Chapter 1 Developments at the International Monetary Fund
- International Monetary Fund
- Published Date:
- August 1999
1A. Capital Account Liberalization
This seminar provides an opportunity for discussions among senior legal advisors from central banks all over the world on a variety of important topics. I thought that I should talk about a few of the key topics on the international agenda including governance, the reform of financial systems, and capital account liberalization.
The notion of improving governance has two related connotations. One is the overall effort to improve the quality of administration in a country—an objective that is clearly within the reach of the IMF to encourage, at least in the economic sphere. Second, there is the related sense of improving governance by curtailing or eliminating corruption. This is a much more difficult issue to deal with but one that we in the IMF have increasingly been finding ways to address, when there are important economic effects.
Financial system soundness and reform are very high on the agenda of the international community after recent events in Asia and elsewhere. They gained increasing prominence after the Mexican crisis of 1994–95. The Basle Core Principles—a set of 25 principles for effective banking supervision—have been produced. While so far there is not an enforcement or monitoring mechanism, these principles, nevertheless, provide an important beginning in the establishment of an international standard for banking.
There are important challenges and opportunities for the international community as we seek to develop a variety of standards in different areas. The banking standard is one. The Special Data Dissemination Standard of the IMF is another. Accounting standards will be established by international accounting committees. The International Organization for Securities Commissions (IOSCO) has established standards for securities market regulation.
Once a standard or code of good practice has been agreed in a certain area, the question arises of how the international community should then proceed. How do you encourage countries to adopt a standard? If a standard is adopted, how do you monitor implementation? If we look at the international economy, the international regulatory framework is in its infancy. And if we ask why international financial crises have erupted on such a scale and frequency relative to domestic economies, and why domestic crises seem to originate so often from events in the international economy, the answer may have a lot to do with the absence of an adequate international regulatory and legal framework.
I believe that these standards will eventually play an important role, but we have to develop mechanisms to make that happen. I can envisage mechanisms that would relate to both sides of the typical international transaction—to the side of both the borrower and the lender. For example, the regulators in banking systems in the industrial countries could set their risk requirements against lending by their banks to particular countries on the basis of whether those countries are judged to meet the international standard in the banking sector, in the corporate sector, and so forth. There then would be an incentive from the lender’s side to lend to those countries that are better regulated and have sounder systems. And, of course, that in turn would also provide an incentive for all countries to implement the standards. Unfortunately, it will take years to get this system up and running. I believe we are in the international economy roughly where we were in the U.S. economy in the 1890s with regard to creation of a central bank, the lender of last resort, a regulatory system, and so on. The key issues are being discussed, but a very great deal of work is yet to be done. We are at the start of a process that will take many years but the movement is beginning to get under way rapidly.
The topic I will focus on the most is capital account liberalization. I want to discuss that in part because it has become controversial as a result of some resistance to the notion that the IMF should be given legal jurisdiction over capital account issues. You probably know that the IMF Articles of Agreement do not give the IMF, as a purpose, the liberalization of the capital account. They do give the IMF, as a purpose, liberalization of the current account, which has broadly been achieved. In the past 50 years, 146 of the IMF’s 182 members have accepted Article VIII of the IMF Articles of Agreement, which involves liberalization of current account transactions and a commitment to sustain that liberalization. We do not have the equivalent of Article VIII for the capital account and, for a long time, the issue of whether to move in that direction has been steeped in controversy.
Recently, some of the industrial countries have been urging that the IMF be given jurisdiction in the capital account area. Now why is this controversial and why, nonetheless, might it make sense? It is controversial because of the evident dangers of capital account liberalization achieved too forcefully and prematurely, without the necessary preconditions in place. We are all aware of countries that have liberalized their capital accounts prematurely or badly, and where foreign exchange crises of major dimensions have followed. Consequently, there is a reluctance to open up to capital movements. Moreover, the economic theory of free trade in goods is far better developed than the economic theory of free trade in assets, in capital flows. For example, in an article in the May 1998 issue of Foreign Affairs, Jagdish Bhagwati, the famous international trade theorist, maintains that there is no analogy between the argument for free trade and the argument for free capital movements. But I am not quite sure at the end how he reached that conclusion aside from reiterating it several times. The arguments are, in fact, related, being part of the general view that the allocation of resources on the basis of the market is likely to increase welfare. But the theories of free trade and the theories of free capital movements differ because capital movements have an intertemporal dimension and the economics of time and trading through time are more complicated than the economics of trade at a moment of time. So, in part, it is a theoretical matter. Professor Bhagwati is in part right.
Two other factors heavily influence why people are so concerned about capital account liberalization: first, the occurrence of crises, and, second, the long time that it took the industrial countries to liberalize their capital accounts. It was not until Mrs. Thatcher appeared on the scene that the United Kingdom finally liberalized its capital account. Restrictions persist in a variety of countries. And there is something else that I, having grown up in a developing country with capital controls, may perhaps understand better than my American colleagues. That is, once you have lived in a regime of capital controls, it is difficult to imagine another way of doing things. It simply is so natural to believe that the government should control the flow of capital that it becomes second nature. I grew up in Zimbabwe. I remember once encountering, when I was a graduate student at the London School of Economics, a man who had left what was then Rhodesia to live in the United States. He was explaining to me the miracles of living in the United States and he said, “You know, if I want to get foreign currency, what I do?” I said, “No, I don’t know.” He said, “I go to the bank and I ask for it.” And this was totally beyond my experience. It just could not be that you went to the bank and they gave you the foreign exchange if you asked for it and, of course, paid for it. I was used to a system in which you had to fill in a form and wait three months and provide justifications, and so on and so on—that was the way it was. And I think many of us have deeply ingrained in ourselves, if we grew up in a system like that, a belief that the other system cannot work.
It is natural to believe that foreign exchange is something that should be controlled. But that, in fact, is a comparatively modern idea. Nobody thought that way in the nineteenth century or even into the twentieth century—until after World War I, when capital controls were imposed. It is not a particularly natural way of doing business, but it is deeply ingrained into our thinking. Nevertheless, we were able to get over that way of thinking with regard to the current account. And when people tell us that the industrialized countries, which took a very long time to liberalize capital accounts, are urging others to do so more rapidly, we should remember the following: it also took these industrial countries a very long time to liberalize the current account. After World War II, European countries did not restore current account convertibility until 1958. Nevertheless, the transition economies went to current account liberalization very quickly, in a matter of a few years, some of them in a matter of months. This has not been a bad thing at all. It has been a very good element in that it establishes international prices and international trade in those economies. And I believe that the same will eventually develop in the capital account area.
Now let me explain briefly the case for the IMF to have an amendment of the Articles of Agreement, giving the IMF jurisdiction in this area, and giving it the goal of promoting capital account liberalization. Every single country in the world wants to enjoy the benefits of international capital. Every developing country wants to borrow from abroad on occasion. They are all trying to tap foreign markets. Why? Because these countries typically need capital. Other countries have it in excess—Japan for sure, possibly the United States, although at the moment the United States is in a current account deficit. There are large benefits to international trade in assets, and portfolio diversification is not the least of them. There is no very good reason why people in developing countries should hold their pensions all in their own countries. They should have the benefit of diversification. There is no reason why Americans should hold all of their assets in America. They should be able to hold a share of assets abroad. But it is primarily that countries want access to foreign capital, on terms that are not disruptive for their own economies. That is understandable and appropriate. This is a reasonable aspiration—one that the IMF agrees with completely.
The problems that arise from access to international capital and to the opening of capital markets almost all arise in relation to short-term flows—so-called “hot money” that flows rapidly and that can reverse direction all too quickly. But we see no disadvantages, none, to foreign direct investment.
Of course, many countries continue to resist foreign ownership of certain kinds of domestic assets. Sometimes, it is land, sometimes strategic industries, or other types of industries. Those reservations are understandable. We could easily imagine, within the framework of an amendment to the IMF Articles of Agreement, a derogation that says, with regard to foreign direct investment, that maintaining restrictions on foreign direct investment can be acceptable for certain reasons. As an economist, I must say that the more I see countries that do not maintain those kinds of restrictions, the less impressed I am by the need for them. When the former Czech Prime Minister, Mr. Klaus, was asked whether he feared that foreigners would own too much of the assets of the Czech Republic, he said something along the following lines, “Well, I understand that 50 percent of Belgian industry is owned by foreigners. When the Czech Republic gets up to that level, I will start to worry. In the meantime, I wish more of them would come in and invest in my country. I am not going to try and keep them out.” But every country can make its own decision in this area.
Problems can arise in the banking system, especially with respect to short-term capital flows. Experience suggests that countries should not open themselves to short-term capital flows until the financial system is ready, and even then maintaining some market-based disincentive to short-term capital flows may be justified until the macroeconomy is stable. If the financial system is weak and you encourage domestic banks to go out and borrow from abroad, and then the capital flow is reversed, the banking system can be hit hard—in the same way that the banking systems in the three East Asian crisis countries have been hurt. The banking system has to be strengthened overall before one should recommend opening up to short-term capital flows.
Strengthening the banking system includes hedging rules for individual banks and strong banking supervision and regulation to withstand the pressures that may come from the international capital flows. We regard an amendment of the capital account of the Articles of Agreement to promote capital account liberalization as helping to put in place a framework for encouraging the orderly liberalization of the capital account. That is what we believe is necessary. We have in the IMF for the current account both Article XIV status and Article VIII status. Article XIV status says that the country is availing itself of various restrictions on current account transactions that were in place at a particular time. When the country is ready to liberalize current account transactions, it accepts Article VIII status. We believe that a similar approach could be taken to the capital account.
Let me make two more comments before concluding. First, market-based prudential controls. Certain countries, in addition to prudential controls on banks, have market-based restrictions on short-term capital inflows. The famous Chilean market-based control requires a non-interest-bearing deposit with the central bank of Chile for short-term money.1 This is a way of taxing short-term capital inflows. Whether it works is still disputed among countries and economists, but the former governor of the bank of Chile made what seemed to me a convincing argument. He noted that the central bank was holding a very large volume of reserves against these transactions. And if the tax was not being avoided, surely economic behavior was being influenced by it. I believe the evidence argues that, on balance, this approach can be helpful.
Second, how hard should the international community push on capital account liberalization? Well, I have in my office a map of the world highlighting Article VIII acceptance. It shows all the countries that have accepted Article VIII and those that have not. There remain a couple of big countries that have not done so—Brazil and Egypt among them. But the map now essentially covers most countries of the globe in green—green is the color we use in this map to show countries with liberalized current account transactions. I would hope that capital account liberalization will go gradually and slowly. That liberalization can take a very long time is illustrated by the experience of the current account. Brazil and Egypt—after 50 years—have not accepted Article VIII, but are members in good standing of the IMF. I cannot profess to being excited about the fact that Article VIII has not been accepted by certain countries. But this experience provides evidence that countries are wrong who fear that, if they accept an extension of IMF jurisdiction to the capital account, the IMF will push them immediately into capital account liberalization. That would not be economically sensible and would be out of sync with the cooperative nature of this organization. It would not be something we would push. There would, of course, be time for countries to make necessary reforms and get the preconditions in place. But extension of IMF jurisdiction and an associated amendment of the Articles of Agreement would be an occasion to address an issue that over the next 50 years is going to be critical to how economies function and perform. I believe we should move forward to deal with that next aspect of the development of the international economy now—by bringing this important element of international economic relations into an appropriate legal framework so that the international community can deal with it on a rational basis.
1B. The International Monetary Fund and the Liberalization of Capital Movements
In March 1998, the IMF organized a seminar on the liberalization of capital movements. During the seminar, officials of member countries, scholars, and members of the IMF’s staff discussed the advantages and disadvantages of such a liberalization and the role the IMF could play in it. Some participants were firmly of the view that the IMF should not amend its Articles but should continue to advocate capital liberalization in order to persuade its member countries of the benefits of that liberalization, thus leaving each member free to make its own decisions. Others were in favor of an amendment that would make achieving capital liberalization one of the purposes of the IMF.
Some thought that the amendment should make it an obligation for members to liberalize capital movements, with transitional provisions that would allow them to take the necessary measures over a period of time. This third approach would give the IMF jurisdiction over capital movements similar to the jurisdiction it already has over current payments.
Before the April 1998 meeting of the Interim Committee, the Executive Board agreed on a tentative formulation for an amendment of Article I of its Charter, which would add capital liberalization to its purposes. Whether an amendment will eventually be agreed upon and what kind of responsibility would be given to the IMF under the amendment with respect to the liberalization of capital movements are still under discussion. The Executive Board will report to the next Interim Committee meeting on its work progress.
Debate on Capital Liberalization
One of the main difficulties in the present debate is that the advantages of capital liberalization may, depending on a country’s particular financial structure and economic policies, be outweighed by its disadvantages.
From a global perspective and in the long term, economists generally agree that capital liberalization is beneficial. A liberalization of capital inflows and outflows brings about a better resource allocation: capital will go where it is most needed and profitable. Foreign investments in a country will create jobs and bring know-how. Investors who may invest in the country of their choice will earn a better return on their savings, which is particularly important for the financing of pension funds. Capital liberalization, from a political standpoint, is a form of freedom for individuals as it allows them to emigrate from one country to another without having to leave their property and savings behind them. Sometimes in our mail, here at the IMF, we receive pathetic letters from persons forced to leave their country because of religious or ethnic persecution, who have not been allowed to transfer their savings. A liberalization of capital movements would allow them to live decently in their country of adoption. A human rights aspect to that issue is often overlooked. Article 12, paragraph 2 of the UN Covenant on Civil and Political Rights adopted in 1966 guarantees the right of every individual to leave any country, including his own, but what is the significance of a right that can be exercised only by forfeiting the benefits of one’s property?
From the individual perspective of each country, and at least in the short or medium term, capital liberalization may create serious risks. There can be speculative flows of “hot money” transferred overnight from accounts in one country to accounts in another to earn a higher return or because of an expected change in the exchange rate. These speculative flows may precipitate a crisis, as was seen a few years ago in Europe and a few months ago in Asia. They make it difficult for a country to manage its monetary policy. They also affect a country’s fiscal policy, since the government may have to pay higher interest rates when borrowing to finance its expenditures. A government may also have to offer tax incentives to avoid a transfer of investments abroad, with the attendant loss of jobs for the local population. The competition for money and investments among governments may result in a “tax war,” since countries anxious to attract foreign investments will offer tax exemptions or subsidies. On the other hand there are cases in which foreign investments are seen as undesirable, particularly in sensitive areas, such as the production of arms and military equipment or cultural activities, where a transfer of ownership to foreign investors may be seen as a loss of local sovereignty. The same argument has been used in some countries to oppose the sale of real estate to foreigners.
Perhaps an example will illustrate the conflicting interests of different categories of persons with respect to capital liberalization. In a country where banks are not competitive because they have too many branches, too large a staff, or too much overhead, the government may want to regulate the remuneration of deposits to make sure that the banks remain profitable and do not create unemployment by reducing their staff. However, across the border, there are foreign banks prepared to offer a better remuneration on deposits. If the residents of the first country have a choice, they will transfer their savings to the foreign banks, but this is not what the country’s banks want. They will then ask the government to prohibit such transfers by imposing capital controls. If the prohibition is temporary and the local banks agree to make the necessary adjustments, capital controls will be lifted, but if there is no political will (perhaps because the banks and their staffs are unwilling to make the necessary changes), the local investors will not be able to earn a proper return on their investments and foreign investors will not invest in the country (unless they are given tax benefits or other special treatment).
Obviously, a country that wishes to liberalize inflows and outflows of capital will have to make a number of adjustments, which may be a lengthy and sometimes painful process. Nevertheless, many countries have taken those steps or are in the process of taking them because of the benefits they expect from capital liberalization. A number of bilateral and multilateral treaties have been adopted that liberalize capital movements either to the benefit of foreign investors (inflows and repatriation of capital), or to the benefit of both foreign and local residents (inflows and outflows) (OECD, EU), usually with some limitations or transitional provisions. For instance the EU Treaty contemplates the possibility of reintroducing restrictions by a collective action, if needed, on capital movements between the EU and the rest of the world, but among EU members the liberalization is irreversible.
The Role of the IMF
The Articles of Agreement
From the travaux préparatoires of the 1944 Bretton Woods Conference and from the text of the IMF’s Articles of Agreement, it is clear that the IMF was not established to liberalize capital movements. Article I, which describes the purposes of the IMF, mentions the liberalization of current payments, that is, payments for goods and services, but does not mention capital movements.
The whole structure of the Articles is based on a distinction between current payments, which are subject to the IMF’s jurisdiction and must be liberalized (Article VIII, Section 2(a)), and capital transfers, where the members’ sovereignty to impose controls is explicitly recognized by Article VI, Section 3. At the time of the Bretton Woods Conference, it was expected that capital controls would remain a durable feature of postwar international financial relations.
Moreover, since the IMF was given the mandate to liberalize current payments, quotas of members were calculated mainly on the basis of this foreign trade, and the resources of the IMF were supposed to be available mainly for current account deficits. In order to avoid any excessive use of the IMF’s resources for the financing of capital outflows, Article VI, Section 1(a) provides that “[a] member may not use the Fund’s general resources to meet a large or sustained outflow of capital …, and the Fund may request a member to exercise controls to prevent such use of the general resources of the Fund. If, after receiving such a request, a member fails to exercise appropriate controls, the Fund may declare the member ineligible to use the general resources of the Fund.” Article VI recognizes that a member may use its own resources and draw its reserve tranche to finance capital outflows and allows the use of IMF resources “for capital transactions of reasonable amount required for the expansion of exports or in the ordinary course of trade, banking, or other business.” But these are limited exceptions. The principle remains that the IMF’s resources are essentially available for the financing of current account deficits.
In the last years, with the Mexican and Asian crises, the IMF has taken a closer look at this provision. Is it really as constraining as it appears to be and could it be interpreted to allow the IMF to finance capital outflows? The key words are “large or sustained outflow of capital.” The meaning of these words has been discussed in the past, but the IMF has never formally or informally interpreted these. First, the word “or” is important. It means that a large outflow cannot be financed even if it is not sustained. Similarly, a sustained outflow cannot be financed even if it is not large. Second, the IMF cannot finance an outflow of capital, but nothing prevents the IMF, after a member’s own reserves have been depleted by a capital outflow, to finance their reconstitution for meeting current payments. Nor is the IMF precluded from providing resources that will strengthen the member’s reserves so as to avoid a loss of confidence that would trigger a capital outflow. The first point was made in connection with the Mexican crisis. The second was made in connection with the Asian crisis and, on that basis, the IMF established the Supplemental Reserve Facility early this year; the Facility was activated to assist Korea.
There is no doubt, therefore, that the IMF is somehow prepared to assist members facing an actual or potential massive capital outflow, but the constraints of the Articles and the limited resources available to the IMF have to be taken into account.
Article VIII, Section 3
Article VIII, Section 3 prohibits, in general terms, multiple currency practices and discriminatory arrangements. Both practices are subject to IMF approval. The text itself makes no mention of a distinction between current payments and capital movements, but the Executive Board has formally interpreted this provision as prohibiting discriminatory arrangements only with respect to current payments. Therefore, members are free, on the basis of Article VI, Section 3, to impose discriminatory controls on capital movements.
With respect to multiple currency practices, the IMF has not adopted a formal interpretation of Article VIII, Section 3, but the practice of the IMF has been to tolerate them without any objection as long as they were limited to a dual market with separate rates for current payments and capital transfers.
Article VIII, Section 4
Article VIII, Section 4 imposes an obligation of convertibility of official balances between members of the IMF. A member is required, if requested by another member, to buy back the other member’s holdings of its currency for the other member’s currency or SDR. However, if these balances were acquired as a result of illegal capital transfers, contrary to the exchange controls of the member being requested to make the conversion, the obligation would not apply.
Article IV was introduced at the time of the Second Amendment, when par values were abolished and floating exchange rates were legalized. There was concern that floating rates would result in instability and undermine the international monetary system. Therefore, the IMF was given the mandate to exercise firm surveillance over the exchange rate policies of members (Article IV, Section 3(b)). In order to make the IMF’s surveillance over exchange rates more effective in preventing monetary crises, it was felt that the IMF should be given the responsibility of overseeing the underlying economic and financial policies of members, for instance, their fiscal and monetary policies, since these policies may affect exchange rates. Therefore, a number of obligations, formulated in rather broad and tentative terms, were inserted in Section 1 of Article IV with a mandate for the IMF to oversee the compliance of each member with those obligations (Article IV, Section 3(a)).
The preamble of Article IV, Section 1 is particularly interesting in its description of what the international monetary system is supposed to achieve: “to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth …” (emphasis added). It is clear that the purpose of the international monetary system is not a purpose of the IMF itself, but the IMF is required by Article IV, Section 3(a) to “oversee the international monetary system in order to ensure its effective operation.” Therefore, in the performance of that duty the IMF cannot be indifferent to capital movements.
There is here a tension between Article VI, Section 3, which recognizes the sovereignty of members with respect to capital movements, and the duty of the IMF to oversee the effective operation of an international monetary system that should facilitate the exchange of capital. Given the importance capital markets had already acquired at the time of the Second Amendment, it is not surprising that Article IV should refer to them. What is surprising is that Article VI was not amended, but the explanation is probably rather simple: a general declaration on the purpose of the international monetary system was not perceived as a possible infringement on the sovereignty of members with respect to the imposition of capital controls.
Moreover, Article IV, Section 1 is largely a “soft law” provision: members “endeavor” or “seek” to have appropriate economic and financial policies and to promote stability. It is not possible, on the basis of such provisions, to claim the same type of jurisdiction for the IMF over capital movements as has been conferred upon it by Article VIII, Section 2(a) over current payments. At best, the IMF, in an overall assessment of a member’s economic and financial policies, could find that the member has failed to “endeavor” or “seek” to have appropriate policies or to promote stability, but this would not be based on the imposition of a particular restriction or set of restrictions on capital movements.
Another obligation of Article IV, Section 1 might be more relevant: “each member shall avoid manipulating exchange rates … in order to prevent an effective balance of payments adjustment or to gain an unfair competitive advantage over other members.” Perhaps restrictions on capital movements could be used for that purpose, but the member’s intention would have to be established, and exchange controls may be imposed for multiple reasons other than those contemplated in that provision.
In practice, Article IV has not been used as it seems to have been intended. It was supposed to give jurisdiction—albeit in a mitigated form—over members’ domestic policies, with “firm surveillance” over their exchange rate policies. The exchange rate policies of the major members (G-7) are discussed among them and the IMF’s consultations with each member under Article IV are essentially an exercise in policy advice, covering a broad range of topics, some of which are only incidental to the IMF’s mandate (such as international trade), but without ever reaching conclusions as to whether the member is complying with its obligations under Article IV.
Article V, Section 2(b)
Under Article V, Section 2(b), the IMF may provide technical assistance to its member countries. There is no obligation for the country to follow the IMF’s advice. In its technical assistance, the IMF is often asked to advise on the liberalization of the country’s exchange controls, which may include controls on capital movements. A possible objection to that type of assistance would be that the IMF’s technical assistance should be “consistent with the purposes of the Fund” (Article V, Section 2(b)) and capital liberalization is not among the IMF’s purposes. However, an orderly liberalization of capital movements is consistent, if not with the IMF’s purposes, at least with the objectives of the IMF’s surveillance under Article IV. Therefore, it would have been difficult for the IMF to deny its assistance to its members in this area.
The IMF’s Conditionality
While there is no obligation for the members of the IMF under the Articles to liberalize inflows and outflows of capital, could the IMF achieve capital liberalization through its conditionality? What has been, in this respect, the practice of the IMF, and is this the right approach to capital liberalization?
Practice of the IMF
At the outset it must be noted that the IMF’s Articles do not preclude the use of the IMF’s conditionality to restrict capital movements. Actually, Article VI, Section 1 expressly authorizes the IMF to request the imposition of capital controls.
Given its context, this provision may be read as allowing the IMF to request the imposition of restrictions only on capital outflows. However, in the design of an IMF program, short-term capital inflows may be undesirable. Therefore, in some programs, limits on short-term borrowing have been set.
The real difficulty is whether a liberalization of inflows and outflows may be part of an IMF program. A liberalization of inflows could include a dismantling of controls that limit the acquisition of local assets by foreigners (inward direct investments). A liberalization of outflows could include the right of residents to transfer their savings abroad.
The IMF’s conditionality in the General Resources Account is governed by Article V, Section 3(a):
The Fund shall adopt policies on the use of its general resources, including policies on stand-by or similar arrangements, and may adopt special policies for special balance of payments problems, that will assist members to solve their balance of payment problems in a manner consistent with the provisions of this Agreement and that will establish adequate safeguards for the temporary use of the general resources of the Fund.
In this provision, the IMF’s conditionality must be guided by two considerations: it must be consistent with the provisions of the Articles, which include the purposes of the IMF, and must establish adequate safeguards for the repayments to the IMF. As we know, the liberalization of capital movements is not one of the IMF’s purposes. However, there may be cases where restrictions on capital movements could put the IMF’s resources at risk.
When a country faces a balance of payments deficit and requests the assistance of the IMF, there are usually other foreign creditors (public entities, banks, bondholders, etc.) who may insist on being repaid for fear of incurring a financial loss. If the debtor country (government, private sector, etc.) is able to at least service its foreign debt, there will be no default and the principal will not become due. Therefore, in the design of its program, the IMF may insist that the country should not accumulate arrears, because arrears could jeopardize the viability of the program and could put the IMF’s resources at risk of not being repaid on schedule. The nonaccumulation of arrears may mean that both current and capital payments need to be made (e.g., repayment of principal of bonds). Therefore, to the extent that it makes the nonaccumulation of any (current or capital) arrears a condition of its assistance, the IMF does achieve a degree of liberalization of capital transfers, which is not part of its purposes.
This approach has been criticized by some. Why not, it has been asked, request the member to impose capital controls until the IMF has been fully repaid?
In other cases, the IMF has agreed not to insist on the nonaccumulation of arrears but without requesting the imposition of capital controls: when a member is conducting negotiations in good faith with creditor banks and it is expected that these negotiations will succeed, the IMF may decide to disburse into arrears. A report of the Group of Ten Deputies has suggested that this approach be extended to cases of arrears to bondholders.
Another type of situation has arisen, in the context of the Asian crisis. Faced with massive capital outflows on private sector short-term debt, some countries recognized that they had to attract long-term investments. Although these measures liberalizing capital inflows were not formally part of the IMF’s conditionality, they were part of the program supported by the IMF. It is difficult in such cases to draw a precise line between the member’s program and the IMF’s conditionality, because the IMF’s assistance is based on the member’s program.
The experience of the IMF shows the increasing difficulty of separating capital and current account financing, or the respective roles of IMF conditionality and members’ programs with respect to capital liberalization. Nevertheless, the problem remains that the IMF’s financial assistance is limited by Article VI, Section 1, and the IMF’s conditionality should be guided not only by the need to safeguard the IMF’s resources but also by its purposes, which do not include the liberalization of capital movements.
An amendment of Article I that would add capital liberalization to the IMF’s purposes would make it possible for the IMF to use its conditionality for that objective, but what would be the advantages and disadvantages of such an approach?
An Amendment of the IMF’s Purposes
An amendment of Article I along the lines of the text tentatively agreed upon by the Executive Board and transmitted to the Interim Committee would allow the IMF to use its conditionality in order to liberalize capital movements. Under such an amendment the IMF could insist on a liberalization of capital outflows and inflows, including inward direct investments, as a condition of its financial assistance. Such an amendment could be supplemented by a deletion of Article VI, Section 3 to make it clear that the right to restrict capital movements under that provision is not an obstacle to liberalization under the IMF’s conditionality, but this deletion would not give the IMF jurisdiction over capital movements because, since Article VI, Section 3 is only declaratory of a preexisting right, the sovereignty of members in respect of capital movements would remain unaffected.
One particular issue would have to be considered. If liberalization becomes one of the IMF’s purposes, should the IMF retain the right to request the imposition of restrictions as a condition of its assistance to avoid any excessive use of its resources? In the absence of a provision to that effect, similar to the present Article VI, Section 1, the IMF would no longer be able to request the imposition of such restrictions in the design of its conditionality.
Under a system based on liberalization through conditionality but without any jurisdiction over restrictions, there would be a fundamental difference between current payments and capital transfers and, in a sense, this addition to the IMF’s purposes would be somewhat misleading as there would be no real symmetry in the IMF’s mandate between current payments and capital movements. While all members would be legally required to liberalize current payments, none would have a similar obligation with respect to capital movements. The reason is that the IMF’s conditionality does not impose any obligation on the member using the IMF’s resources to carry out a particular program. The only consequence of conditionality is a suspension of the IMF’s assistance if specified conditions are not fulfilled.
Moreover, from a practical standpoint, liberalization through conditionality is different in two main respects from jurisdiction. First, jurisdiction applies at all times, even before and after a program is implemented with the IMF’s financial assistance. For instance, in the Asian crisis, it was clear that a prior liberalization could have prevented or limited the crisis. In the absence of jurisdiction, the IMF could advise the members to liberalize in order to prevent a crisis but could not require a liberalization of capital movements. Moreover, once the program is over, the IMF’s conditionality ceases to apply: the member is free to reimpose restrictions, thus creating the conditions for a possible new crisis.
Second, jurisdiction applies to all members, while conditionality applies only to those that use the IMF’s resources. There would be a sharp contrast between the liberalization of current payments, which is required of all members, and the liberalization of capital movements, which would only be imposed on members using the IMF’s resources. This dual standard, inherent in conditionality, would imply that the IMF is not guided by a general objective regarded as a common goal of its membership. The IMF could be perceived as taking advantage of certain members’ financial difficulties to impose certain measures that more fortunate members are not prepared to accept for themselves. The resentment against the IMF’s intervention could be particularly strong if foreign investors were able to buy a country’s most profitable enterprises at a low price because of a sharp drop in the value of the country’s currency.
Therefore, in an amendment of the Articles to promote capital liberalization, consideration should be given to extending the IMF’s jurisdiction to capital movements.
1C. Surveillance, Crisis, and Architecture
WILLIAM E. HOLDER
In the context of the Asian crisis, many questions have been posed about the role of the IMF in crisis prevention and crisis response. Many of these questions relate to the nature, content, and potential of the IMF’s surveillance function—one of the primary functions of the IMF.
In the early part of 1998, the Executive Board undertook an examination of the causes of the Asian crisis and identified ways by which the international monetary system might be strengthened. In April 1998, the Interim Committee set the course for a rigorous work program for the Executive Board in its communiqué under the heading of “Strengthening the Architecture of the International Monetary System—Prevention, Management and Resolution of Crises.”1
In fact, most of the items dealt with by the Interim Committee relate to features of surveillance. Accordingly, the communiqué provides a timely opportunity for a review of surveillance. First, what in fact is surveillance, and what does it entail? Second, how would the new features be incorporated into the surveillance function?
What is surveillance? After the collapse of the “Bretton Woods System”of fixed but adjustable exchange rates in the early 1970s, the surveillance function was incorporated into the Articles2 as the crucial compromise of the Second Amendment. It gave the IMF some authority over the exchange systems of members as couched in quite general terms.
Members accept four obligations relating to the conduct of their economic, financial, and exchange rate policies.3
The IMF is given two oversight functions: (i) “The Fund shall oversee the international monetary system in order to ensure its effective operation,” and (ii) the Fund “shall oversee the compliance of each member with its obligations under Section l.”4
To achieve these objectives, “the Fund shall exercise firm surveillance over the exchange rate policies of members.” Furthermore, the member shall consult with the IMF on its exchange rate policies, as requested.5
In practice, the surveillance process, as it has developed, is relatively down-to-earth. At the time of the Second Amendment, the Executive Board adopted the Principles and Procedures for Surveillance, which established the basic framework. Accordingly, to carry out surveillance, the IMF conducts “Article IV consultations” with each member, normally on an annual basis.
The Article IV consultation consists of the following steps.
The staff visits the country to meet with key government officials, to gather data, and to update information on the member’s economic developments, together with information on its monetary, fiscal, and structural policies.
The mission prepares extensive documents as a base for discussion by the Executive Board, outlining and evaluating the situation (the Staff Report), as well as more detailed background papers (Recent Economic Developments or Selected Issues).
At the end of the Board discussion, the Chairman of the Board (the Managing Director) presents a general review of the discussion, called the “Summing Up.” The Summing Up terminates the consultation and in turn is transmitted formally to the authorities.
In addition to this process of bilateral surveillance, pursuant to Article IV, the IMF undertakes certain other exercises referred to as “multilateral surveillance,” including the production of the World Economic Outlook (prepared twice a year for the Interim Committee meetings), and the annual International Capital Markets report.
From its inception, it was accepted that surveillance would be quite comprehensive in its examination of members’ policies.
This appraisal shall be made within the framework of a comprehensive analysis of the general economic situation and economic policy strategy of the member, and shall recognize that domestic as well as external policies can contribute to timely adjustment of the balance of payments.6
In addition, the principles state that the appraisal shall take into account the objectives of “financial stability, the promotion of sustained sound economic growth, and reasonable levels of employment.”7
To fortify the principles and procedures of Article IV Surveillance, the Executive Board reviews the matter every two years and makes adjustments as appropriate.
The Mexican crisis of 1994—95 challenged the effectiveness of the IMF’s surveillance practices: surveillance has not worked to give warning to Mexico, the IMF, or its membership. The Executive Board, alerted by the Mexican experience, sought to enhance the effectiveness of surveillance, benefiting from the diagnosis of an outside consultant. Several contributing factors were identified: delays in reporting key data to the IMF on a timely basis, a culture of harmony between the IMF and its members, and heavy reliance on the representations and views of members. It was agreed, therefore, that
staff analysis should be more pointed, subject to the need for confidentiality on certain sensitive matters;
the Executive Board would be informed of follow-up steps;
greater reliance might be placed on nonofficial information; and
staff should have more regular contacts with officials in member countries.8
Given the broad scope of the surveillance function, surveillance has normally included banking issues, as it has generally been accepted that a sound banking sector is an important part of macroeconomic stability. Mexico, again, served to emphasize the crucial significance of the financial sector analysis. Moreover, a 1996 staff study showed that, during the previous 15 years, 133 IMF members had experienced significant banking problems, including 41 major banking problems.9
In recent years, surveillance has increasingly focused on identifying and responding to financial sector vulnerabilities. In 1997, the Executive Board examined, in particular, the relationship between systemic bank restructuring and macroeconomic policy and noted the connection with debt sustainability, fiscal policy, and monetary policy.10
Shortly thereafter, the Board examined the broad principles and characteristics of sound and stable financial systems, emphasizing the clear implications for macroeconomic performance, the conduct of macroeconomic policies, and the functioning of global capital markets. In the Board’s view, the IMF’s focus should be twofold:
to assist member countries in identifying vulnerabilities in their financial and supervisory systems and to formulate corrective policies; and
to encourage members to adopt guidelines and standards developed by the international community and to monitor their progress toward those standards.11
In order to assist in the identification and strengths of financial systems, IMF staff developed a general framework and methodology, produced in collaboration with the World Bank and other institutions.12
The original Articles gave particular emphasis to payments and transfers for current transactions. Thus, liberalization of capital flows was not (and is not) a purpose of the IMF. Under Article VIII, Section 2(a), the IMF’s approval jurisdiction is confined to current international transactions. IMF resources were expected to be used essentially for current account deficits. Moreover, members were specifically entitled to impose capital account restrictions.
Nonetheless, capital flows obviously impact on exchange rate policies and other macroeconomic policies; this is recognized by the reference to capital in Article IV, Section 1, and in the Principles and Procedures on Surveillance. Nor is it surprising that capital account issues have attained greater attention in recent years. In particular, at the time of the 1995 Biennial Review of Surveillance, the Executive Board called for more intensive treatment of capital activity in the surveillance exercises; this call was accentuated, in addition, by an amendment of the Principles and Procedures for Surveillance. At the same time, the IMF has maintained an orientation of favoring orderly and sequenced liberalization and an attendant distaste for capital account restrictions.13
In parallel, the Board, in the light of the global reach of international capital markets, and its mandate to oversee the international monetary system, which is increasingly dominated by capital flows, has been examining its appropriate role. Should its support for capital liberalization be carried out through surveillance and technical assistance, or should the IMF be given greater responsibilities through amendment of the Articles? In the circumstances, “Most Directors … supported an amendment of the Fund’s Articles to include the liberalization of capital movements in the Fund’s mandate.”14
At this point in the presentation, it is useful to highlight several generalizations about the surveillance function.
While Article IV is focused on exchange rate policies, in fact surveillance, as it has developed, does not concentrate on exchange rates as a policy issue. Nor is there an attempt, in the surveillance process, to assess a member’s compliance with its obligations under Article IV, Section 1.15
The IMF’s efforts are brought to bear on the member’s entire economic and financial system including, as considered appropriate, structural elements.
In the circumstances, the main product of surveillance is policy advice—from the Executive Board, management, or staff—to the member. In turn, it is accepted that the member is essentially free to adopt or ignore it. The persuasiveness on the side of the IMF, and the receptivity on the side of the member, will depend upon many factors. In short, the member’s disregard of the advice does not constitute a breach of obligation.
Prevention of Crisis
With this background, the Interim Committee’s injunction can now be examined.
The Interim Committee Communiqué calls for three specific actions:
“Action is also needed to strengthen domestic financial systems, by developing supervisory and regulatory frameworks consistent with internationally accepted practices and strengthened standards for bank and nonbank financial entities.”16
This work should extend to other related areas, “which could include accounting, auditing, disclosure, asset valuation, bankruptcy, and corporate governance.”17
In the context of its surveillance activities, the IMF is directed “to consider how best the Fund could assist in the dissemination of such standards to the membership and to encourage members to adopt them.”18
In fact, the Board already canvassed this visionary approach to the identification and transmission of international standards in its 1997 discussion of banking soundness. Generally, Executive Directors endorsed the idea of a framework of broad principles and characteristics of stable and sound financial systems, which the staff could employ in its surveillance work. The Board recognized, and the Interim Committee repeated, that work on this topic was progressing within various fora, “notably the Basle Committee’s Core Principles for strengthening banking regulation and supervision.”19
Accordingly, the IMF will now have to decide how to respond to the challenge of identifying, developing, and disseminating international standards. In particular,
Which areas relate more directly to the IMF’s interests?
What bodies are the appropriate counterparties?
When will the IMF choose to rely on existing standards, and when will it choose to encourage or develop standards itself?
How will the particular standards be disseminated? Would the IMF monitor national acceptance and implementation of the standards? Would the results of monitoring be disclosed to the public?
At a less abstract level, how will the IMF be able to generate the necessary staff resources and expertise?
No doubt, these tantalizing questions will be resolved in a pragmatic fashion. In any case, a significant layer will be added to the context of surveillance.
In addition to calling for intensifying its surveillance of financial sector issues, the Committee called for special attention to be paid to capital flows, keeping in mind policy interdependence and the risks of contagion, and the risks posed by potentially abrupt reversals of capital flows.
In light of the lessons of the Asian experience, therefore, Article IV consultation reports will be expected to focus on the sequencing and pace of capital account liberalization, the rapid accumulation of short-term debt, and unhedged exposure to currency fluctuations.
The Committee encouraged further efforts by the Fund and the Bank to find the most effective way—possibly through new forms of joint collaboration, and drawing on relevant outside expertise—to offer their members the best possible advice on strengthening the financial sector.20
In the Asian crisis, deficiencies in data available to the IMF clouded the picture, and indeed initially served to hide the magnitude of the problems.
The official reserve positions of Thailand and Korea were in fact smaller than represented in official data, because of national practices limiting the usability of reserves.
The short-term external debt profiles of Korea and Indonesia were inadequate.
Prudential data on the financial system were deficient in all three countries.
The explanation for this predicament appears to rest on data not being collected by the national authorities, data—while collected—not being communicated to the IMF, and data—though collected and communicated—not being reliable or not being sufficiently analyzed.21
Under the Articles, the IMF has considerable authority to require information from members.
Under the original Articles, members are obliged to provide data for 12 general categories, e.g., foreign exchange and gold holdings, international balance of payments, and exchange controls. In addition, under Article VIII, Section 5(a), the IMF may request “such information as it deems necessary for its activities” and, thereupon, members are obliged to conform. As a specific qualification, in requesting information, Section 5(b) requires that “the Fund shall take into consideration the varying ability of members to furnish the data requested.” However, under Section 5(c), further information may be derived from agreement with members.
Upon the introduction of the surveillance procedure by the Second Amendment, Article IV, Section 3(b) stated that: “Each member shall provide the Fund with the necessary information for such surveillance…” Surveillance, however, has evolved without (i) clarification of the relationship between Article VIII, Section 5 and Article IV, Section 3(b) in this regard, (ii) without specification by the IMF of what it “deems necessary” under Article VIII, Section 5(a) or what is “necessary for such surveillance” under Article IV, Section 3(b), and (iii) without elucidation as to whether the lack-of-ability qualification in Article VIII, Section 5(b) extends to the power under Article IV, Section 3(b).
After the Mexican crisis, the Executive Board took up the issue of adequacy of data and agreed on the use of a core set of statistical data in order to strengthen surveillance.22 At the same time, the Board
emphasized the need for data timeliness and quality;
accepted that the data requirements for surveillance varied over time and varied from country to country; and
recognized that, were data given to the IMF on a confidential basis, that confidentiality would be respected vis-à-vis the public.23
In the light of the Asian crisis, two consequential questions might be put. First, until now, while the headings of data necessary for surveillance have been identified, these items lack comprehensive definitions. Second, unless identified as necessary to surveillance, the communication of data will not be obligatory.
On the provision of data, the Interim Committee’s Communiqué raised two additional points: (i) the Committee “underscored members’ obligation to provide timely and accurate data to the Fund,” and (ii) suggested that, in the event of data deficiencies that “seriously impede surveillance, conclusion of Article IV consultations should be delayed.”24
Surveillance is a continuing process, a point again emphasized after the Mexican crisis. Thus, in the buildup to the Asian crisis, the IMF utilized the means at its disposal—staff visits, direct involvement of the Managing Director, and informal Board discussions. In some cases, alarm bells were sounded, the degree of candor increased, and the sense of urgency escalated.
In fact, the IMF has explicitly adopted the possibility of an ad hoc or supplementary consultation—which allows for sequenced steps by the Managing Director and, eventually, the formal involvement of the Board.25 This procedure has been rarely used and was not resorted to in the Asian situation.
As already noted, surveillance is essentially an advisory function; the IMF is not given prescriptive or binding authority. Furthermore, the reality is that this is advice to “sovereign” countries.
What is to be done? The Interim Committee has identified one approach—a “tiered response.” Building on “the need for the Fund’s views to be communicated effectively to members and to be brought to bear in members’ policy deliberations,” under the tiered-response strategy “countries that are believed to be seriously off course in their policies are [to be] given increasingly strong warnings.”26 This would indicate the adoption by the Executive Board of a more structured response, possibly with an agreed timetable and implementing steps—as is the case for the IMF’s treatment of members’ overdue obligations to the IMF—and for an entreaty to be made to the member’s peers as well as to the official international community.
An even more problematic issue is whether, when, and how the IMF should “go public” and reveal its views on the economic and financial situation of members, especially when the situation calls for national remedial action. The dilemma is highlighted by (i) the traditional close bilateral relationship between the IMF and its members, (ii) the fact that the IMF is privy to confidential information provided to it on the understanding that the information will not be publicly disclosed, and (iii) the risk that publication of the IMF’s views on sensitive matters might exacerbate a member’s situation or, in a crisis atmosphere, contribute to or cause the crisis.
Publication of the Article IV documentation is thus inhibited by two principles. First, to the extent that these documents contain confidential information of members, the Board, management, and staff are not free to disseminate them without the member’s consent.
Second, a particular provision of the Articles comes into play. Article XII, Section 8 states that, while the IMF may at any time communicate its views informally to a member, the IMF shall not publish a report made to the member “regarding its monetary or economic conditions and developments” unless (i) they “directly tend to produce a serious disequilibrium in the international balance of members,” and (ii) in that case, by a qualified majority (70 percent of the total voting power). Accordingly, this provision may be interpreted as protecting the member other than in the exceptional circumstance contemplated.
Nonetheless, these constraints have not prevented, in recent years, a modest trend toward greater transparency by the IMF itself.
In 1994, the Board took a general decision to release to the public the Article IV background papers (the Recent Economic Developments papers or Selected Issues papers), subject to the right of the member to identify and delete confidential material or to object to the publication.
The Annual Report has contained summaries of the Article IV Summing Up for a growing range of countries—as agreed by the particular members. In 1998, in the interests of timeliness and the release of Press Information Notices (see next item), these summaries are excluded from the Annual Report, but published periodically as a collection.
In early 1997, based on the Annual Report experience, the Board decided to issue a press release—designated as a Press Information Notice (PIN)—tracking closely the Article IV Summing Up, for those members agreeing to dissemination of the IMF’s views, with the member’s consent and in accordance with given procedures.27 (From May 1997 to March 1998, there were 62 PINS issued, culled from 117 Article IV consultations.)
Finally, the IMF has resorted regularly to internal and external reviews, which are usually published. These contain candid assessments and reach deep into the relationship between the IMF and individual members. A most recent analysis, for example, is on the ESAF experience.28
The Interim Committee’s view on these aspects reads: “It further requested the Fund to continue its efforts to increase dissemination of information on its policy recommendations .…”29 Clearly, however, the question will continue to be divisive, given the differences of view both within the IMF’s membership and between the IMF and its critics.
In the Asian crisis, if the IMF was not fully informed in certain respects, it follows that the general public, likewise, was ignorant about certain economic and financial developments, and that the market was not in a position to react on a fully rational basis. In this regard, the IMF has regularly called for greater disclosure by national authorities to the public of underlying data, national policies, and the decision-making process. In this direction, there have been two important developments.
Over the past three years, the Board has been working on a scheme to encourage the timely flow of data from members to the public. The scheme involves two tiers: (i) the Special Data Dissemination Standard (SDDS), adopted April 1996, which is a more demanding standard, essentially guiding those members involved in the operation of international capital markets,30 and (ii) a General Data Dissemination System (GDDS), adopted December 1997, which provides guidance to all members for the publication of data.31
Already, the SDDS is having a significant impact. As of February 1999, there were 47 subscribing members, all of which have metadata on their data dissemination practices available on the Dissemination Standards Bulletin Board, maintained by the IMF at a World Wide Web site on the Internet.
In several situations, the IMF has encouraged members to release their underlying policy documents that are associated with IMF financial support. These documents are, however, documents of the member, and it is accepted that the member is free to decide whether to make them available to the public. Lately, the trend toward public release has quickened.
For the ESAF, the underlying document, the Policy Framework Paper, a document of the member negotiated with both the IMF and the World Bank, is generally published or otherwise made available by the authorities.
In Thailand, Indonesia, and Korea, a pattern of publishing the Letter of Intent—which underlies the member’s request for the supporting arrangement—has been established, and the Letter of Intent is readily available on the Internet.
The Interim Committee, noting the progress on the SDDS, and inviting wider participation,
called for its broadening and strengthening, in order to cover additional financial data, including net reserves (reserve-related liabilities, central bank derivative transactions and positions); debt, particularly short-term debt; and indications of the stability of the financial sector; and
pointed to the need for full compliance by subscribing members by the end of the transition period in December 1998.32
In a speech at Georgetown University on January 21, 1998, the U.S. Secretary of the Treasury, Mr. Rubin, said that, to limit the risks of the new global financial system, and to make the most of opportunities, “We must also modernize the architecture of the international financial markets that we helped create and that has served us so well for the last fifty years.”33
Since then, the architectural theme has stuck, and proposals for reform of the international monetary system have proliferated. As explained above, the Interim Committee’s Communiqué has endorsed both the need for rethinking and the architectural metaphor.
As might be expected, public reaction has varied. For example,
“America’s capital this week has echoed to the sound of stable doors slamming after the horse has bolted. The much-hyped ‘new international architecture’ is the fashion of the moment at the International Monetary Fund and the World Bank. Its aim is to improve their ability to prevent financial panic. But ensuring they would have spotted the last crisis does not mean they will spot the next.”34
One commentator, noting that Mr. Rubin’s call for transparency “would all but compel nations to disclose embarrassing financial data that many governments have routinely withheld,” suggested that the proposal harked back to the language of arms control and the cold war: “In effect, he called for more international inspection and monitoring of national economies .…”35
“A few reforms are easy, obvious and make sense whatever interpretation of Asia’s crisis you hold. Better information, for instance, cannot do anything but good. A second category of possible reforms also make[s] sense, but will be politically difficult. Creating a truly global overseer of regulators will be vehemently resisted by national bodies. Imagine America’s Securities and Exchange Commission, for instance, being dictated to by some supranational body. Similarly, attempts to change capital-adequacy standards or broaden the reach of supervision beyond banks will all take a long time. The Basle capital-adequacy standards took the best part of a decade to evolve.”36
Since this presentation in May 1998, the Chilean nonremunerated deposit requirement has been phased out.
The International Monetary Fund, Annual Report 1998, at 161.
International Monetary Fund, Articles of Agreement (1993).
Id. Art. 4, § 1.
Id. § 3(a).
Id. § 3(b).
Selected Decisions and Selected Documents of the International Monetary Fund 13 (23rd issue, 1998).
Annual Report 1997, supra note 1, at 34–35.
See Carl-Johan Lindgren et al., Bank Soundness and Economic Policy (International Monetary Fund, 1996).
Annual Report 1997, supra note 1, at 35–36.
Id. at 36–37.
David Folkerts-Landau and Carl-Johan Lindgren, Toward a Framework for Financial Stability (International Monetary Fund, 1997).
Annual Report 1995, supra note 1, at 49.
Annual Report 1997, supra note 1, at 39.
Nor has there been any effort to optimize the IMF’s authority under Article IV. See William E. Holder, Exchange Rate Policies: The Role and Influence of the International Monetary Fund, Proceedings of the Eighteenth Annual Meeting of the American Society of International Law 29–35 (1986).
Annual Report 1998, supra note 1, at 161.
Id. at 162.
Id. at 161.
Id. at 162.
Id. at 34.
The ten basic indicators are exchange rates, international reserves, reserve money, broad money, interest rates, consumer prices, external trade, the current account balance, the overall government balance, and GDP.
Annual Report 1995, supra note 1, at 44—45.
Annual Report 1998, supra note 1, at 162.
Selected Decisions, supra note 6, at 15.
Annual Report 1998, supra note 1, at 162.
Selected Decisions, supra note 6, at 25–27.
See The ESAF at Ten Tears: Economic Adjustment and Reform in Low-Income Countries, Occasional Paper Series (International Monetary Fund, 1997).
Annual Report 1998, supra note 1, at 162.
Annual Report 1996, supra note I, at 48–51; Selected Decisions, supra note 6, at 481.
See herein Roy C. Baban, International Monetary Fund Initiatives to Promote Statistical and Fiscal Transparency, Chapter 2C.
For example, Thailand has subscribed to the SDDS; relying on the transitional period, it has yet to bring its statistical practices, in several respects, into full conformity.
IMF Survey, vol. 27, no. 2, at 23 (International Monetary Fund, 1998).
Robert Chote, Crystal Balls in Washington, Financial Times, April 17, 1998, at 17.
D. S. Sanger, U.S. Treasury Chief Offers Plan to Avoid Crises Like Asia’s, N.Y, Times, April 15,1998, at A15.
Towards a New Financial System, The Economist, April llth-17th, 1998, at 54.