© 2008 International Monetary Fund

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Cataloging-in-Publication Data

The IMF’s data dissemination initiative after 10 years / edited by William E. Alexander, John Cady, and Jesus Gonzalez-Garcia — [Washington, D.C.] : International Monetary Fund, 2008.

p. cm.

Includes bibliographical references.

ISBN 978-1-58906-700-4

1. International Monetary Fund — Standards. 2. Disclosure of information. 3. International finance — Statistics — Standards. 4. Economic indicators — Standards. I. Alexander, William E. (William Edward), 1936– . II. Cady, John, 1955–. III. Gonzalez-Garcia, Jesus. IV. International Monetary Fund.

HC3881.5.158 14473 2008

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Contents

• Foreword

• Introduction

• 1. International Data Dissemination Standards

  • Carol S. Carson and Paul Austin

• 2. Transparency in Reserves Management: The Special Data Dissemination Standard and the Reserves Template

  • William E. Alexander, John Cady, Jesus Gonzalez-Garcia, and Anne Y. Kester

• 3. The General Data Dissemination System: What Has Been Accomplished After 10 Years and Where Do We Go from Here?

  • William E. Alexander, Theo Bikoi, Claudia Dziobek, Artak Harutyunyan, and Louis Venter

• 4. Sovereign Borrowing Cost and the Data Dissemination Initiative

  • John Cady and Anthony Pellechio

• 5. Exchange Rate Volatility and Reserves Transparency

  • John Cady and Jesus Gonzalez-Garcia

• 6. Conclusion: A Perspective on Future Challenges

Foreword

I am pleased to introduce this volume on The IMF’s Data Dissemination Initiative After 10 Years. Similar to an iceberg, a great deal of the IMF’s work goes on virtually unnoticed. This tends to be the case with the IMF’s work in the area of statistics and the Data Dissemination Initiative. However, I am confident that this volume will help us all recognize the importance of the global public good aspects of timely economic and financial statistics, in general, and of the Data Dissemination Initiative, in particular.

The origins of the Data Dissemination Initiative are rooted in the growing international recognition of statistics as an essential prerequisite for the formulation of appropriate economic and financial policies, and of the importance of transparency for the efficient functioning of markets. The international community, recognizing that information deficiencies can contribute to market turmoil, emphatically underscored by the financial crises of the 1990s, established the Special Data Dissemination Standard (SDDS) in 1996 and the General Data Dissemination System (GDDS) in 1997. As of November 2007, participation in the SDDS and GDDS was substantial, with 64 and 89 IMF member countries participating, respectively. Taken together, this total accounts for 83 percent of the IMF’s 185 members.

The chapters in this volume trace out the origins of the initiative; detail the collaborative approach used in its development; outline the requirements of the GDDS and SDDS and subsequent enhancements; describe the experience with the SDDS, the monitored standard, and the GDDS, the statistical development system; provide empirical evidence of the positive influence of increased transparency on market efficiency; and outline potential areas for improvement that are likely to be debated in the future.

I am confident that this volume will help to inform discussions of the IMF’s Data Dissemination Initiative and ultimately contribute to its continued enhancement. This initiative facilitates the functioning of global financial markets on a daily basis and, in its first 10 years, has contributed significantly to the evolving international financial architecture. Provided that we continue with analysis, modification, and enhancement of this important initiative, we can look forward to many more years of benefits from it.

Robert W. Edwards

Director, Statistics Department

International Monetary Fund

Introduction

The International Monetary Fund’s Data Dissemination Initiative is composed of the Special Data Dissemination Standard (SDDS), a monitored standard designed to guide countries that have or might seek access to international capital markets in the dissemination of economic and financial data to the public; and the General Data Dissemination System (GDDS), a statistical development system designed to guide countries in the provision of comprehensive, timely, accessible, and reliable economic, financial, and sociodemographic data to the public.

The Data Dissemination Initiative was launched in the mid-1990s as part of a broader internationally-agreed-upon initiative to strengthen transparency and promote good governance practices by establishing standards and codes. Ten years later, the initiative is viewed as an integral part of the international financial architecture, and is considered to have improved the functioning of international financial markets and contributed to global financial stability. This volume reviews certain aspects of the development of and experience with the initiative over the past decade, and concludes by reflecting on potential challenges ahead and possible enhancements.

Over the past decade, there has been increasing recognition worldwide of the importance of transparency and accountability in helping promote the efficient operation of markets, public and private entities, and economic and financial policies implemented by governments and central banks. Nowadays, transparency is supported by a growing consensus, and the dissemination of economic and financial data is increasingly seen as one of its essential elements. Data dissemination allows the general public and market participants to access and analyze information that helps them perform their economic activities on a more solid and even playing field. Consequently, the Data Dissemination Initiative has enjoyed a favorable reception from market participants and governments of most IMF member countries.

In the first chapter, Carol Carson and Paul Austin set the background by describing the Data Dissemination Initiative and providing a practitioner’s view of its origins and development, as well as an early examination of its impact on fostering transparency and the development of national statistical systems. At the time of the writing, Carson was the director of the IMF’s Statistics Department, and played a key role in the development of both the SDDS and GDDS. The authors discuss how the SDDS was designed to set standards concerning coverage, periodicity, and timeliness of statistical data while also informing the public on data accessibility, integrity, and quality. The chapter also describes the systematic assessment of the observance of statistical methodological standards by means of the Reports on the Observance of Standards and Codes (ROSCs). As the authors explain, early assessments made in ROSCs focused on data dissemination practices, but quickly evolved to include assessments of the quality of the data using the IMF’s specially developed Data Quality Assessment Framework. This chapter is reprinted with only minor modifications to how it was originally published in order to show the reader the achievements of the initiative and the perceptions about it some years ago. Also, this original work may help illustrate that, since its beginnings, the initiative has evolved to accommodate new needs and developments.

Chapters 2 and 3 review certain aspects of the development of and experience with the Data Dissemination Initiative. Prepared by an IMF team led by William E. Alexander, Chapter 2 focuses on the establishment of the SDDS in 1996, reviews the experience with the standard, and details how the SDDS was enhanced in 1999 with introduction of the international reserves and foreign currency liquidity data template (the reserves template) as an additional required element. Introduction of the reserves template has been one of the main points in the continuous modification and refinement of the SDDS, and was followed later by the addition of requirements related to external debt and the international investment position (IIP). The chapter illustrates the extent to which the evolution of the SDDS has reflected an increasing acceptance of the importance of timely, high-quality statistics and the changing data needs of the global economic and financial system.

The authors also discuss possible directions of change for the SDDS and the reserves template. In particular, they note that the rapid buildup of international reserve holdings and their diversification across currencies and asset classes, as well as the increasing importance of private and public special funds, may justify a reconsideration of the elements of the reserves template. The authors argue that, at a minimum, increased coverage of the largest official reserves holders seems essential to maintain the relevance of the reserves template. They also flag other areas for possible modification, including more systematic disclosure of credit and operational risks, more detailed and higher-frequency reporting on the currency composition of reserves, and the treatment of special funds.

Chapter 3, prepared by another team of IMF economists also led by William E. Alexander, focuses on the IMF’s experience with the GDDS in helping developing and emerging market countries improve the dissemination of macroeconomic and sociodemographic data. The great success of the GDDS has been the widespread adoption by IMF member countries with statistical capacity-building needs. As of November 2007, 95 countries had participated in the GDDS (including six that progressed to the SDDS), with many having met developmental objectives and achieved improvements in the comprehensiveness and quality of their statistical systems. In other respects, however, the impact of the GDDS has been more modest. In particular, it is noted that progress toward meeting data dissemination goals has often been slow; participating countries often lag behind their established developmental objectives; and only a few GDDS participants have progressed to the SDDS. Based on these findings, the authors argue that there is a strong case for placing more emphasis on data dissemination in the GDDS by importing key elements of the SDDS, and also by bringing the data dimension into closer conformity with that of the SDDS. A specific proposal is to simplify and reformulate some GDDS data categories to align them with those of the SDDS and the current data needs of different users. In addition, since many countries participating in the GDDS now have sovereign credit ratings and access to international capital markets, a reinforced GDDS could incorporate requirements to better serve the needs of capital markets, such as the reserves template and external debt statistics.

Chapters 4 and 5 are empirical papers on the market efficiency effects of the Data Dissemination Initiative. The chapter by John Cady and Anthony Pellechio examines the influence of both the GDDS and SDDS on the borrowing costs of emerging market and developing countries that have issued sovereign bonds in recent years. The authors focus on primary market launch spreads,¹ measuring directly the effects on the cost of borrowing (abstracting from underwriting and legal costs) relevant to the sovereign issuer. Using panel data models, launch spreads are modeled as a function of macroeconomic fundamentals, controlling for currency of denomination, and the effects of GDDS participation and SDDS subscription are then tested. The authors provide evidence of spread discounts for sovereign issuers participating in the GDDS, as well as for emerging market countries subscribing to the SDDS. Their results indicate estimated launch spread discounts amounting to about 9 percent for GDDS participants and 20 percent for SDDS subscribers, which are equivalent to 20 and 50 basis points, respectively.

The policy implication of those findings is that while macroeconomic performance and solvency considerations are fundamental in determining the terms and conditions of access to international capital markets, participation in the Data Dissemination Initiative can provide cost savings to sovereign borrowers. These cost savings result from the acceptance by lenders of lower launch spreads following participation in the initiative. These empirical findings suggest that sovereign borrowers have a financial incentive to improve the dissemination of information for lenders in international capital markets.

Chapter 5, by John Cady and Jesus Gonzalez-Garcia, investigates the effects on the volatility of nominal exchange rates of the introduction of the reserves template as a new element of the SDDS. Reporting of the reserves template began in June 1999 and, after a short transition period, SDDS subscribers were required to observe this new standard as of April 2000. The reserves template was designed to provide a more complete picture of national authorities’ foreign currency liquidity positions by including information on official reserve assets and other foreign currency assets, as well as on predetermined and contingent short-term inflows and outflows of foreign currency. The authors test the hypothesis that providing markets with more complete information about a country’s foreign currency liquidity position may affect the volatility of nominal exchange rates by permitting market participants to better assess a country’s macroeconomic prospects.

Panel data models featuring significant and intuitively appealing relationships between nominal exchange rate volatility and macroeconomic fundamentals show that there is a reduction in exchange rate volatility after dissemination of reserves template data, while the relationships of certain macroeconomic variables and exchange rate volatility show significant changes. In particular, the positive effect of debt-to-GDP ratios on volatility diminishes, while the negative effect of reserves-to-short-term-debt ratios is reinforced. These results suggest that providing markets with more complete information about foreign currency liquidity positions allows market participants to better evaluate the implications of a country’s macroeconomic situation for the exchange rate, in particular concerning indebtedness and reserve adequacy.

The volume concludes with a short, forward-looking chapter in which two central themes about the Data Dissemination Initiative emerge. First, as the global economy continues to develop and becomes more interconnected, new data needs will develop, implying that data coverage in the Data Dissemination Initiative will need to continue evolving in order to remain relevant. And second, because the concept of transparency in economic and financial matters is not yet a universally accepted notion, a continuing effort will be needed to expand participation to include countries that do not presently subscribe to the SDDS or participate in the GDDS.