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IMF Survey Vol.30, September 2001
Article

Increased openness: Transparency is key to preventing financial crises

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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The more open, direct, and straightforward countries are in making policy decisions and providing data about economic and financial developments, the better they, and the international monetary system as a whole, will function. A lack of transparency was a feature of the buildup to the Mexican crisis of 1994-95 and of the emerging market crises of 1997-98. In these crises, markets were kept in the dark about important developments and became first uncertain and then unnerved as a host of interrelated problems came to light. Inadequate economic data, hidden weaknesses in financial systems, and a lack of clarity about government policies and policy formulation contributed to a loss of confidence that ultimately threatened to undermine global stability. Transparency and candor are particularly important in today’s environment of substantially increased private capital movements and countries’ growing integration with international capital markets.

Much has changed since the late 1990s. The international community’s efforts to prevent future crises–including through the development of international standards and codes of good practices–stem partly from a commitment to greater openness. Transparency promotes the orderly and efficient functioning of financial markets by better informing participants. It can enhance economic performance by encouraging more widespread discussion and analysis of policies. It increases policymakers’ accountability and should also make their policies more credible. Transparency can also help reduce the opportunities for corruption and the likelihood of shocks. These efforts by the international community have been promoted by the IMF and other international financial institutions and professional organizations.

Country transparency

Many country authorities have made greater openness a key objective. They are releasing economic data regularly and rapidly and many have made the policymaking process much more open. Technical assistance from the IMF and other organizations will be essential if countries are to continue making progress toward greater openness and accountability.

As a key part of its work with member countries, the IMF promotes transparency practices. It has developed data standards to guide countries in disseminating economic and financial data to the public. These include the Special Data Dissemination Standard (SDDS), which is usually subscribed to by countries that already have, or that are seeking, access to international capital markets; and the General Data Dissemination System (GDDS), which provides a framework for other countries to improve their data compilation and dissemination practices. The SDDS includes 17 data categories that countries report monthly, including international reserves and external debt.

Adherence to international standards and codes of good practices in economic policymaking helps ensure that economies function well. Codes relating to transparency represent one aspect. In addition to the SDDS, the IMF has developed codes of good practice relating to fiscal transparency and transparency in monetary and financial policies.

Transparency at the IMF

For its part, the IMF has taken steps toward explaining its work better and providing its global audience with more information about its role and operations. It has further expanded its publications program and developed an extensive website (http://www.imf.org) that provides information about the IMF’s financial accounts, its liquidity position., and member countries’ financial positions in the IMF. The IMF now publishes information on the sources of its financing.

In some cases, the IMF has opened its policy deliberations by actively seeking the views of the general public, private sector institutions, and other segments of the public. During financial year 2001, the IMF solicited comments on its concessional lending facility, the joint IMF-World Bank debt-relief initiative, various transparency-related pilot projects, work on standards and codes, the new draft guidelines for public debt management, and its conditionality practices.

IMF management and staff have been broadening their interaction with a wide range of outside groups. In July 2000, they established the Capital Markets Consultative Group to enhance communication with the markets. The aim of meetings is to maintain a dialogue with the private sector in both good and bad times and to learn from experience.

In taking steps to increase transparency, the Board has considered how to balance the IMF’s responsibility for overseeing the international monetary system with its role as confidential advisor to its members. It has

  • published more information about IMF surveillance of members, including Public Information Notices and Article IV consultation documents.

  • published more information about countries’ IMF-supported programs and the Executive Board views of these programs, as well as Chairman’s statements on Board discussions of such programs.

  • released Public Information Notices following certain policy discussions by the Executive Board, and released a number of policy papers.

  • conducted external evaluations of the Enhanced Structural Adjustment Facility (now the Poverty Reduction and Growth Facility) and of its surveillance and research.

  • released more financial information about the IMF, including key financial statistics, its liquidity position and quarterly financial transactions, and information on members’ financial positions in the institution. The IMF’s financial statements now conform fully with international accounting standards and clearly identify the key components of its assets and liabilities.

  • substantially expanded public access to its archives.

Although unanimous on the benefits of transparency and an open publications policy in principle, Executive Directors are concerned about the potential costs of such a policy–for example, the risk of a loss of candor–and have asked for a review by January 2002 of the experience with its recent initiatives so that it can consider the next steps to take.

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