We have come a long way in building a consensus on the importance of internationally recognized standards and codes. But it is also clear that there are unresolved issues. Most important is the view of some emerging market and developing countries that the bar has been set too high. This conference is an important opportunity for the IMF, the World Bank, and other standard-setting bodies and forums represented here to hear your concerns and learn how we can help to make standards work for you.
Standards and codes are an integral part of the IMF’s work on crisis prevention.—Horst Köhler
Role of standards and codes
While standards and codes deal with highly technical matters, there is nothing narrow or technical about their purposes. They are an important tool for achieving the main objectives of the IMF—namely, to promote sustained growth, which is essential for reducing poverty in member countries, and greater stability in international financial markets. They are an integral part of the IMF’s work on crisis prevention. But they are also crucial for our efforts to help member countries strengthen their financial systems and take advantage of the opportunities of global capital markets.
While it is still early in the game, there is already evidence that meeting standards can pay off. For example, countries that have introduced shareholder and creditor rights in line with international standards have developed deeper financial markets and, as a result, have grown faster than those countries where these rights are not protected by regulation. In countries where minority shareholder rights were protected, stock markets generally declined less during the recent emerging markets crises. In addition, it is fairly clear that countries like Argentina and Chile were better placed to resist contagion during the Asian crisis because they were known to have systems of banking supervision and capital adequacy that met or exceeded the Basel standards.
Photo Credits: Denio Zara, Padraic Hughes, Pedro Márquez, and Michael Spilotro for the IMF, pages 85, 88, 91, and 98. Jovan Zivanovic for AFP, page 92; and Jean-Philippe Ksiazek for AFP, page 99.
As a part of our constructive engagement with private financial markets participants, we have explored extensively the role of standards and codes in crisis prevention. It is clear from these discussions that as more information on the observance of standards and codes has become available, private creditors have begun using this information in their country risk assessments.
IMF and standards and codes
Our experience over the past few years has also made it clear that developing, assessing, and implementing standards and codes is an enormous undertaking. The IMF and the Bank, with other standard-setting agencies, can help by providing experts to undertake assessments, making recommendations for reforms, and providing technical assistance for countries implementing the necessary changes. But ultimately, country authorities have the most important role in this initiative. You have the task of implementing standards—to the extent that they are appropriate in your countries.
This conference follows the recent review in the Boards of the IMF and the Bank of the experience under our pilot programs with standards and codes. This review demonstrated that there is nearly universal support for the use of standards and codes in our institutions. In particular, our Executive Boards reached four important conclusions:
• Standards assessments have been useful in helping country authorities identify sources of vulnerability and priorities for institutional development.
• When published, these assessments also enable private market participants to make better investment decisions.
• The IMF and the World Bank are uniquely positioned to provide balanced assessments—ones that highlight progress that countries have made in implementing standards as well as the areas where further reform is needed.
• Assessments need to take account of country differences and conditions. However, it is important to use consistent definitions across countries—a key aspect of international standards.
At the same time, our review of the standards initiative highlighted concerns. In particular, there was concern that our existing standards may reflect a one-size- fits-all approach. This concern has many dimensions:
• a feeling that developing countries have not had a sufficient voice in the design of standards;
• a concern that these standards are not easily applied to countries at an early stage of institutional development, especially low-income countries; and
• a conviction that the administrative burdens imposed on countries by this work, as well as the bottlenecks and constraints that countries face in implementing standards, are not fully appreciated.
I see this conference as a mechanism for understanding these concerns more fully and trying to find ways to address them. I recognize that our members will not fully own this process unless they feel that standards are relevant to them. Some of our member countries have indicated that their creditors appear to be making use of standards assessments in evaluating creditworthiness, but others have questioned whether they will really see benefits from this type of differentiation. The IMF’s data dissemination standards make a clear distinction between what is expected from countries with access to international capital markets and what is appropriate for countries that have not yet reached that stage. I hope this conference will help us find ways to make all standards more relevant to all our members while maintaining their benefits as standards. We need to be careful to avoid permanently creating two or more classes of member countries and risking that some may never gain access to global financial markets. But we also need to find ways to chart a clearer strategy for moving from an early stage of institutional development to full market access.
I am also very conscious of the burdens imposed by this work. This conference should help us understand better the constraints countries face as they try to implement standards. We will want to explore the degree to which the constraints are financial and how much they may also reflect a lack of qualified experts. We need to consider in practical terms how technical assistance can help. As you know, there is a limit to the resources available in the IMF for this purpose, and we are exploring ways of mobilizing assistance from other institutions and bilateral donors. In the period ahead, we will need to work out how the IMF and the Bank can assist you in identifying which standards, and elements of standards, are a priority in your countries.
The joint IMF-World Bank Conference on Standards and Codes drew senior authorities from finance ministries, central banks, and international agencies.
A report on the IMF-World Bank Conference on International Standards and Codes will be published in the April 2 issue of the IMF Survey.