Dicks-Mireaux: The 1997 Guidance Note, which was preceded by a series of Executive Board discussions during 1996, stemmed from a growing recognition—both in our dialogue with countries and in empirical research—that good governance is important for macroeconomic stability and growth. We were bumping up against governance issues increasingly in our work and felt we needed a framework in which to operate.
In the early stages, we—and the rest of the international community—were feeling our way. Reflecting this, the 1997 Guidance Note was cast in fairly general terms. It called for a more comprehensive and more proactive approach to governance, but it also called for periodic reviews to evaluate our experience. The review that was completed earlier this year and discussed by the IMF’s Executive Board in February was the first such review. The Executive Board endorsed what we had been doing and indicated how we should move forward. The Board also supported the IMF’s approach through initiatives that promote good governance across the membership and specific measures to address particular instances of poor governance and corruption. In moving ahead, prevention should be at the center of the IMF’s governance strategy.
In preparing the background paper for the review, staff in the IMF’s Policy Development and Review Department examined governance in the context of the IMF’s surveillance and program activities. In surveillance cases, we looked at the extent to which governance issues were reflected in the Board’s summing-up of country economic discussions. On the program side, we looked more specifically at the use of conditionality. Overall, we found a widespread emphasis on governance issues. It had increased some what in the IMF’s surveillance—particularly in the areas of IMF expertise, such as public sector resource management and the financial sector. In programs, we saw a greater number of governance-related performance criteria and benchmarks. These were used both more often and across a larger number of countries. The IMF’s involvement in governance had indeed become both more proactive and more comprehensive.
But we also found that the whole environment in which governance issues are being looked at and addressed had changed radically since 1997. At an international level, virtually all multilateral institutions have guidelines on governance; promoting good governance has become a central element of their work. At the national level, country leaders have increasingly and explicitly acknowledged the need to give attention to good governance. And at the grassroots level, there was also a focus on governance. All of this has created an environment that encourages attention to governance and is more accepting of it. Governance issues are no longer seen as imposed from the outside; nor are they greeted with “you just don’t understand” Everyone recognizes that good governance is essential. Of course, notwithstanding this common concern, tackling poor governance can involve difficult issues.
A number of developments have also thrust governance to the forefront, notably the Asian financial crisis, which spurred several reforms, and the HIPC [Heavily Indebted Poor Countries] Initiative, which highlighted the need to strengthen the link between delivering debt-service relief and reducing poverty. A lot of IMF technical assistance has been geared toward financial markets and public sector resource management. There is a new willingness to address governance issues explicitly, to see them as a priority, and to understand them, as the IMF does, as a means to achieve macroeconomic stability.
Dicks-Mireaux: The 1997 Guidance Note indicated, in fairly general terms, that governance issues could be raised when they had significant relevance for the macroeconomy in either the short or the medium term. But it can be difficult to draw clear-cut lines. Market reforms in the transition countries are a good example. You won’t necessarily see—certainly in the early years—a big macroeconomic return on those reforms, but they are very important for achieving sustainable growth.
The Board review this year spent a lot of time discussing what might trigger IMF involvement in a governance issue, but no one tried to pin this down to a precise benchmark of macroeconomic significance—for example, “x” percent of GDP. The Board did say that when these issues are the focus of IMF policy advice, the rationale for our involvement should be clear. The Board then has an opportunity to say, “yes, we think that’s right” or “well, maybe we should not be so involved.”
One useful and important outcome of the recent review is the Board saying that, while it is not possible at this point to put down precise guidelines, the IMF should make it clear to everyone—the public, critics, skeptics, and those who feel we are straying too far from our mandate—why we are involved. The Board also asked staff to continue to look into the links between governance and growth.
Dicks-Mireaux: In very important ways. The conditionality review calls for more effective, more focused, and more streamlined IMF conditionality. That means that governance must be a key concern for it to be included in our conditionality. It also means that we will turn to other organizations with the required specialized expertise when that is needed. If, for example, a country has a bloated civil service and limited financial resources, this can translate into poorly paid civil servants with a greater incentive to take bribes. It’s important to correct that, and we would turn to the World Bank. In this context, in low-income countries, the Poverty Reduction and Growth Facility (PRGF) and poverty reduction strategy paper (PRSP) processes should greatly enhance IMF-World Bank coordination. Similarly, when the Bank is called upon to provide background work or diagnostics for middle-income countries, its discussion of its work with these countries will likely lead to better preparedness. Finally, in terms of procedure, the Board agreed that future reviews of governance will be folded into its periodic reviews of conditionality, surveillance, and technical assistance.
Dicks-Mireaux: Very positive. The Board very clearly stated in this review that the centerpiece of our governance strategy should be broad based and preventive, with individual country cases dealt with as needed through our surveillance effort and programs. With particular impetus from the Asian crisis, we have developed, enhanced, and made much more systematic our instruments to strengthen the functioning and integrity of institutions and markets, and thereby promote good governance. The work on standards, codes of conduct, transparency, best practices in monetary and fiscal policy, and other initiatives has generally been welcomed throughout the world and has been seen as a very positive force. It’s a voluntary exercise, but there’s been a very strong response. Within the IMF, we’ve also taken steps to make our instruments for safeguarding IMF resources more systematic, which is very important if we are to maintain our credibility in the eyes of the international community and strengthen the IMF’s internal governance.
Dicks-Mireaux: Yes. The paper highlighted two overarching issues: accountability and transparency. For me, transparency is the key. If you have transparency, you force accountability. Transparency gives the authorities and supervisors a means to create accountability and allows countries to be accountable to civil society and to donors.
But transparency can only get you so far. It is also important for good governance that there be effective enforcement and corrective mechanisms, as well as assurances that accountability is systematic and on a level playing field rather than ad hoc. High-level commitment is crucial, too, because if corruption exists at the top, it’s likely to pervade the entire system. People will say “if he can get away with $10 billion, what’s so wrong with $10,000 for me?” That logic spreads quickly.
Dicks-Mireaux: The OECD picked up this issue and pursued it through a number of conventions, which member countries have signed and which are open for other countries to sign as well. The OECD website provides a chronological history of where countries stand in terms of preparing and approving appropriate legislation and conforming to conventions. The Board asked IMF staff to follow up with country authorities on this issue in our Article IV consultations. Since the Board’s discussion of governance in February, the issue has indeed come up in a number of cases.
Dicks-Mireaux: The IMF engages in a dialogue with NGOs at several levels. The IMF talks with the larger and more international NGOs at a central level. Now with the PRGF process, in-country NGOs may be involved in the PRSP process, and governance is an issue there. The PRSP process is to listen, learn, and enter into a dialogue, intermediated through the authorities, on these and other poverty-related issues. When the PRGF was proposed, it was expected to place a greater emphasis on governance in public sector resource management.
In a number of cases, NGOs have served as whistle-blowers—not necessarily coming directly to the IMF, but revealing problems. Sometimes donors do the same. The IMF staff can then make a judgment on whether to raise the issue with the authorities. In one case (Cambodia’s forestry policy reform program, which largely comes under the purview of the World Bank), the authorities agreed that an NGO would be directly involved as one of the monitors—in a sense an auditor—of the effectiveness of the forestry program.
Copies of Review of the Fund’s Experience in Governance Issues (staff background paper), the Public Information Notice summarizing the Executive Board discussion, and the 1997 Guidance Note are available on the IMF’s website (http://www.imf.org/external/np/gov/2001/eng/report.htm).