The Importance of Information

Why is information important to the IMF? The receipt of accurate information is essential for everything the IMF does—including its two principal activities: crisis prevention and crisis resolution.

The IMF’s principal mechanism for crisis prevention is surveillance under Article IV of the IMF’s Articles. Through the Article IV consultation process, the IMF engages in firm surveillance over members’ exchange rate policies and, more generally, monitors their economic and financial policies.² When the IMF believes that a country’s policies may lead to a balance of payments crisis, it seeks to persuade the authorities of that country to change course before it is too late.

The receipt by the IMF of timely and accurate information on the state of a country’s economy is key to the success of this process. Without such information, the organization may not identify a looming crisis or may not advise on appropriate policies. There has been more than one case where a lack of such information has hampered the IMF in its efforts to prevent the occurrence of a crisis.³

Similar problems can arise when the IMF is involved in crisis resolution. The IMF’s principal mechanism for the resolution of a balance of payments crisis in a country is the provision of financial assistance to the authorities of that country in support of a program of economic reform that they implement.⁴

Timely, accurate data are essential for the IMF to work effectively with the authorities in designing an economic reform program and in monitoring its implementation. In the absence of such data, the design of the program may be flawed. Moreover, the disbursement of resources from the IMF is, in most cases, conditional upon the member meeting key economic targets drawn from the program.⁵ The provision of inaccurate data by the member may lead the IMF to disburse resources that the member was not entitled to receive. Over the past few years, there have been several high-profile cases in which countries receiving financial assistance have “misreported” economic data to the IMF.⁶

The Need for a Legal Framework for Reporting Information

Given the importance of information, how can the IMF most effectively obtain it? In principle, there are at least two possible approaches: (1) relying on the voluntary cooperation of members, and (2) establishing a legal obligation to report information. Each is examined below.

The Principal Features of Article VIII, Section 5

Article VIII, Section 5 sets out a comprehensive legal framework for the reporting of information by members.⁸ It establishes an obligation on the part of members to report specified information to the IMF in certain circumstances. The obligation to report information applies to all IMF members. Moreover, the information covered by this provision can be required of members for the purposes of any of the IMF’s activities, including surveillance and financial assistance.⁹

In deciding how to require information from members, the drafters of Article VIII, Section 5 had to choose between two alternatives. Under one approach, they could have specified in the provision all of the categories of information that members would be required to report. This approach would have provided members with considerable certainty. However, it would not have allowed the IMF to adjust reporting requirements as conditions evolve. Every time the IMF needed to add a new category of information, it would have been necessary to amend the Articles of Agreement.

Under an alternative approach, the drafters could have avoided spelling out any specific categories of information in the Articles. Rather, they could have given the IMF the power to decide what information members would be required to report. This approach would have given the IMF greater flexibility to adapt information requirements to changing circumstances. However, it would have been very open-ended. Members would have been provided with relatively little certainty as to what would be required of them.

The drafters of Article VIII, Section 5 chose a combination of these two approaches. The provision sets out a list of information that, as a minimum, must be reported by all members. Members are required to report this information whether or not it is requested by the IMF.¹⁰ At the same time, Article VIII, Section 5(a) empowers the IMF to require additional information from members whenever necessary for the organization’s activities.¹¹ In this manner, the provision seeks to draw an appropriate balance between certainty and flexibility.

With respect to the IMF’s power to require additional information, three points should be noted. First, under Article VIII, Section 5, it is the Executive Board of the IMF that may require such information; IMF staff and management have no power to legally require information for members.¹² Second, the IMF may only require additional information if it is “necessary” for the IMF’s activities; it is the Executive Board of the IMF that decides whether the information is necessary.¹³ Third, for the Executive Board to require such information under Article VIII, Section 5, the Board must adopt a decision by a majority of votes cast calling upon the member to provide the information.¹⁴

There are two basic types of decisions that the Board can adopt for these purposes. It can adopt a decision of general applicability that applies to all IMF members and requires all of them to report particular categories of information. Alternatively, it can adopt a decision that applies to a specific member and only requires that member to provide information. Such a decision can also apply to a specific group of members.

The IMF has made use of this power to require accurate reporting for the purposes of both financial assistance and surveillance. In the context of financial assistance, the IMF has required the accurate reporting of information necessary to assess observance by members of performance criteria under Stand-By and Extended Arrangements in the General Resources Account. Every Stand-By and Extended Arrangement is a decision of the Executive Board. These arrangements typically establish performance criteria that the member must meet before a disbursement will be made. The information that members report to the IMF to assess observance of a performance criterion is subject to the requirements of Article VIII, Section 5.¹⁵ When members report such information to the IMF, they are under a legal obligation to ensure it is accurate.¹⁶

The IMF has also begun to adopt decisions requiring the production of information for the principal purpose of surveillance. Over the past few years, there has been a growing recognition that the information specifically required of members under Article VIII, Section 5 fell short of what was needed to conduct effective surveillance. The only data that members were legally required to report for this purpose was the information explicitly listed in Article VIII, Section 5.¹⁷ This list reflects the realities of the global economy of 1944. It is out-dated. It emphasizes issues that are relatively unimportant today (e.g., a member’s gold holdings) and ignores other factors that are now crucial (e.g., the member’s fiscal position).¹⁸

The Executive Board therefore decided, in January 2004, to adopt a decision to require all members to report a list of additional information deemed essential for surveillance.¹⁹ Most of the items on this expanded list derive from the IMF’s “core list of statistical indicators” for effective surveillance.²⁰ This expanded list sets out categories of information that reflect the principal features of the global economy of the twenty-first century. The Board agreed to review the appropriateness of the information on the list no later than December 31, 2007.²¹ It also reserved the right to require any additional information necessary for surveillance, where warranted, from individual members.

In putting in place this expanded framework, the IMF took great care to ensure that it would not subject members to an unreasonable burden. Most members have voluntarily reported this information for some time. Moreover, the Board decided that members would not have to begin reporting this information immediately. The obligation to report this expanded list would only apply to information whose relevant period began after December 31, 2004.²² The purpose of this “grace period” was to give members sufficient time to make any necessary adjustments to their statistical reporting systems.

There is one more important point that should be noted with respect to the original list in Article VIII, Section 5 and the additional list. For the original list, nothing was specified with respect to the periodicity or timeliness with which the information must be provided.²³ The drafters of the provision wanted the information to be provided on a continuous basis and in as accurate and up-to-date a form as possible. A similar approach has been taken for the additional list. This approach is particularly important in the context of surveillance, which is a continuous process. Under Article IV, the IMF continuously monitors developments in its member countries and may raise issues of concern with a member at any time.

With respect to Article VIII, Section 5, it is not only members that are subject to obligations. The IMF is under an obligation as well: it must keep confidential any information that the member reports. While such information must be made available to the IMF’s Executive Board, it cannot be made public without the member’s consent. This is particularly important with respect to market-sensitive information.

The obligation of members to report information under Article VIII, Section 5 is not absolute. It is subject to two important limitations. First, members cannot be required to report information in such detail that the affairs of individuals or corporations would be disclosed.²⁴ The IMF is concerned with macroeconomic issues. It should not need information at so specific a level that it would threaten the privacy of individuals or corporations. Second, the obligation of a member to report particular information is qualified by the member’s ability or capacity to report such information.²⁵ The drafters of the IMF’s Articles recognized that collecting and reporting economic statistics is a difficult and time-consuming process. This is particularly true for poorer developing countries. It would not be equitable or practical for the IMF to establish a strict reporting obligation with which many of its members could not comply.

It is for this reason that Article VIII, Section 5(b) requires the IMF “to take into consideration the varying ability of members to furnish the data requested.” To the extent that a member has failed to accurately report particular information but can demonstrate that it does not have the technical capacity to do so, it will not be held in breach of Article VIII, Section 5.²⁶

How does the IMF assess a member’s capacity? There are no criteria specified in the Articles for this purpose, and the IMF has not attempted to specify criteria. Rather, the IMF assesses capacity on a case-by-case basis, taking into account a wide range of factors.²⁷

In extreme cases, it is relatively easy for the IMF to assess a member’s capacity. If a member admits that it is has certain information and simply refuses to disclose it to the IMF, it will not be able to claim the capacity defense. In contrast, a country whose infrastructure has been devastated by a natural disaster will clearly not have the capacity to collect and report economic data. The more difficult cases fall in the middle. Here, the IMF engages in a broad-based analysis of the member’s circumstances, including the complexity of the data and the member’s level of development. In this analysis, it gives the benefit of any doubt to the member.

A member cannot rely upon a lack of capacity as a defense indefinitely. Article VIII, Section 5(b) requires members “to furnish the information in as detailed and accurate a manner as is practicable and, so far as possible, to avoid mere estimates.” Thus, members are required, over time, to improve their statistical reporting systems and to place themselves in a position in which they can accurately report the data the IMF needs.

The Consequences of a Breach of Article VIII, Section 5

Within this legal framework, how can a member breach its obligation to report information under Article VIII, Section 5? Generally, a beach of obligation will arise when a member (1) fails to report certain information at all or in a timely manner, or (2) reports inaccurate information. A member may breach Article VIII, Section 5 even if the authorities of the member did not intend to do so. Intent is not an essential element of the “offense.”

There are three reasons for this approach. First, there is nothing in the provision that suggests that a malicious intent is a necessary element of a breach. Second, as a practical matter, it would be difficult for the IMF to obtain the information necessary to determine that such an intent existed. Third, if a malicious intent were an essential element of a breach of Article VIII, Section 5, it would need to be determined whose intent is relevant. Would it be necessary to show that the Prime Minister or the cabinet of the country intended to mislead the IMF or would it be sufficient to show that the deception was the work of a junior statistics officer in the central bank? Rather than looking at the question of intent, the IMF determines whether accurate information has been provided on a timely basis and whether the authorities of the country had the capacity to report such information.

What happens when a member is found in breach of obligation under Article VIII, Section 5? The Executive Board will make a finding of breach of obligation and the member will be subject to the sanctions specified in Article XXVI of the IMF’s Articles. While the Board may impose a sanction under Article XXVI, it is not required to do so.²⁸

There are three sanctions specified under Article XXVI: (1) a declaration of ineligibility to use the general resources of the IMF, (2) the suspension of a member’s voting and certain related rights in the IMF’s decision-making organs, and (3) compulsory withdrawal of the member from the IMF. These sanctions are imposed over time and in order of severity, to the extent that the member remains in breach of obligation.

The sanctions specified in Article XXVI are very severe and may not be appropriate for a breach of Article VIII, Section 5. In the context of Article VIII, Section 5, these sanctions have only been applied once—in 1954, when Czechoslovakia was expelled for the refusal of its government to provide certain information to the IMF.²⁹ These sanctions do not provide an effective remedy that ensures that the problems encountered with reporting by a member will not be repeated.³⁰

In light of these difficulties, the decision adopted by the Executive Board in January 2004 to strengthen the effectiveness of Article VIII, Section 5 put in place a more effective procedural framework designed to address cases involving a breach of Article VIII, Section 5. This new framework seeks to accomplish two objectives. First, it sets out comprehensive procedures which the IMF will follow in cases involving a breach of Article VIII, Section 5. Second, it establishes an approach to remedial action that relies less upon the imposition of sanctions under Article XXVI and more upon efforts to cure a breach and ensure that it will not happen again.³¹

The procedural framework contemplates the IMF taking a series of graduated steps under which the member will be called upon to take specified remedial actions that are designed to ensure accurate and timely reporting in the future.³² Where appropriate, emphasis will be placed upon technical assistance from the IMF. Only where the IMF determines that the member is not prepared to take the steps necessary to prevent a recurrence of its reporting problems will the sanctions of Article XXVI be considered.

The procedural framework also relies upon peer pressure. Each Board decision taken in the remedial process will be published in an effort to persuade the member to address its underlying problems.³³ The precise wording of the statement issued by the IMF will be calibrated to the circumstances of the particular case.