[stop-imf] IMF: IMF and Transparency

[Robert Weissman]

Transparency and the IMF
Toward Second Generation Reforms
Thomas C. Dawson
Director of External Relations International Monetary Fund
Prepared text for remarks to Nordic and Baltic Monetary and Financial
Committee1
Tallinn,
March 17, 2003

 These are the years of living transparently. Nowhere is the culture
change more apparent than at financial agencies=97at finance ministries
and central banks, and at the international financial institutions. My
colleague Barry Potter spent a long part of his career in the UK
Treasury and then moved to the IMF to work on, among other things, the
Code for Fiscal Transparency. He jokes that he "spent the first 25 years
of his career assisting ministers in hiding what was going on and the
next five years trying to unveil what was actually happening."2

 At the IMF, the first generation transparency reforms began following
the Mexican tequila crisis of 1994 and were accelerated during the Asian
crisis of 1997-98. It was widely accepted that in reporting their
financial positions some of the crisis countries had been, shall we say,
`economical with the truth'. The IMF therefore launched initiatives to
increase the transparency of the data=97particularly on international
reserves and external debt=97provided by its members to the IMF and to
financial markets.

 The Asian crisis also unleashed much deeper changes in IMF
transparency. Not only were countries under pressure to come clean, but
the IMF itself came in under unprecedented pressure to reveal its policy
advice to countries, that is, to be less secretive. To respond to these
demands, the IMF started to urge its member countries to publish
documents that had been kept outside the public eye. We used to publish
virtually nothing, now we publish virtually everything.

 The spate of financial crises provoked not just a demand to know what
advice the Fund was giving, but a public debate on whether it was the
right advice. That is, the Fund's competence came into question. So
great was the clamor that the Fund had to defend its actions not just to
its member countries but to a variety of audiences=97the media, academics,
civil society organizations and, indeed, the public at large. The steps
taken in response are part of the ongoing transformation of the Fund
into an open institution, one that `listens and learns'.

 How successful have the reforms been? Although anyone who has worked
at=97or has had substantive interaction with=97the IMF for a number of year=
s
recognizes the quantum leap in IMF transparency, it is better not to
rely solely on personal observation or the opinions of friends. We know
the reforms have been successful because outside observers, including
prominent critics of the institution, have also applauded the increased
transparency of the institution. Here are a few examples=97

Ann Pettifor, of Jubilee 2000 fame and currently Director of Jubilee
Research, was on a panel discussion of the Sovereign Debt Restructuring
Mechanism (SDRM) proposal at a conference at the IMF earlier this year.
She remains a vociferous critic of the IMF, but praised the
institution's efforts to seek the views of civil society organizations
(CSOs) and the Fund's "intellectual confidence" in using an "open and
transparent and participative" process in the development of the SDRM propo=
sal.3

The members of the Meltzer Commission, even though they disagreed with
one another on many matters, were unanimous in recognizing the increased
transparency of the Fund. Charles Calomiris did so in an interview in
IMF Survey, our biweekly newsletter, and was particularly complimentary
of the improvements in reporting the IMF's finances.4

In December last year, the World Bank decided to start reporting data on
how much countries owe it and when those payments are due. A Bloomberg
reporter noted that the provision of this information "brings the World
Bank up to the level of disclosure of the International Monetary Fund
... The IMF has been making repayment data public for five years."5

Another indication of success is that the IMF is now much less often
referred to in the media as secretive than it was in 1998.6

 References to the IMF and the word "secretive" in English-language publica=
tions

1992-2002 (proximity of 5 words)



 Source: Factiva database

 First generation reforms

 Let me know discuss the specifics of what has been achieved and the
challenges ahead. There are three pillars of the first generation
transparency reforms7:

publication, i.e. keeping the world fully informed about IMF activities;

building an open institution, i.e. listening to outsiders' views on our
activities and learning from them;

initiatives to increase the transparency of member countries' data and
policies.

 Publication: The amount of information the IMF now makes available
about its activities is truly phenomenal. Consider these examples=97

Nearly all members have been giving consent to publication of letters of
intent and memoranda of economic policies when requesting Fund financial
assistance. These of course tend to be the most scrutinized of all the
country documents.

In over 80 percent of the cases, countries have consented to publishing
a summary of the IMF Executive Board discussion of their periodic
economic health check-up. To use IMF jargon: 80 percent of Public
Information Notices (or PINs) of Article IV Board discussions are
published.

In nearly 60 percent of cases, the entire staff reports, which generally
contain more than most people want to know about a country, have been
published.

Most papers on general policy issues (as opposed to country documents)
discussed by the Executive Board are published. Moreover, the Board
recently adopted the principle of "presumed publication" of policy
papers and the associated PINs.

The twice-yearly Managing Director's statement on the Work Program of
the Executive Board is released in its entirety to the public.

For those interested in historical records, the lag for public access to
the comprehensive minutes of Executive Board meetings is now down from
20 years to 10 years=97that's still too long, in the view of many, but
it's one of the most liberal access policies among international organizati=
ons.

 In short, information once guarded closely as state secrets is now
routinely published. And fears in some quarters that the release of this
information would shake the pillars of modern civilization seem to have
been unfounded. Financial markets are happy getting a steady stream of
information from us and from our member governments. And they like it
better than the old system when a sudden deluge of information which had
been kept bottled up would come out and destabilize markets and
countries.

 Not only are we being more open about the financial situation of our
member countries, we are being more open about the Fund's own financial
position and accounting practices. The IMF should certainly lead in this
area and fully practice what we advise others to do. We now provide:

quarterly data on the financing of our lending operations;

a comprehensive record of all our loans, country-by-country, updated
frequently;

weekly updates of key financial numbers, including liquidity, interest
rates, SDR rates, HIPC disbursements, approvals of new loans, and
disbursements and repayments under existing loan agreements.

 To add to all the examples of publications that I mentioned earlier, we
now also publish important policy papers on the Fund's financial
matters. These include quota reviews and safeguards assessments, as well
as background papers on IMF financial structure and operations.

 Making this torrent of material available to a wide audience, and in a
timely fashion, could not have been done without the IMF's external
website. Nearly 1,400 items were added to the Fund's external website
last year, double the number of items posted only two years ago. The
Fund's website receives about 4 million hits per month.

 Building an open institution: In addition to telling the world more
about what it is doing, the IMF has been listening more to what others
think of what we're doing. Steps have been taken over the last few years
to build an institution that shows willingness to learn from experience,
and takes into account outside views in developing policies and carrying
out reforms of the institution.

 There are several examples by now that illustrate this learning culture
at the IMF:

There has been outreach to a variety of groups=97civil society
organizations; academic and professional groups, private market
participants; parliamentarians; labor unions; faith-based organizations;
and many more. In addition, the IMF's media relations activity has been
substantially strengthened.

We have offered outsiders opportunities to influence the development of
policies still under active consideration. The review of IMF
conditionality begun in late 2000 included public involvement through
the Internet and seminars around the globe with wide participation of
academics, policymakers, and civil society organizations. The SDRM
proposal has from its very first launching in November 2001 been adapted
in response to comments from officials, private market participants, and
the public. The review of the Poverty Reduction and Growth Facility
(PRGF), the IMF's concessional lending facility for low-income
countries, was open and inclusive.

The IMF has conducted several internal and external reviews of its
policies. These include formal reviews as well as more informal "lessons
learned"-type exercises. When a new crisis erupts in some country, it is
often the case these days that an internal task force is formed that
cuts across departmental barriers at the Fund and draws in veterans of
past crises; this task force serves as a brain trust for the regional
department that is at the forefront of the crisis resolution efforts.

 But no matter how honest the attempt at self-examination and
self-criticism, we all have a tendency to end up being a tad generous to
ourselves. So a very crucial element of the attempt to build an open
institution is the establishment of an Independent Evaluation Office
(IEO), which started operations in July 2001.

 Studies by an independent office can take care of the problem of
excessive generosity of internal assessments, and therefore also carry
more credibility with the public at large.8 This is particularly the
case because the IEO's evaluations are likely to involve considerably
more interaction with outsiders than do internal assessments. For each
evaluation, the IEO publishes an issues paper on its website and invites
comments before defining the terms of reference. Once the terms of
reference are decided, the office invites substantive contributions from
interested parties wishing to respond on points included in the terms of
reference. This type of interaction is not typical of internal
evaluations.

 The IEO has the freedom not only to decide how it will carry out its
investigations but what topics it will investigate. The first three
topics it has chosen to investigate clearly show that the office is
taking the `bull by the horns':

Its first study is on the prolonged use of IMF resources by some
countries. `Evergreening' of loans is of course a problem as it goes
against the principle that IMF financing is meant to deal with
short-term problems and should be temporary.

Second, the IEO is studying the effectiveness of the IMF's response in
capital account crisis cases, using Indonesia, Korea and Brazil as
examples. Once again, this is a critical area, as capital account crises
represent the new phenomenon that the IMF has had to deal with since the
Mexican crisis.

Third, the IEO will study fiscal adjustment in IMF programs. There is a
widespread concern among academics and many observers in developing
countries that IMF programs tend to be overly contractionary, with
adverse effects on output and employment. There is also concern that the
full implications of the fiscal stance, especially its possible adverse
effects on poverty, are not factored in fully.

 With its first study, the one on prolonged use of IMF resources, the
IEO has established its credibility as an office that is truly
independent. As a colleague at the Fund remarked when the study first
started circulating, "The IEO is taking the `I' in its acronym very
seriously." The study pulls no punches, which is of course a bit hard on
IMF staff, who are at the receiving end. But as the IEO's Director,
Montek Ahluwalia, says: "We can hope to improve future performance only
if we are willing to accept that we could have done better in the past."

 Standards and codes: The early transparency initiatives in 1996 were
aimed at guiding IMF members in publishing a regular and timely flow of
economic and financial data, particularly of course data on
international reserves and external debt.

 Over time, the efforts have expanded beyond data standards to include
other standards useful for IMF and World Bank operational work. These
include codes of good practices in: transparency of fiscal, monetary,
and financial policies; banking supervision; securities, insurance and
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 works closely with national authorities and
relevant international agencies to help ensure that best practice is
recognized and implemented. Reports assessing countries' observance of
various standards and codes are then compiled. Nearly three-fourths of
all such completed reports (called ROSCs) have been published.

 Provision by the Fund of statistical data in various formats, and
providing links to data posted by authorities on their websites, is
another important dimension of data transparency. The Dissemination
Standards Bulletin Board maintained by the IMF's Statistics Department
is key to the sharing of statistical standards and data globally.

 Toward second generation reforms

 What has been achieved in the space of only a few years is impressive.
But hard work lies ahead to deepen the first generation transparency reform=
s.

 With respect to publication, it is true that the bulk of IMF documents
are now posted on the website. But most of the Fund's output is prepared
for the officials of member countries or for internal deliberation,
often in specialist language; outsiders find it difficult to absorb it
or draw the essence from it. Much of it needs to be summarized and
explained for outside audiences. As the Fund's transparency policy has
prompted the release of more documents and data, this need for
explanation has become larger and more urgent. Even journalists who
specialize in monitoring the Fund say that the Fund's policy advice and
program conditions are often difficult to understand and, consequently,
not reported as accurately or as widely as they might be.

 One interesting example of this occurred when the PIN summarizing the
Board's discussion on the Fund's transparency initiatives was itself the
subject of jokes in the media over its use of nontransparent language.
One of the reporters on the `IMF beat' wrote:

"It's official. The IMF wants to publish its papers in plain,
easy-to-understand English. And they said it themselves, buried in a
rambling, 10-page document sure to lull most readers into a confused
sleep ... The IMF said that its internal and external review came to the
conclusion that it might be a good idea to use `clearer and more
straightforward language in documents.' But the first try at plain
speaking resulted in gem after gem of IMF speak."9

 So more needs to be done to make Fund material understandable?including
by presenting it in plain language and reducing jargon. I should note,
by the way, that it's not only the IMF that is fighting to avoid the use
of jargon; there are indications that even the CSOs have to be on the
guard against it. One CSO speaker told a World Bank audience recently
that as part of the preparations for his speech he had received the
following tip from a staff member:

"Be careful about acronyms and civil society jargon. Internal civil
society language like 'indigenous resource mobilization strategies',
'horizontal and vertical accountability' and '501(c)(3)s' may turn off
your audience. If you think you're losing them, toss in some references
to PRSPs and HIPCs and hopefully they'll be drawn back in."10

 In addition to being jargon-free, communication with some audiences
would work better if there was more publication of IMF documents in
languages other than English, including local languages as well as the
most widely used international languages. This can be very beneficial in
increasing understanding and support for IMF policies as well as
fostering country ownership. But publication in languages other than
English can be costly. The bulk of the expense=97more than 90 percent=97is
for translating and checking the translations for accuracy, a difficult
task given the complexity of Fund documents. The head of the IMF's
office in Tokyo, Hiroyuki Hino=97a Ph.D economist with several years of
Fund experience=97told me recently that he tried to assess the quality of
the Japanese translation of the Article IV staff report for Japan; he
soon found that he was not up to the task! If more and more documents,
or at least the summaries, are in plain language, perhaps the costs of
translation will also decline substantially.

 The World Bank is somewhat ahead of the IMF in publishing in
non-English languages but not by a wide margin. The Bank estimates that
about seven percent of its website content is in languages other than
English, whereas the Fund's external website has about 4.3 percent of
its pages in languages other than English (including 1.8 percent each in
French and Spanish).

 The website will of course remain the primary means of disseminating
Fund documents. In the next stage of reforms, the website will have to
focus on the quality of information provided and maintain its ease and
speed of access for users everywhere. The content of the website will
need to be made more user-friendly, less technical, and more
streamlined.

 ***

 As the IMF proceeds with second generation reforms, it will have to
grapple with an overarching issue: the trade-off between further
progress on transparency and maintaining the institution's effectiveness
in doing what it was set up to do. There is a doctor-patient or
lawyer-client element to the relationship between the Fund and its
members, and the effectiveness of the relationship depends to some
degree on confidentiality. For example, disclosing prematurely details
of ongoing loan negotiations could be disruptive and detrimental to the
country's interest.

 To date, the tension has been resolved 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.

 But public opinion and civil society organizations are coming to expect
forward movement, rather than a standstill or backsliding, with respect
to transparency. Some of them view the Fund as a public institution
whose accountability is to the public at large rather than to our
members. They therefore compare our transparency to that of national
government agencies that are subject to laws such as the U.S. Freedom of
Information Act. For instance, a London-based NGO, Article XIX, has
criticized the Fund's transparency policy as "failing to fully guarantee
the public's right to know in accordance with international standards".
In particular, they admonish the Fund for not having an independent
review process that would allow the public to appeal against an
unfavorable decision regarding the release of information. They also
argue that the Fund should have process guarantees on its transparency
policy, e.g. time-bound decisions and written explanations for any
refusal to release information.

 Such pressures run counter to the IMF's long tradition of dealing in
confidence with officials of member governments, particularly when
sensitive issues are discussed. The IMF governs by consensus and its
current procedures respect the fact that, to be effective, some of the
consensus-building process must be conducted in confidential forums. How
the IMF can continue to serve our member countries effectively while
satisfying the demands for greater transparency will be one of the main
challenges in the period ahead.



 1 I thank Prakash Loungani for assistance and Lynn Aylward and Sabina
Bhatia for comments.

 2 See http://www.internationalbudget.org/conference/2nd/imf.htm

 3 See http://www.imf.org/external/np/tr/2003/tr030122.htm.

 4 See interview with Charles Calomiris, IMF Survey, September 3, 2002 (htt=
p://www.imf.org/external/pubs/ft/survey/2001/090301.pdf)

 5 "World Bank Begins to Publish Payment Data That Had Been Secret", by
Mark Drajem, Bloomberg, December 17, 2002.

 6 This is not simply because media attention to the IMF has dwindled to
nothing. Articles about the IMF in the press, though not at their 1998
peak, still remain at very high levels. For further details, see "A
Review of the Fund's External Communications Strategy"
(http://www.imf.org/external/np/exr/docs/2003/021303.htm).

 7 See "The IMF and Transparency-Moving Forward", speech by Shailendra
J. Anjaria, October 28, 2002 (http://www.imf.org/external/np/speeches/2002/=
102802.htm).

 8 This discussion of the IEO's work is based on an interview with IEO
Director Montek Ahluwalia in IMF Survey, January 14, 2002. (http://www.imf.=
org/external/pubs/ft/survey/2002/011402.pdf)

 9 "IMF promises plain, er, English", by Mark Egan, Reuters News,
January 13, 2001.

 10 "Civil Society, Governance and Globalization", speech by Kumi
Naidoo, (http://www.worldbank.org/wbi/B-SPAN/kumi_naidoo/sub_kumi_naidoo_in=
dex_ext.htm).



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