[stop-imf] Kohler overview on IMF work program

[Robert Weissman]

http://www.imf.org/external/np/sec/nb/2001/NB01133.htm

News Brief No. 01/133
 December 20, 2001

   Statement by Horst Köhler, Managing Director of the International
Monetary Fund, on the Work Program of the Executive Board

At its recent meeting in Ottawa, the IMFC underscored the need for a
determined and cooperative policy response to address
   the challenges facing the world economy in the wake of the September
11 terrorist attacks. It agreed that the IMF has a central
role to play in that response, by safeguarding the stability of the
international financial system, by promoting and supporting
policies to restore global growth, and by maintaining the momentum of
the fight against world poverty. Now more than ever,
the Committee felt that it is crucial for the IMF to help guide and
shape the process of globalization and ensure that it works
for the benefit of all.

In light of the IMFC discussion, it is clear that the IMF will need to
widen its contributions to the international effort against
money laundering and the financing of terrorism, while also intensifying
its work in a number of other key areas. Given the
brief period remaining between now and the Spring meetings, it will be
therefore crucial for the Fund's Work Program for the
coming months to be strictly prioritized, concentrating on the following
policy areas:

       the global outlook and policy responses

       strengthening and focusing Fund surveillance

       crisis resolution: private sector involvement and access in
capital account crises

       financial sector work, including implementing the Fund's action
plan in support of the global effort to
       combat money laundering and the financing of terrorism

       focusing conditionality and fostering ownership

       sustaining poverty reduction in the poorest countries-in
particular the PRSP and PRGF review

The IMFC stressed that the Fund should respond flexibly and proactively
to the needs of its members in the current
environment, and this will be reflected in discussions of country items,
new programs, and program reviews in the months
ahead.

I am pleased to submit this statement on the Executive Board's Work
Program for discussion on December 10, 2001.1 The
statement covers in detail the period up to the Spring 2002 meetings and
provides an indication of items until the Fall
meetings. We have a relatively brief period in which to complete a heavy
work load before the Spring meetings. In particular,
the Secretary will keep under close review the feasibility of the Board
work schedule in the period March-April. Some of the
planned Board discussions may need to be put back until after the Spring
meetings.

A. The Global Outlook and Policy Responses2

Even before the September 11 attacks, economic activity was weakening
throughout the world, and the risks and uncertainties
have clearly increased since then. We continue to expect that there will
be a recovery during the coming year, but there is also
the possibility of a worse outcome, involving an even deeper and more
prolonged downturn and increased financial strains in
many countries. In this situation, the major industrial countries have a
particular responsibility to rebuild the momentum of
global growth and safeguard financial stability, both by taking
advantage of the room to maneuver on monetary and fiscal
policy, and by more ambitiously removing structural impediments to the
realization of stronger economic growth potential.
For their part, emerging market and developing countries will need to
pursue growth-oriented policies while recognizing that
there will be little market tolerance for weak fundamentals. A
discussion of the interim World Economic Outlook (WEO)
is scheduled for December 11. The main semiannual WEO discussion is
planned for March, just prior to the Spring
meetings.

In the intervening period, the Fund will continue to pay close attention
to developments and prospects through multilateral and
country surveillance. We will look for an opportunity in the first
quarter of next year to update the Board on actions taken
in the framework of my October 5 statement3 on the response to
weaknesses in the world economy and new risks in the
outlook. A key aspect of this framework is the contributions from other
institutions and member countries, and the Board will
need to encourage these as it oversees the Fund's own response. In
February, the International Capital Markets Department
will present its first Global Financial Stability Report (GFSR). This
report, to be produced on a quarterly basis, will be
the key vehicle for Fund surveillance of the international capital
markets, allowing prospects for emerging market financing to
be assessed in the context of global market developments.4

The substantial program of Article IV consultations, summarized in Table
1 of the Secretary's supplementary note on the
work program, and discussions relating to the use of Fund resources will
provide further vehicles for assessing developments
in individual countries and regions, and engaging members in a proactive
dialogue on confidence-building policies.

B. Strengthening and Focusing Fund Surveillance5

Building on the guidance of the IMFC, the Fund has, over the past three
years, adopted a series of initiatives to strengthen
surveillance, particularly its focus on crisis prevention. It has
developed new analytical tools for assessing external and
financial sector vulnerability, including the Financial Sector
Assessment Program (FSAP); promoted transparency; and
played a central role in the development and implementation of
internationally recognized standards and codes. These
initiatives are designed to strengthen Fund surveillance and help
countries and the international financial system become
more resilient to shocks.

The Board's next biennial review of surveillance, in March, will seek to
define an appropriate profile for surveillance and
strengthen its focus and effectiveness going forward. It will seek to
establish clearer priorities for the work of the Fund
concentrating on policies that are critical to building greater
resilience in national economies and financial systems. As
important, we need to explore ways to heighten the impact of Fund
surveillance in bringing about early and preemptive policy
action. The review will examine the conduct of surveillance in relation
to program activities (surveillance in program countries,
post-program monitoring, and staff-monitored programs) and take up
possible changes in consultation cycles and other
procedures. The review will take stock of how the Fund's work in the
financial sector and in promoting best practices through
the initiatives on standards and codes can be further integrated into
surveillance. The IMFC called on the Fund to strengthen
its surveillance of trade issues and to help promote international
efforts to open markets and eliminate trade-distorting
subsidies, particularly in the advanced countries, and against this
background, the review will examine how trade policy should
be treated in the Fund's work.

Ground for the biennial review of surveillance will have been prepared
by two preceding Board discussions, also in March, on
a range of related topics. The first discussion will involve the review
of data provision to the Fund and proposals for
strengthening the application of Article VIII, Section 5 (related to the
furnishing of information by member countries about
their activities). The second will consider the Fund's transparency and
publications policy and the policy on side letters.

Reflecting the Fund's strengthening of surveillance of international
capital markets, the staff will make two technical
presentations in May and September, respectively, exploring facets of
capital flows to emerging markets. These will provide
briefings or seminars on the composition of the investor base for
emerging markets and on the role of local securities
markets in the intermediation of capital flows.

Improved opportunities for trade and foreign direct investment in
developing and emerging market countries, including better
access to industrial countries' markets, are among the most important
contributions to making globalization work for the
benefit of all. A paper describing the outcome of the WTO's Ministerial
Conference in Doha and indicating the initial
implications of the new trade round for the work of the Fund will be
issued for information in December. Staff will continue
to keep the Board informed as progress is made in the new WTO round.

In July, a review of the standards and codes initiative 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.

C. Crisis Prevention and Resolution: Private Sector Involvement and
Access in Capital Account Crises6

The Fund's role in the prevention and resolution of financial crises
will remain a critical priority going forward. The
focus of our work will be the development of a stronger framework of
presumptions to guide the Fund's role in crises and to
help facilitate orderly sovereign debt restructurings that would benefit
both debtors and creditors, and promote the stability of
the international financial system. By developing a more transparent and
more predictable framework for action, we hope to
contribute to a process for cooperative and constructive engagement with
the private sector. A series of Board discussions and
seminars on crisis resolution and sustainability are planned to provide
the basis for the development of a stronger foundation
for judgments about sustainability, stronger tools for facilitating
sovereign debt restructurings where such action is necessary,
and a broader consensus on the criteria that should guide access to Fund
resources in capital account cases. This series will
start with the informal briefing on December 6 on a new approach to
restructuring sovereign debt. A discussion on this
topic will be held in January, at which those issues on which further
work is needed will be identified.

In January, the Board will discuss techniques for complementing the
catalytic approach, including the scope for
voluntary and market-based operations to provide breathing space and
reprofile debt-service obligations, and for moral
suasion and regulatory actions to secure private sector involvement.
Issues related to the restructuring of international
sovereign bonds will also be addressed in January on the basis of a
paper that will carry forward the analysis of these issues
under the current legal framework, including the spillover effects of
debt restructuring on the domestic economy.

In February, the Board will discuss the balance sheet approach to
assessing vulnerability to crises as well as balance of
payments sustainability, as possible contexts for making decisions on
access to Fund resources in capital account crises.

A progress report by the Managing Director to the IMFC on private sector
involvement will be considered in April.

Building on the above discussions and the experience in country cases,
the Board will, in mid-2002, discuss access to Fund
resources in capital account crises.

D. Financial Sector Work, Including the Fund's Action Plan for Combating
Money Laundering and the
Financing of Terrorism7

Over the past two years, the Fund has developed a comprehensive approach
to promoting the stability of members' domestic
financial sectors, as an essential element in fulfilling its
responsibility to safeguard the stability of the international financial

system. Following the events of September 11, 2001, an action plan was
formulated by the Fund to intensify its contribution
to the global efforts to combat money laundering and the financing of
terrorism.

The IMFC supported the international efforts to combat money laundering
and the financing of terrorism, and
endorsed the Fund's action plan to intensify its involvement in these
areas, consistent with its mandate and expertise. It
agreed that the Fund should extend its efforts to include the countering
of terrorism financing and to expand its anti-money
laundering work to cover legal and institutional frameworks. Fund staff,
in collaboration with Bank staff, will jointly draft an
expanded anti-money laundering methodology document that will be used in
all forthcoming FSAP and offshore
financial center assessments; canvass members in a related voluntary
questionnaire circulated in the context of Article IV
missions; accelerate the assessments of offshore centers; and increase
technical assistance. In addition, staff will enhance its
collaboration with the Financial Action Task Force (FATF) aimed at
converging towards a global standard covering all FATF
recommendations and working to apply the standard on a uniform,
cooperative, and voluntary basis. Since all these tasks
produce a significant additional workload, we will need to come back to
the Fund's resource requirements in the forthcoming
discussions of the administrative budget.

The Board will be kept informed about the progress in implementing the
Fund's action plan. By end-January, the Board will
receive for information the draft of the expanded anti-money laundering
methodology document, and related
questionnaire, which will take account of legal and institutional issues
and anti-terrorist financing elements; comments
received from standard-setters on the earlier draft circulated to the
Board in August; and lessons from the first pilot cases. The
Fund's efforts will extend into legal and institutional issues, and it
will avoid becoming involved in law enforcement
issues.

In March, the Board will receive, for information, a progress report on
the offshore financial centers assessment program
and related technical assistance. In April, the Board will consider an
interim report to the IMFC that provides an update on
progress in the implementation of the Fund's action plan.

In advance of the Annual Meetings, a full report for the IMFC will be
prepared on the implementation of the Fund's action
plan covering experience with the usage of the expanded Bank/Fund
methodology document; convergence with FATF on a
ROSC module on a global anti-money laundering standard covering the FATF
Recommendations; delivery of relevant
technical assistance; and progress with the acceleration of the
assessments of offshore financial centers.

The Fund's action plan should be seen as part of international efforts
in this area. As stated by the IMFC, the fight against
money laundering and the financing of terrorism requires the active
participation of both financial intermediaries and the
public sector. Therefore, the Committee urged further action, calling on
all countries to establish Financial Intelligence Units,
make provisions to ensure the sharing of information and deploy
appropriate technical assistance. Responsibility for
implementing, monitoring, and assessing progress with regard to these
actions rests with national authorities and the relevant
specialized agencies (i.e., the UN, the Egmont Group, FATF, UNDCP, and
others).

Simultaneously, the Fund's broader work on financial sector issues will
be ongoing. In May, the Board will discuss a
financial policy framework for the management of systemic banking
crises, and the necessary elements to avoid such
crises. In June, Directors will review the experience under the FSAP and
consider guidelines for the period ahead on the
basis of a joint Fund-Bank staff paper.

A paper on consolidation in the financial services industry, reviewing
international trends in the industry and their
implications for the surveillance of financial systems, assessments of
systemic risk potential, and regulatory and supervisory
arrangements, with particular emphasis on developing countries and FSAP
assessment methodologies, will also be discussed
in June.

E. Focusing Conditionality and Fostering Ownership8

In our ongoing examination of Fund conditionality, there is broad
agreement that the objective is to make Fund-supported
programs more effective by concentrating on the priorities in the Fund's
core areas of responsibility, and above all by
fostering country ownership of reforms. We have already begun to address
key aspects, including streamlining structural
conditionality, Fund/Bank collaboration, and feedback from external
consultations.

In January, the Board will discuss the modalities of
conditionality-further considerations, including the scope for
results-based conditionality, the use of prior actions, waivers, program
reviews, and the role of financing assurances. In
February, the Board will consider a paper distilling the lessons from
the review of conditionality over this year,
including issues raised in previous Board discussions and by outside
commentators. We will use these discussions and
lessons from the initial experience as a basis for proposals to the
Board before the Annual Meetings on new and concrete
guidance to the staff.

F. Sustaining Poverty Reduction9

The IMFC also stressed the critical importance of sustained
international support for efforts in low-income countries to
reduce poverty and achieve debt sustainability. Meaningful progress will
require a renewed and strengthened
commitment by low-income countries and the international community as a
whole. To this end, prior to the Spring meetings,
the Fund and the Bank will sponsor an international conference on the
PRSP approach and the PRGF on January 14-17.
In March, the Board will consider a joint Fund/Bank staff paper
containing a comprehensive review of the PRSP
approach and a Fund staff paper on a review of the PRGF, drawing on the
views of member countries, international
institutions, donors, academics, and civil society. An outline of the
staff plans for the PRGF review was recently circulated for
information. For the Spring meetings, the IMFC will review the Fund's
assessment of the situation in these countries and our
ongoing efforts under the PRSP approach and the PRGF/HIPC Initiatives.

Several additional staff papers will address HIPC issues. In March the
Board will discuss a paper, prepared jointly with the
Bank, on progress in implementing the HIPC Initiative. Two related
papers, on action plans for strengthening public
expenditure management capacities and external debt management in HIPCs,
will be circulated to the Board in the first
quarter of 2002. An update on the financing of the Fund's participation
in PRGF/HIPC Initiatives will be discussed in
March, while the investment strategy and guidelines for both initiatives
will be discussed in July.

In January the Board will consider three papers concerning information
reporting in HIPC cases. The first, a joint
Fund/IDA paper, will contain proposals covering corrections or other
revisions to data underlying debt sustainability analysis
at the decision point, or to information used to assess a country's
track record. The second paper will address possible
changes in the Fund's legal framework to enable the Fund to respond when
assistance committed at the decision point was
based on incorrect information. The third paper will address general
principles of law that could apply to cases of
misreporting prior to the adoption of the new misreporting scheme.

The Fund, together with the World Bank, the EBRD, and the Asian
Development Bank is launching an initiative to focus
attention on the low-income CIS countries. A paper on the promotion of
growth and poverty reduction, incorporating the
previously announced progress report on debt sustainability in these
countries, will be circulated for information in January
and will inform the February 2002 Bank/Fund sponsored meeting with the
CIS officials, donors, creditors, and international
organizations. Following consideration of the next steps under the
initiative at this meeting, the staff will report to the Board.

I consider the review and further improvement of the effectiveness of
the PRSP process as an important contribution by the
IMF to the UN's Conference on Financing for Development in Monterrey in
March 2002. More broadly, the Fund
should be as proactive and constructive as possible to help make this
conference a step forward in the efforts to fight poverty
and promote broadly shared prosperity in the world. Management will
continue to keep Directors informed of the progress
on the preparations. Early next year we would also propose to host
another meeting of Executive Directors with the Financing
for Development Bureau involved in the preparatory process.

G. Other Items10

Technical Assistance

I believe that the Fund must remain vigilant in ensuring that its
technical assistance (TA) is well prioritized, efficiently
managed, and closely integrated with the core activities of the Fund. It
can thereby make an effective contribution to the
reform and capacity building efforts of member countries. At the same
time, demands on the Fund's limited TA resources
have again grown sharply in recent months, highlighting the need for
additional resources. In March, the Board will review the
Fund's technical assistance policy and experience. Following from the
January 2001 Board discussion of TA policy, the
paper will review experience in refocusing TA on the Fund's main
programs and key policy initiatives, address issues related
to Technical Consultations (TCs) and Technical Cooperation Action Plans
(TCAPs), report on new initiatives to manage TA
more efficiently, review and make proposals regarding the policy on
publication of TA reports, and discuss resource issues
related to intensified technical assistance priority areas.

Quotas

Following on the recent discussion on alternative quota formulas, the
Board will hold a seminar in January for an initial
review of the issues relating to the 12th quinquennial review of quotas.
Thereafter, a follow up paper on quota
formulas will be considered by the Board.

SDRs

The Board will consider on December 12 a paper on basic considerations
concerning a general allocation of SDRs prior to
the start of the next basic five-year period on January 1, 2002; further
discussions may be required.

Overdue Financial Obligations

The next review of the strategy on overdue financial obligations to the
Fund will be conducted in August, although, at
Directors' request, a review of the fundamental issues related to
Sudan's arrears will be held in advance of that discussion.

Administrative, Financial, and Other Topics

On December 13, the Budget Committee will be presented with the proposed
budget reforms for the overall FY 2003 budget
and medium-term framework, in preparation for a committee discussion in
February on the framework that will include a
review of the Fund's medium-term information technology strategy. The
Administrative and Capital Budgets will be
discussed in April. In June, the Board will consider the proposed budget
for the HQ2 building project.

The relevant committees will consider proposals concerning the Staff
Retirement Plan, the Medical Benefits Plan, and selected
aspects of the staff compensation system.

The periodic reviews of the Fund's income position will take place in
December and April.

In March, the Board will consider the experience with, and next steps in
the area of, the safeguard assessments of central
banks that were introduced in July 2000 on a pilot basis. This
examination will take place together with a review of the
results of an independent evaluation of safeguard assessments by a panel
of experts.

The work program of the Independent Evaluation Office for the coming
three years, as well as the budget of the office,
were discussed on December 5. A progress report to the IMFC on the
office's activities will be for consideration in April.

A paper on the Fund's external communications strategy will be discussed
in the Spring.



(Use the free Adobe Acrobat Reader to view PDF files.)

1 This statement should be read in conjunction with attached Charts 1
and 2, which provide an overview of the main policy items proposed for
discussion, as well as Tables A through G, which detail the items in the
proposed Work Program.
2 See Table A.
3 News Brief No. 01/98, "Statement of the Managing Director on the
Situation of the World Economy and the Fund Response."
http://www.imf.org/external/np/sec/nb/2001/nb0198.htm
4 This report will replace the previous quarterly report on emerging
market financing and the annual report on international capital markets.

5 See Table B.
6 See Table C.
7 See Table D.
8 See Table E.
9 See Table F.
10 See Table G.


                              IMF EXTERNAL RELATIONS DEPARTMENT
                             Public Affairs: 202-623-7300 - Fax:
202-623-6278
                            Media Relations: 202-623-7100 - Fax:
202-623-6772