacity to cease disbursements and, in limited cases, to request advance repayment. This is a potentially powerful tool that we should expect the IMF to make full use of and develop in the future. Going forward, the Fund should consider a wider range of circumstances under which penalties for corrupt or other inappropriate use of funds can be applied, including those situations where disbursements have been completed and IMF programs are no longer in force.
Developments in the World Economy; Policy Requirements for Sustained, Better Balanced Global Economic Recovery
Prospects for recovery in the major industrial economies and the world economy as a whole look better now than a year or even six months ago, though we need to guard against complacency. Encouragingly, the U.S. economy continues to show strong, non-inflationary growth. Recovery seems to be solidifying in emerging markets in Asia. There are signs of modest improvement for Europe, and indications that decline in Japan may have ceased. An environment of low inflation and some resumption of financing flows to emerging markets have contributed to this general picture.
However, significant challenges obviously remain. While the United States looks to have another year of strong growth, we cannot indefinitely provide the main stimulus to growth. Other regions need to step to the fore. Avoiding the downside risk, and creating conditions for sustained, better balanced global economic recovery will require action on a number of fronts.
Europe. While recovery seems to be occurring on the modest scale long forecast, growth will still be well below last year's pace with domestic demand still tagging, and its current account surplus still rising. Rising surpluses will prevent Europe from making a major contribution to recovery in emerging market countries. Stronger domestic demand is needed, in place of reliance on exports. In addition to supportive macroeconomic policies, Europe needs to emphasize structural reforms in labor and product markets that would make investment more attractive, thereby boosting domestic demand and employment and reducing high external surpluses.
Japan. Japan may have reached the end of its long decline in GDP, and a number of important policy steps have been taken. But it is far from clear that a sustained recovery is on the horizon. Such a recovery will require a resumption of sustained growth in private demand. Until a recovery is firmly established, Japan needs to continue with measures to promote domestic demand-led growth, including supportive monetary policies and continued fiscal stimulus at a pace strong enough to prevent a fall-off in the strength which the fiscal program has been imparting. In addition, work needs to continue on improving the banking sector, notably by permanent disposal of bad assets. Finally, support for structural reform would also help to provide an environment for a durable recovery.
Latin America. A number of Latin American countries are still facing difficult situations. The region has continued to see a slide in net private capital flows from around $105 billion in 1996 to approximately $66 billion expected this year. Much of the region has suffered from recession. Although growth is expected to resume across Latin America next year, during this time of unsettled international financial markets countries need to maintain disciplined macroeconomic policies and deepen economic reforms, including strengthening of the financial sector.
Asia. While emerging markets in Asia seem to be solidifying, additional steps must be taken. Along with maintaining appropriate macroeconomic policies, Asian emerging market economies must push ahead with structural reforms, especially in the corporate and financial sectors, if they are to lay a durable foundation for financial and business systems in the future.
Russia. We, are concerned about Russia. The IMF and other institutions have played a critical role in supporting the difficult and complex process of Russia's economic transition. However, the capacity of the IMF and World Bank to help bring about effective policies depends on the will and capacity of Russian authorities and the Russian people to carry forward reforms in their national interest. It is critical that Russia intensifies efforts to combat corruption and money laundering and cooperate fully with the international financial institutions on the development of adequate safeguards to ensure that funds provided by the IFIs are used for their intended purpose.
Promoting open markets. Trade liberalization can make a strong contribution to our efforts to sustain growth and stability in the global economy, as well as promote development and poverty alleviation. Open, transparent and well-governed markets, both domestic and international, are an essential foundation for prosperity.
We are poised to launch a new round of international trade negotiations at the upcoming Ministerial of the World Trade Organization in Seattle. This Ministerial will make decisions that will set the direction for the international trading system well into the next decade. It represents a particularly important opportunity for the global community to further reduce barriers to new market opportunities in support of development and growth. Key areas include:
-- continuation of the work begun in the Uruguay Round to liberalize trade in agricultural products, including through the abolition of agricultural export subsidies;
-- further negotiations to reduce and eliminate tariff and non-tariff barriers to trade in non-agricultural goods, an area which holds particular potential for developing economies;
-- new negotiations aimed at creating more open and transparent customs regimes and further liberalizing services activities which will greatly enhance the institutional, capabilities in those sectors; and
-- concrete steps such as an agreement on transparency in government procurement by the Seattle WTO Ministerial, as well as support for open and transparent customs regimes, which complement Fund initiatives to combat corruption and promote good governance.
As these negotiations begin, particular attention must be paid to better integrate developing countries into the world economy and to fully realize the benefits of free trade. The IMF can actively support this process by making the case for trade liberalization in its policy dialogues with borrowing countries. For example, trade liberalization themes should be a key component of Fund surveillance and programs. Fund support for social safety nets and improved labor conditions is also critical to promote further trade liberalization.
There are a number of areas where the IMF, World Bank, and WTO have shared interests, and we support the institutions' continued commitment to this coherence exercise. A strong foundation for effective institutional coordination and cooperation has been laid as a result of decisions taken at the end of the Uruguay Round. We are encouraged by the efforts underway for the heads of all three institutions to enhance policy and program cooperation in the future.
Over the course of the past year, the IMF has continued to play an important and central role in helping to restore stability. Plans for the deployment of a new temporary facility to deal with possible disruptions caused by the Y2K problem, discussed further below, is but one example.
Progress in Strengthening the International Monetary and Financial System
At the spring meetings, the Interim Committee noted that broad agreement had been reached on key aspects of a strengthened architecture and welcomed actions by the Fund in a number of important areas. The Committee underlined, however, the importance of carrying forward work on and implementing proposals related to a number of issues, such as reducing vulnerabilities to and resolving financial crises, international standards and Fund surveillance, and institutional reforms.
A. Reducing Vulnerabilities
Choices of Exchange Rate Regimes
The recent crises demonstrated the critical importance of exchange rate regime choices in reducing vulnerability to crisis. The most crucial principle coming out of this experience is that whatever regime is adopted should be credible and supported by consistent macroeconomic policies and robust financial systems. Each country must choose the exchange rate regime that suits its own needs. However, unsustainable exchange rate regimes can be a threat to other countries and to the international system. That means that we all have a stake in the regime chosen by others and how it is managed. The IMF must now sharpen and highlight its advice to countries in this arm
We cannot help but be struck by the fact that at the center of each recent crisis was the same exchange rate regime: fixed but adjustable. Countries are more vulnerable when their exchange rare regime provides a clear target for market participants to bet against without an equally clear commitment to supporting domestic policies backed by institutional arrangements. Fixed but adjustable pegs also encourage risk-taking by the private sector, which may be less likely to hedge foreign currency exposure and less likely to be concerned about currency mismatches than it should be.
A commitment to fix it requires a willingness to subordinate other policy goals, when necessary, to that of managing the exchange rate. In cases where countries choose to fix rates, for example as part of a comprehensive effort to fight inflation, experience shows that institutionalizing that commitment can be important, perhaps even necessary, for credibility. Such institutionalization requires extraordinarily stringent policy discipline.
Recent work by the IMF suggests that, for emerging, market economies with substantial involvement in global financial markets, floating rates should be an increasingly relevant, if not universal, choice.
We believe it is imperative that the Fund enhances the attention it gives to exchange rate sustainability in the context of surveillance and bring to the process the results of the best research and analysis. In particular, the IMF should focus on the need for countries with fixed/adjustable pegs to develop exit strategies.
The key area where the IMF must press ahead is in its exchange rate advice in the context of IMF supported programs. We strongly believe that the international community should not provide large-scale official financing for a country intervening heavily to support a particular exchange rate level, except where that level is judged sustainable and certain conditions have been met, such as where the exchange rate policy is backed by a strong and credible commitment with supporting arrangements, and by consistent domestic policies. Going forward, it will be important to shape expectations generally so that countries do not intervene heavily to defend their exchange rate in anticipation of official support.
Another important area of reducing vulnerability of emerging markets involves improving the way that they manage their exposure to potential large swings in international capital flows. Some advocate capital controls as a way to do this.
Recent work by the IMF on country experiences with capital controls suggests that a cautious approach is advisable. While controls have on some occasions been effective, they have more frequently been ineffective and often costly. Experience underlines most clearly that capital controls cannot substitute for sound macroeconomic policy, and that strong prudential standards and implementation are important accompaniments to capital account liberalization.
These perspectives reinforce our view that stronger prudential regulation and better debt management, combined with a sustainable exchange rate regime, are the best ways to manage the risks created by large international capital flows, and are key for emerging markets seeking to reduce their vulnerability.
Accordingly we have called on the IMF and World Bank to work together to develop a set of best practices in debt management and to report by year-end. We would like to see them draw from diverse sources, including developing countries that have extensive experience and enjoyed success in this area. We think it would be useful to approach the issue from the "macro" prudential perspective of changing the country's overall liability position rather than focusing on the more limited "building block" issues.
B. Resolving Financial Crises
Our overall goal should be to ensure that, if required, official finance supports programs that offer a viable solution to a country's immediate financial problem and lay the basis for sustained growth. We want to draw on the strength and flexibility of markets, and help markets work well. Recent experience has confirmed the need to maintain sufficient flexibility to address diverse cases effectively.
The G-7 Finance Ministers' Architecture Report laid out principles, considerations and a set of possible tools to guide official action in this area. Such a framework provides flexibility to craft solutions tailored to the unique circumstances of each case, while also providing greater policy clarity. Our challenge now is to move forward in applying the principles and considerations outlined in this framework to concrete cases. We are pleased that recent IMF work has supported this broad policy approach.
Central to effective crisis response is determining the appropriate level of official finance to support the return of normal market access. In some crisis cases, a bank run psychology may have taken hold, and creditors may be withdrawing funds from a country that clearly has the capacity to meet its payments if given time to make appropriate adjustments. When a country's underlying capacity to pay is strong and prospects for the restoration of market access on viable terms are good, it is appropriate for the official sector to provide temporary financial support while the Country undertakes the reforms needed to restore confidence and regain access. This in conjunction with efforts to explain a country's reform program to the markets, will normally be sufficient to overcome temporary financing difficulties and lay the basis for recovery. In some limited circumstances, it may also be appropriate to seek additional support for the Country's policy program from private creditors, through voluntary arrangements to provide for maintenance of exposure levels or a refinancing of the country's debt obligations. Emphasis should be placed on approaches that encourage the rapid restoration of full market access.
In other rare cases, the early restoration of full and spontaneous market access on terms consistent with medium term external sustainability may not be realistic, and the use of a broader spectrum of policy tools as laid out in the G-7 Finance Ministers' Report of June, may be warranted to provide for an adequately financed program and a sustainable medium-term payments profile. In any event, it will be critical that debtors and creditors work cooperatively to find a solution to the country's debt problems, with the official focus on the development of a viable overall strategy for a country, not on managing the details of restructuring. The IMF should establish clear parameters, and then leave scope for debtors and creditors to work constructively to find solutions that provide a viable path forward. In this process no one category of private external creditors should be regarded as inherently privileged.
We welcome the IMF's move to refine its criteria for lending into arrears. With this policy in place, there is no need to seek a more heavy handed capacity to provide for a temporary stay on litigation.
Problems of creditor coordination can potentially interfere with developing orderly and cooperative solutions to a country's Financial problems. The broader use of contractual provisions that can facilitate creditor coordination could therefore contribute to rapid orderly crisis resolution. We encourage the IMF to make the use of such provisions a component of international best practices in debt management and to focus attention on the use of such provisions in international surveillance. But we also need to remember that it is not our role to design the ideal forum for the negotiations between debtors and creditors. We should push all sovereign debtors to maintain an ongoing dialogue with their creditors, since relationships established in normal times create capital that can be drawn on during periods of difficulty. But we also need to remember that non-binding procedures and principles to guide the establishment and operation of ad hoc committees will only work if a wide range of private creditors "buys into" the resulting protocol/procedures and principles.
Institutional Reform/Strengthening and/or Transforming the Interim Committee
We welcome the agreement to strengthen and transform the Interim Committee and enhance its effectiveness. Its permanent status will help ensure that it continues to play a crucial role in advising and reporting to the Board of Governors on critical issues. Its expanded terms of reference, encompassing, inter alia, the international monetary and financial system, will be reflected in its new name: The International Monetary and Financial Committee. This morning's joint meeting with the Development Committee is an example of the kind of useful collaboration between a strengthened Interim Committee and other institutions on key issues that we would like to see going forward.
Y2K Contingency Planning
There is a potential risk that Y2K-related disruptions in some IMF emerging market countries could lead to a variety of problems in the financial and real economic sectors. In light of this, we have supported contingency plans allowing for a stronger IMF role if this proves necessary as the millennium date change takes place.
On September 24, 1999 the IMF approved a plan establishing a special, temporary Y2K facility that would allow member countries to borrow under specific conditions in order to respond to pressure on their currencies or banking sectors stemming from Y2K problems. The U.S. was a keen supporter of this proposal and we welcome the IMF's favorable decision.
In addition to this decision and to other Y2K-related outreach efforts by the IMF, we urge the IMF take two other steps to develop its contingency planning for Y2K:
-- Survey the adequacy of member countries' lender-of-last resort capacity in order to identify possible responses by their monetary authorities to strains on their currencies
-- For program countries, examine whether there is scope, in the event of extraordinary Y2K: related difficulties, for a more flexible response through relaxation of constraints on reserves and on repurchases.
In the short time remaining before the millennium date change, there is still much that can be done to reduce the risk that IMF members might need to seek access to the new facility. Specifically, we urge that public and private sector officials press ahead with Y2K contingency plans in the financial sector, between the financial sector and other critical sectors, such as power and telecommunications, and cross-border with major trading partners.
IMF's Role in Promoting Sustainable Growth and Reducing Poverty
A. Integrating Social Sector Issues in Fund Policy Advice and Programs
The IMF has long played a critical and positive role in supporting the creation of conditions that promote sustainable growth and the reduction of poverty, primarily through its Enhanced Structural Adjustment Facility (ESAF) and its predecessor the Structural Adjustment Facility (SAF). As the Fund rightly points out in its recent progress report to the Interim and Development Committees on the HIPC initiative: "Sustained poverty reduction requires rapid economic growth as well as macroeconomic stability and structural reforms that allow a transition to a higher path of sustained growth. These are the objectives of ESAF-supported lending which must be central to any poverty reduction strategy."
Recent reviews of ESAF and the Fund's experience with integrating social sector issues in its policy advice point to substantial progress in terms of both inputs and outcomes under ESAF-supported programs. But they also reveal a need for improvement. In particular, there is need for greater consistency and mutual support between a country's social sector/poverty reduction objectives on the one hand -- and the fiscal choices they make to achieve these objectives -- and ESAF-supported macro-economic policies and financing on the other.
We therefore welcome and emphasize the importance of a new, coordinated approach by the World Bank and IMF to support, consistent with their mandates, a growth-oriented strategy aimed at reducing poverty, and stress the importance of its implementation. We also welcome the Managing Director's intention to announce a successor arrangement to the ESAF, to be called the Povery Reduction aid Growth Facility.
The first and most fundamental change under the new strategy would be that the design of IMF-supported macroeconomic policies take fully into account their potential impact on social and sectoral programs aimed at poverty reduction while ensuring macroeconomic stability. Closer interaction with the World Bank will be crucial to establishing this linkage. Greater attention will be accorded to more rapid growth, full transparency and more effective monitoring procedures, collaboration with the World Bank as well as other institutions with relevant expertise, participation of civil society in design as well as implementation, and, not least, good governance. ESAF lending operations would key off of a comprehensive Poverty Reduction Strategy Paper (PRSP) prepared by the national authorities with assistance from the World Bank, the IMF and others. The PRSP would be endorsed by the Executive Boards of both the World Bank and the IMF. ESAF Performance measures would explicitly incorporate a set of key poverty reduction targets set out in the PRSP.
Adoption of these reforms marks a profound change which will put poverty reduction at the center of IMF and World Bank supported programs in HIPC and other low income countries. As these institutions move forward, it is important that they:
Reinforce Consistency in Decision Making. The new integrated strategy will serve as the starting point for a more coordinated approach by the IMF and World Bank in their operations and advice, with poverty reduction and high quality growth as the central objectives in the formulation of programs and in the conditions under these programs. At the same time, the institutions should do more to ensure consistency in their decision making on lending operations. For example, if the Executive Board of the Bank identifies concerns regarding progress in meeting core poverty reduction measures, this should be reflected in decisions related to IMF programs, as well as Bank lending and HIPC relief.
Ensure Additionality. With respect to HIPC countries in particular, we need to ensure that savings freed up by debt relief provide for true additionality and improved outcomes from social expenditures. The point is of ten made that the quality of social expenditures is as important, if not more important, than quantity. Development experience attests to the validity of this view. Yet quantity also matters. This is true especially in the HIPC context given that the HIPC initiative is, or should be, devoted to freeing resources for priority social needs.
How to ensure such additionality? There is no single formula. But we believe that, properly implemented in the context of transparent budgetary procedures, poverty action funds can have substantial benefits. In Uganda, this instrument provided an important entry point for civil society into decision making and oversight of priority poverty reduction expenditures. We recognize that such funds are not a panacea and can create their own set of problems if necessary checks and balances are not in place. Accordingly, we encourage IMF and World Bank staff to work with interested governments to explore prospects for establishing such vehicles in an effective manner and on a case-by-case basis. Another option is to pull poverty reduction programs together, in an accounting sense, into a detailed "poverty reduction budget" within the national budget" within the national budget. This would facilitate monitoring, including with respect to the additionality of HIPC-related savings.
B. Securing IMF Financing
We welcome the consensus that has emerged on steps to secure IMF financing for HIPC and continued concessional financing by the IMF for its poorest members, including, the mobilization of funds in the IMF's SCA-2 account and of a portion of the IMF's gold holdings. On this latter point, we support the move to mobilize a portion of the IMF's gold holdings via non-market sales in an amount up to 14 million ounces.
Standards Transparency Initiatives
Standards/Financial Sector Reform
We have made considerable progress in defining a core set of international, financial and economic policy standards relating to public transparency, banking supervision, securities markets, insurance and corporate go governance. The prototype Compendium of Standards, which the Financial Stability Forum is in the process of developing, owes a great deal to the Fund's early efforts to incorporate key financial and economic policy standards in its surveillance.
More work must be done to specify those standards that are key to strong financial systems and to develop new standards where there are gaps, such as for deposit insurance. We are confident that the Fund will play a critical role in this process. As standards are identified, the focus should increasingly shift to implementation and monitoring.
As countries become familiar, with the standards which the international community views as critical to financial stability, their commitment to meet or exceed these standards -- to take steps to increase the transparency of their monetary and financial policies, to improve the quality of banking supervision, to ensure good corporate governance and accountability -- should become a matter of public record.
As countries "sign on" to these core standards, the Fund, along with the World Bank, and supplemented by national financial regulators, must play an important role in assessing whether and how countries meet these commitments. This too should be linked into the Fund's surveillance function, but also back into the standards-setting and promulgation loop. New standards may be required to fill "gaps" such as for bank deposit insurance schemes and public debt management, and the Fund will certainly play a leading role in developing these.
To help build strong national financial systems, it is important not only for the country to know how it measures up, but it is important for others with an interest in financial stability to also be in the know. For market to work efficiently and effectively, more and better information is key, and this can best be gained through greater transparency and disclosure. The international community cannot regulate this to happen, but it can build incentives for positive behaviors by both the providers and users of capital. I anticipate that the Fund will play a leading role in this effort as well.
One of the central lessons from recent crises is that enhanced transparency and disclosure would facilitate market discipline and the development of sound government policies as well as helping expose vulnerabilities earlier. We have already seen considerable progress in following up on this lesson through promulgation of standards and best practices for transparency in the Fund's core area of expertise.
SDDS. As the prevailing standard for release of national economic data, the SDDS is gaining credence as it becomes more widely used by both countries and the market. We look forward in particular to widespread implementation of the new template for reporting of international reserves. The SDDS will also benefit from further strengthening with respect to external debt and addition of macro-prudential indicators, as called for by the G-7 Finance Ministers in their June 1999 report, in order to help illuminate the soundness of financial sectors. We look forward to progress on these fronts before the end of the year. In order to promote wider use of the SDDS and compliance with it, we are working with other industrial countries to encourage foreign sovereign borrowers to include a statement on their status with respect to the SDDS in their offering or listing documents.
Monetary/financial code. We welcome finalization of the Code of Good Practices on Transparency in Monetary and Financial Policies, and support its endorsement by the Interim Committee. This Code can make an important contribution to public understanding of monetary and financial policy goals and instruments, and should support critical objectives in promoting good governance and combating corruption. In particular, we look forward to the Code, in conjunction with IMF surveillance, playing a role in promoting transparency and accountability in the operations of central banks and financial agencies. We note that Fund staff is pushing ahead with the development of a supporting document that provides a fuller description of each transparency practice of the Code, its rationale, and practical considerations regarding implementation. We urge that staff complete the supporting document by the time of our spring meetings.
Fiscal Code. Now in the implementation phase, we look forward to the integration of the Code on fiscal Transparency in the ongoing Article IV surveillance process. For our part, we are participating in and will soon complete the self-evaluation process and encourage other countries to do so.
Further steps to increase transparency in the private sector are also underway. In particular, we took forward to the work of one group of international regulators that is developing a comprehensive framework of disclosure by private market financial institutions. We also look forward to the work of a second group of international regulators that is reviewing pipes of aggregate data (such as net positions and turnover data) in foreign exchange markets that could help market participants assess and manage foreign exchange risk.
The IMF itself must also participate in the drive for greater openness. Already, its operations are becoming more open, as decisions made over the last year are implemented. The adoption of a more systematic approach to releasing information about policy changes, reform commitments of countries benefiting from IMF financial assistance, and the results of Article IV reviews is helping to dispel the image of the IMF as a secretive, unaccountable institution. The pilot program on transparency in Article IV reviews is showing encouraging results. We need to push forward with this effort, however, until we reach a point where such documents, including Letters of Intent and related program documents, are systematically released without exception.
Notwithstanding some encouraging developments in the world economy, this is not the time to become complacent. We still face a number of challenges in fostering a strong and sustained world recovery to promote improved living standards with financial stability.
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