[stop-imf] IMF: On Transparency

[Robert Weissman]

The IMF and Transparency=97Moving Forward
Speech by Shailendra J. Anjaria  (1)
Secretary, International Monetary Fund
Given at the Third Annual Meeting of the Secretaries of the Multilateral
Development Banks
Washington DC, October 28, 2002

The past decade has seen an explosion in global information flows,
disseminated among individuals, civil society groups, corporations,
parliaments, and academic institutions, as well as national governments
and regional and international organizations. For any of these actors
simply to be part of such a worldwide phenomenon seems unremarkable, and
the process, natural and automatic. Among all the participants in this
process, the IMF has, in fact, become a key actor and manager of
substantial information flows in the domains of its competence, with the
Internet as the instrument of choice for delivering a torrent of
information, data, documentation, and analysis.2

Yet, just a few years ago, an IMF role in the global information
explosion looked neither easy nor inevitable. It was well understood
that such a role would need somehow to be squared with the unique role
of the IMF as the institution of global monetary cooperation. In
carrying out its work and responsibilities every day, the IMF's staff,
management, and Executive Board handle highly sensitive and delicate
information on exchange rates, reserves, budgets, and monetary policy,
whose inappropriate or untimely disclosure could be extremely damaging
to countries, markets, and institutions. This consideration underpinned
the IMF's long tradition of dealing in confidence with officials of
member governments, particularly when sensitive issues are
discussed=97while at the same time striving to maintain this confidence in
order to ensure continuing candor and effectiveness of the dialogue with
members. A corollary was that historically member governments
themselves, and especially finance ministry and central bank officials,
were virtually the only interlocutors of the IMF.

In the past decade, this has changed. From having been a relatively
inward-looking institution, the IMF has become open, and the movement
toward greater transparency looks set to continue.

I hope today to shed some light on this profound transformation,
focusing on three areas: the key elements of the information flow
involving the IMF; the broad ways in which greater transparency is
beginning to trigger change=97some might say, a revolution=97in some of the
processes that drive the institution; and possible directions for the
future, including my guesswork on how, with the basic paradigm on
transparency having been embraced, further meaningful gains will be
captured.3

Although my comments will naturally focus on the IMF, its evolving
experience may provide more general insights. The organizations
represented here today are facing similar challenges, and I believe
that=97just as we have learned from the experience of other institutions,
including in particular the World Bank, on what works and what doesn't
work in the area of transparency and communication=97colleagues from other
institutions may benefit from the IMF's experience. I therefore look
forward to hearing your comments on the experiences of your institutions
on information policy and transparency.

I. Crisis and Transparency

The biggest and strongest push toward greater openness and transparency
for the IMF and its members since its founding came from a key lesson
driven home from the crisis in Mexico in late 1994 and early 1995, and
subsequently from the Asian and other crises in 1997-98. These were
major, damaging crises. A common feature and cause of the crises was the
lack of full information=97to the IMF, but also to the markets and the
public at large=97on key aspects of countries' financial situations=97for
example, on their international reserves and external debt. This lacuna
contributed to significant delays in, first, recognizing, and then
acting upon, critical problems. The unprecedented nature of these
crises=97especially the scale of capital outflows from the emerging market
economies affected=97attracted exceptional public attention and debate.
Consequently, the IMF was not spared criticism, whether by civil society
groups, academics, the press, or public officials in member governments,
and a great deal of public scrutiny came to be focused on the
responsiveness and response of the IMF to the crises. The steps taken by
the IMF to resolve these crises, and prevent future ones if possible,
became topics of attention and concern within and outside the
institution that still dominate the policy debate today.

A natural fallout from the sequence of crisis and response was that
reforms that, in another epoch, would have proceeded quietly, without
much public fanfare, now required active and constant public engagement.
Furthermore, the institutional response to crisis required that the IMF
itself go about its business in a different way from before=97for example,
that it not only explain what it was doing to prevent future crises, but
that it also be accountable in the public domain for the quality of
advice given to members and the responsiveness of members to its advice.

In some public discussions over the past decade, the focus has been on
whether the IMF's increased transparency has been substantial or
window-dressing, whether the shift toward greater transparency will be
long-lasting or temporary, and whether the IMF is publishing or
releasing all or only a part of what it should be putting in the public
domain. I personally have no doubts that the shift has been substantial,
comprehensive, and permanent. And over at least the past five years, the
desirability and usefulness of transparency and a full flow of
information have not been disputed within the IMF. Furthermore, the
coverage of the transparency policy is being progressively broadened and
improvements are being continuously made in the specific ways
information is made available.

The key to the revolution in transparency at the IMF is clearly not the
volume of material that is put out in the public domain, but rather the
profound change it is bringing to the core of the IMF's work with member
countries. This is because the IMF was able to exploit the opportunities
to build on the four pillars on which the initiatives on transparency
and openness stand, to which I now turn.

Standards

The first pillar is the establishment and refinement of internationally
recognized standards and codes of good practice in policy-making at the
national level. Some cover transparency directly, others indirectly, but
they all lead to greater openness and accountability of members and the
IMF itself. 4

First and foremost, standards cover the provision of financial and
economic information and data to the public that, once implemented,
enhance a government's accountability and openness to citizens and
financial markets directly, without an intermediary. A crucial fact now
recognized the world over is that without adequate data and timely
information neither national policy makers nor international
institutions nor financial markets can make sound decisions. The IMF, in
turn, cannot provide useful advice without good information. Thus, a key
part of the early transparency initiatives at the IMF was the
establishment in 1996 of standards to guide members in publishing a
regular and timely flow of comprehensive economic and financial data.5
The goal, of course, is to reduce surprises for markets and to aid
policymakers in implementing sound economic policies. Availability of
such information does not mean, of course, that policymakers or markets
will not make mistakes=97they have, and they will surely continue to do
so. But the world is too integrated to accept a lack of information as
an excuse for mistakes.

The efforts of the international community did not stop at data
standards. The membership has agreed that the list of standards and
codes that are useful for Fund and World Bank operational work must also
include codes of good practices in fiscal, monetary, and financial
policies, banking supervision, securities, insurance, payments systems,
corporate governance, accounting, auditing, insolvency and creditor
rights, and most recently, anti-money laundering and combating the
financing of terrorism. In all these areas, the IMF is called upon to
work closely with national authorities and the relevant international
agencies=97especially the World Bank=97to help ensure that best practice is
recognized and implemented, and the competence of other bodies is
acknowledged and reinforced.

Publication of documents

The second pillar of the openness strategy is an ambitious approach for
releasing policy documentation and IMF Executive Board assessments of
member country developments. The IMF is now making available
systematically=97but still on a voluntary basis in key
respects=97information on IMF surveillance that covers not only developing
countries and countries in transition from central planning, but also
industrial countries, under our procedures for Article IV consultations
with all members.

Since the mid-1990s, the IMF's membership has moved from publishing
relatively little to publishing a large proportion of country and policy
documents. To illustrate: in the period January 2001 to August 2002,
over 80 percent of members agreed to publish Public Information Notices
(PINs)=97a key source of information on the IMF Board's assessment of
countries' macroeconomic and financial situations=97following their
Article IV consultations.6 The publication rate for Article IV staff
reports was 61 percent, while 56 percent of staff reports on use of Fund
resources were published. About 95 percent of national authorities'
letters of intent in use of Fund resources cases were released.
Interestingly, publication rates have varied from region to region, with
the advanced economies and the transition countries of central and
eastern Europe having the highest, and the developing countries of the
Middle East and Western Hemisphere regions having the lowest rates, but
catching up.

These publications make up only a part of the picture. In addition to
Executive Board policy and country documents, the IMF publishes well
over 1,000 research working papers, documents, and reports each year.
Last year 1,400 items were added to the Fund's external website, which
receives about 4 million hits per month.

The outreach effort

The third pillar involves new engagement in extensive outreach efforts
with civil society organizations, academic and professional groups, and
private market participants, while participating in dialogue that both
offers them opportunities to better understand the formulation of
policies often still under consideration, and allows the IMF to learn
from them. To support the outreach effort, the IMF's media relations
activity has been substantially strengthened.7 In a fundamental way,
this change reflects the interrelatedness of information flows and
decision-making processes between official policymakers and others at
the national level, and finds its reflection at the international level,
including at the IMF.

The handling of the recent proposals of IMF management on mechanisms for
restructuring unsustainable external debts of member governments=97the
Sovereign Debt Restructuring Mechanism (SDRM)=97provides a window into the
significance of these outreach efforts. From its very first launching in
November 2001 by IMF First Deputy Managing Director Anne Krueger, the
proposed mechanism has been adapted in response to comments from
officials, private market participants, and the public. 8 When the
international community finally converges on the agreed features of an
operational SDRM, there is every reason to be confident that a mechanism
that is developed and launched in the glare of public scrutiny will be
stronger and sounder than any that could emerge from behind closed
doors.

Similarly, most papers on internal policies are published and
information on the financial operations of the IMF is regularly posted
on the IMF website.9 The twice-yearly Managing Director's statement on
the Work Program of the Executive Board is released in its entirety to
the public.10 For those interested in looking to assess historical
records, the lag for public access to the comprehensive minutes of
Executive Board meetings is now down to 10 years=97one of the most liberal
access policies among international organizations.

Learning from experience and from outside

The fourth, and perhaps most crucial, pillar is readiness to learn from
experience, both successes and failures, by using every available means
to take into account views and suggestions from many quarters for
institutional reform and policy development.

Two recent reviews illustrate this learning culture at the IMF=97the
Review of the Poverty Reduction Strategy Paper (PRSP) approach to
reducing poverty in low-income countries, conducted jointly with the
World Bank, and the Review of the Poverty Reduction and Growth Facility
(PRGF), the IMF's low-cost lending window for low-income countries, made
public in March 2002.11 Both reviews were open and inclusive, drawing on
contributions from developing countries, donor agencies, international
organizations, and civil society organizations. The ultimate aim is to
ensure that these initiatives will be fully aligned with national
priorities and enhance pro-poor growth strategies.

Another example was the review of the IMF's program conditionality begun
in late 2000. The review included public involvement through the
Internet and seminars with wide participation of academics,
policymakers, and civil society organizations. This process resulted in
revised guidelines, published in September 2002, that significantly
streamline the number of conditions in IMF loans and aim to strengthen
national ownership of adjustment and reform programs. 12

The establishment of the Independent Evaluation Office (IEO) at the IMF
in July 2001 to provide objective and independent evaluations on IMF
issues provides a further example.13 The IEO aims to enhance the
learning culture of the IMF, promote better public understanding, and
support the Executive Board in its institutional governance and
oversight. The IEO has full access to IMF Board and staff documents, and
consults broadly with outside experts and others. Its first report in
2002=97on prolonged use of IMF financial resources=97was well received, and
has led IMF management to establish a staff task force to recommend how
its recommendations should be operationalized from 2003. Other
independent evaluations underway will be seeing the light of day in the
next six months.

II. Does Transparency Matter?

This audience needs no reminder that almost any initiative taken by a
large organization immediately faces two pitfalls=97first, the risk that
the initiative becomes overly bureaucratized, in time changing perhaps
the form, but not the substance, of the process it is supposed to
reshape; and second, that after the novelty wears off, the initiative
loses impact. Will the transparency initiatives taken by the IMF and its
members face such a fate?

I believe not.

It is now clear that the IMF's members view transparency for themselves
and the IMF as valuable, and not just as a fashion or a procedure.
Realistically and consistently applied, and subject to safeguards that
are naturally needed, transparency holds the promise of making a
fundamental and lasting difference in the way the IMF and members do
their business, bringing considerable benefits to the international
community in three ways:

     By improving the quality of IMF policymaking and policy advice;
 By strengthening market assessments and private sector decisions; and,
     By enhancing the quality of national economic policies.

Let me turn to each of these.

Quality of IMF policymaking and policy advice

All four pillars described above=97the growing role of standards, the
extensive publication of previously confidential documents, the outreach
effort, and the institutional willingness to learn=97already influence
policy development and decision-making processes in the IMF, and in a
number of ways improvements are becoming evident in the quality of the
decisions made. At all levels, staff, management, and the Executive
Board are now keenly aware that the Fund's work processes increasingly
meet not only the standard test of accountability to member
governments=97for so long the unique touchstone of institutional
strength=97but also the even higher standard of accountability implied by
the additional test of transparency. As a result, transparency has
helped the IMF focus more intensively on its key priorities. This
sharpened focus has led, in the first place, to reforms aimed at making
the IMF more effective at carrying out its core mandate=97such as
streamlining conditionality, enhancing surveillance, and focusing
technical assistance. In the broader international setting, it has
improved communication and collaboration with other international
agencies, and sharpened the respective roles and contributions of the
IMF and its partner agencies. In addition, as many of the IMF's
operations=97for example, those based on an assessment of whether a policy
program will in fact be carried out=97are inherently risky, greater
openness has required that risk to be explicitly acknowledged and taken
into account.

Private sector decisions

With the exponential increase in the importance of international capital
markets, the greater availability of timely data and information on
policymaking provides market participants with a basis for making
sounder decisions. As already mentioned, along with the data
initiatives, the IMF has pioneered work on generally accepted standards
and codes in a range of specific economic policy areas, working on many
of them with the World Bank. The best practices relating to transparency
in areas such as fiscal, monetary, and financial market policies that
have been developed and assembled in cooperation with relevant partners
now feed into the surveillance function of the IMF. As surveillance is
being conducted increasingly in the public domain=97with more and more of
the associated documents published and open to scrutiny=97the nature of
surveillance is being transformed, with markets better positioned to
assess countries' performance in relation to published best practices in
a number of areas, and the IMF's own assessments in turn being open to
judgment by the public and the markets.

Transparency and openness offer the promise of reducing the frequency
and severity of financial crises. A key feature of the latest financial
difficulties in Latin America has been that markets seem to have been
doing a better job of differentiating among countries than in previous
crises. Contagion has therefore been limited, both from Latin America to
Europe or to Asia, and even within Latin America. The reduced contagion
points to the considerable potential payoff from making further efforts
to respond to satisfy the public's and the markets' curiosity about the
true state of economies and the direction of economic policies.

Quality of national economic policies

The significantly greater openness in the formulation of economic
policies at the national level has provided essential support for
greater transparency at the international level, including at the IMF,
and this convergence has contributed to positive-sum synergies. A clear
example is the greater attention now being paid globally to governance
issues, in which the IMF became more active in 1996.14 Today, even
without the specific involvement or advice of any outside agency,
national parliaments, civil society groups, and the media in many
countries are apt to question, and press for investigation and
resolution, cases of alleged instances of corruption, whether in the
public or corporate sectors. And there is broader realization at the
national and international levels of the importance of the rule of law
and of transparently run institutions. Accordingly, policy advice and
technical assistance by the IMF and other multilateral institutions is
increasingly directed to capacity-building, with a high premium on
strengthening the human and physical capital needed to build and run
institutions.

Another example is the policy making process in many low-income
countries based on the PRSP process reviewed recently, which now
increasingly provides a common framework for financial assistance from
the IMF and other international and bilateral sources. This process
involves broad-based consultation that serves to enhance ownership of
government policies by a range of national and international
stakeholders. More generally, Fund transparency based on the four
pillars serves to promote effective implementation at the national level
of policies developed with IMF advice, which, in turn, is developed and
formulated more transparently.

III. Moving Forward with Greater Transparency

Increased transparency and openness, by promoting sound decisions by the
official sector, both nationally and at the IMF, and by private market
participants, provide a basis for a more robust international economic
and financial system working for the benefit of all. Although the
positive effects of transparency are increasingly self-evident, certain
key questions remain for reflection and discussion. How these questions
are answered will help shape future moves toward further increases in trans=
parency.

Transparency for all?

First, I believe that policymakers, and public opinion generally, will
increasingly be looking for balance among the degrees of transparency
and accountability of different actors. Recent corporate scandals have
highlighted weaknesses in corporate governance in some of the most
developed financial markets in the world, linked not only to accounting
and auditing standards, but also to a culture of providing misleading or
incomplete information to lenders and private investors. Both improved
standards and strengthened corporate governance will be crucial in
helping to maintain the global momentum toward greater transparency and
openness. Similarly, international institutions and national governments
will need to move in tandem toward greater transparency.

Is anyone listening?

A second challenge will be to go beyond merely providing information or
data or documents to the public, making sure as well that they form part
of a communication strategy that is effective. At the very least, this
will require greater attention to the form in which information is
provided, to make it more easily understood and digested by a
nonspecialist audience. At the IMF, the criterion of effective
communication for multiple audiences has not been systematically at the
forefront for staff authoring papers for the Executive Board, but may
need to be in future, as the same communication will more often need to
be effective both internally and externally.

Trading candor for transparency?

A third key question relates to the perceived trade-off between the
candor of the confidential advice that the IMF provides as trusted
advisor to its members on sensitive topics and the imperative of
openness and transparency. So far, the trade-off has been drawn by
accepting that improvements in transparency should be introduced
pragmatically and without compromising candor and comprehensiveness in
IMF discussions and documents. When the transparency initiatives were
first launched, it was felt that setting overly ambitious targets in an
international institution of members at varying stages of development
and with different traditions would risk being perceived by some as
interference with internal structures=97a perception that could discourage
candid dialogue and even the implementation of reforms. It was therefore
accepted that the IMF could not be more transparent than its members
wanted it to be.

Going forward, however, my guess is that this understanding will
probably evolve further. As time passes, policymakers are becoming more
comfortable operating in a more transparent and open environment, both
domestically and internationally. The voluntary mechanisms for member
approval for the publication of IMF country documents have produced
strikingly positive results. Public opinion and civil society
organizations are coming to expect forward movement, rather than a
standstill or backsliding, with respect to transparency. And most
importantly, policymakers increasingly understand openness and
transparency as contributing to, rather than detracting from, a climate
that fosters and encourages the adoption of sound economic policies.
When this circle is squared across-the-board, the perceived trade-off
that was drawn, yesterday, between candor of IMF advice and openness and
transparency will, tomorrow, shift even more decisively in favor of the
latter. When this happens, there will be an even stronger, broadly
shared and unequivocal, understanding that openness enhances, rather
than diminishes, the IMF's core mandate of promoting sound policies.

A panacea?

Finally, a note of caution. Good as it is, transparency is not an end in
itself and cannot be a magic bullet to solve all problems. It certainly
does not replace the need for well designed and implemented policies at
the national level, nor substitute for sound institutions, laws, and
regulations. Nor can transparency be accepted as an alternative to the
effective formulation and timely delivery of sound policy advice and
well-targeted technical and financial support to member countries.
Moreover, in order to safeguard a sufficient margin for confidential and
frank communication between the IMF and national authorities to
forestall or resolve crises, the iterative process of advancing the
consensus on initiatives aimed at achieving even greater transparency
and openness will remain necessary, even if at times it will seem slow.
What will be crucial globally, however, is the accumulating evidence
that openness and transparency are proving to be a force for good,
catalyzing and focusing reforms and changes in policy advice and
institutional practices at the international level, as a natural
complement to the greater openness at the national level that is helping
to drive the positive impulse for the reform of national economies.

 1 This text is an expanded and updated version of remarks I delivered
on October 28, 2002 at the Third Annual Meeting of the Secretaries of
the Multilateral Development Banks, hosted in Washington, D.C., by the
Inter-American Development Bank. The views expressed here are those of
the author and not of the International Monetary Fund. I am grateful to
my counterparts at the IDB, the World Bank, the Asian Development Bank,
the African Development Bank, and the Islamic Development Bank who
participated in a stimulating discussion, and to my IMF colleagues
Patrick Cirillo, Luc Hubloue, and Graham Hacche for their input and
comments.

2 In a "slow" week, the IMF now posts 10-15 new items to its external
website at http://www.imf.org. During peak periods, this can go to over
100 items per week.

3 A comprehensive account of the recent evolution in Fund governance,
and its links to greater openness and transparency, is given in Leo van
Houtven, Governance of the IMF: Decision Making, Institutional
Oversight, Transparency, and Accountability, IMF Pamphlet Series No. 53,
August 2002 at http://www.imf.org/external/pubs/ft/pam/pam53/contents.htm.

4 For information on IMF reports on country observance of
internationally recognized standards and codes, see
http://www.imf.org/external/np/rosc/rosc.asp. As of October 31, 2002,
316 reports on observance of standards and codes (ROSCs) were completed
for 86 economies, of which 234 were published for 71 economies.

5 For a comprehensive overview of IMF initiatives on data standards, see ht=
tp://dsbb.imf.org.

6 See The Fund's Transparency Policy, Statement by Horst K=F6hler on the
Occasion of the Sixth Meeting of the International Monetary and
Financial Committee, September 25, 2002, at http://www.imf.org/external/np/=
pdr/trans/2002/eng/092502.htm.

7 Its most visible manifestation is the biweekly press conference by the
Director of IMF External Relations. A transcript of the press conference
is posted on the IMF's website within a few hours, providing a
documentary record in real time of the information being made publicly
available on IMF activities.

8 For a timeline of the evolution of the SDRM, see
http://www.imf.org/external/np/exr/facts/sdrm.htm. For an updated state
of play on the debate, see Anne O. Krueger, Sovereign Debt Restructuring
Mechanism-One Year Later, speech delivered at the European Commission,
Brussels, December 10, 2002 at http://www.imf.org/external/np/speeches/2002=
/121002.htm.

9 On the IMF financial activities, see
http://www.imf.org/cgi-shl/create_x.pl?fa. As part of the effort to
enhance public understanding of its finances, the IMF now uses a new
method of measuring its liquidity. See IMF Announces New Measure of Its
Capacity for New Lending, IMF Press Release No 02/55, December 16, 2002
at http://www.imf.org/external/np/sec/pr/2002/pr0255.htm.

10 See the most recent work program at
http://www.imf.org/external/np/sec/nb/2002/nb02111.htm.

11 See http://www.imf.org/external/NP/prgf/2002/list.htm for a
comprehensive overview of the 2002 review of the PRGF and the PRSP approach=
.

12 For the new guidelines, see
http://www.imf.org/external/np/sec/pr/2002/pr0243.htm.

13 The IEO's website is at http://www.imf.org/external/np/ieo/index.htm.

14 See http:/www.imf.org/external/np/exr/facts/gov.htm.



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

           IMF Home  What's New  Site Map  Site Index About the IMF  IMF
at Work  IMF Finances  Country Info  News  Publications