The rapid integration of international financial markets—under which the economic developments and policy decisions of one country may affect many other countries—underscores the importance of IMF surveillance to ensure that the international monetary system operates effectively and that each member observes the obligations set forth in the IMF’s Articles of Agreement. This report forms part of the IMF’s multilateral surveillance aimed at reviewing and analyzing progress in promoting a stable system of exchange rates and orderly exchange arrangements among its member countries.1
This chapter reviews country experiences in the use of different exchange rate regimes and their trends since 1990, and discusses some of the factors underlying these trends. It analyzes the evolution of exchange rate regimes based on de facto policies, which have formed the basis of the IMF’s official exchange rate regime classifications since January 1999. This system classifies exchange rate regimes based on the degree of commitment to a given exchange rate path and not necessarily on the degree of flexibility of the exchange rate. It also adds a new dimension by placing members’ exchange rate regimes in their overall monetary policy framework (see Box 2.1). The de facto classification has been backdated to 1990, while providing more details on some regime categories (Figure 2.1).1
Momentum toward currency convertibility has diminished since 1997, when a series of emerging market crises occurred.1 IMF members have continued eliminating—albeit at a slower pace—exchange restrictions on the making of payments and transfers for current international transactions subject to the IMF’s jurisdiction under Article VIII or maintained under the transitional arrangements of Article XIV (Box 3.1). Progress toward liberalization of the broader range of exchange controls on both current and capital account transactions, however, appears to have been limited. This assessment is based on the number of countries maintaining exchange restrictions and controls and does not necessarily reflect the degree of effectiveness of restrictions and controls, which depends critically on their design and on the degree of regulatory enforcement.2 Moreover, changes in the number of restrictions and controls need to be interpreted with caution in light of improved reporting by members and the greater coverage of foreign exchange and cross-border transactions in the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), a major source of information for this report.
There is a close relationship between the foreign exchange regime and the microstructure of the foreign exchange market. Foreign exchange market microstructure is an important consideration in the choice of an exchange rate regime, along with macroeconomic policy objectives.1 Conversely, the adoption of a particular exchange rate regime, and the related foreign exchange regulations, have a considerable influence on the development and structure of the foreign exchange market. These interactions need to be taken into account to ensure the smooth functioning of the overall exchange rate and monetary policy regime.
Drawing further on information in the Survey on Foreign Exchange Market Organization, this chapter examines factors affecting exchange rate volatility. In addition to indicators of macroeconomic performance and the choice of exchange rate regime, these include in particular various (micro) structural features of the foreign exchange market. The results presented in this chapter offer a number of new insights into the role that structural factors may play in the choice and implementation of exchange rate policy.1
This Coordinated Direct Investment Survey Guide (Guide) has been prepared to assist economies in participating in the Coordinated Direct Investment Survey (CDIS). The CDIS is being conducted under the auspices of the Statistics Department of the IMF across a wide range of economies. The survey is conducted simultaneously by all participating economies; uses consistent definitions; and encourages best practices in collecting, compiling, and disseminating data on direct investment positions. The CDIS is thus an important tool in capturing world totals and the geographic distribution of direct investment positions, thereby contributing to important new understandings of the extent of globalization, and improving the overall quality of direct investment data worldwide. As of the writing of this updated Guide, more than 100 economies participate in the CDIS.
This paper reviews developments and issues in the exchange arrangements and currency convertibility of IMF members. Against the backdrop of continuing financial globalization and a series of emerging market crises since 1997, there have been important changes in the evolution of exchange rate regimes and the pace of liberalization of current and capital transactions among IMF member countries. There has been a shift away from intermediate regimes according to the IMF's official exchange rate regime classification system based on de facto exchange rate policies. The de facto exchange rate classification system has helped to clarify the nature and role of members' exchange rate regimes. It has facilitated discussions with country authorities about the implementation of exchange rate regimes and hence has contributed to more effective surveillance of the international monetary system. The use of exchange controls appears to have been little influenced by the degree of flexibility of exchange rate regimes or the occurrences of currency crises.
Over the last decade, Aruba has faced three recessions resulting in a public debt of approximately 90 percent of GDP. Its current budget deficit needs to be reduced and Aruba should close a fiscal gap of 1.5-2 percent of GDP over the next two to three years to return to a sustainable path. Earlier this year, the authorities have introduced a crisis package, mainly by increasing the turnover taxes. This temporary tax measure should be replaced by a tax reform that will modernize and simplify the current system.
The new tax system should not only raise more revenue, but also shift the tax burden away from income and profits toward consumption. The current system is not well equipped to make these changes. In replacing the crisis levy, the Government sees an opportunity to streamline the current tax system, modernize it, and make it more sustainable for the future needs of Aruba.
This paper proposes a new definition of Offshore Financial Centers (OFCs) and develops a statistical method to differentiate between OFCs and non-OFCs using data from the Coordinated Portfolio Investment Survey (CPIS), the International Investment Position (IIP), and the balance of payments. The suggested methodology identifies more than 80 percent of the OFCs in the study sample that also appear in the a priori list used by the IMF to conduct its OFC assessment program. The methodology distinguishes OFCs based strictly on their macroeconomic features and avoids subjective presumptions on their activities or regulatory frameworks. The study also identifies three new countries meeting OFC criteria.