Six years ago, the IMF and the United Nations Development Program (UNDP) launched a unique experiment to provide technical assistance on a regional basis. In 1993, the Pacific Financial Technical Assistance Center (PFTAC) was established as a regional office, based in Suva, Fiji, to implement the UNDP-financed, IMF-executed Fiscal and Monetary Management Reform and Statistical Improvement Project. Approximately every two years, the project is reviewed and reappraised by representatives from the 15 Pacific Island countries, the donors (the Asian Development Bank, Australia, New Zealand, and the Pacific Forum), the UNDP, and the IMF. The 1999 review, held on November 18-19 in Suva, provided an opportunity for participants to reflect more broadly on the past six years with the PFTAC experiment, to draw conclusions about the continued effectiveness and relevance of its operations for the countries of the South Pacific, and to provide guidance for its future direction and priorities.
A seminar preceded the review. Five papers were presented—an overview by the project coordinator, Klaus-Walter Riechel, the IMF’s Resident Representative in Fiji, and four papers by PFTAC technical advisors. The specific topics that the PFTAC technical advisors commented on were public financial management (Brian Thornton), tax administration and policy (Colin Walker), banking regulation and supervision (Alan E. Gee), and macroeconomic and financial statistics (Howard Murad). Each presentation, which included a panel discussion, was followed by open floor sessions. The seminar provided a forum to share views and led to the adoption of a clear set of recommendations for PFTAC’s future direction.
Public financial management
Discussion of public financial management centered on the difficulty of engaging politicians in budget formulation. Effective budget management, it was pointed out, requires a cabinet system in which priorities and financial limits are agreed upon. All too often in the Pacific, participants suggested, budget formulation is undertaken by officials with no political involvement; consequently, ministers have no feeling of “ownership,” leading to frequent recourse to supplementary budgets. Added to this, weak regulatory frameworks governing use of public funds and adherence to proper accounting standards by public corporations, together with the practice of undertaking development planning and aid programming in isolation from the budget process, result in a culture that is inimical to prudent financial management. Discussants agreed that PFTAC helps to instill principles of accountability, transparency, and good governance in finance ministers and their staff; however, some said that the center should extend its outreach to the government as a whole, since public finance management is not the exclusive preserve of finance ministries, but is a responsibility shared throughout all branches of government. Recognizing that weak public finance management is also partly due to a chronic shortage of accounting skills in the region, Jim McMaster, Director of the Pacific Institute for Management and Development, offered to provide training tailored to the needs of officials identified by PFTAC.
Tax administration and policy
All participants acknowledged PFTAC’s key role in assisting with tax reform in the region. Cases of successfully implemented tax reform with PFTAC advice were contrasted with attempts that failed because PFTAC’s advice had not been sought. PFTAC’s role in promoting trade-friendly tax and customs regimes in a regional context was also discussed, with some participants advocating PFTAC involvement in establishing a regional tax body with functions similar to those of the Oceania Customs Organization. Others, however, expressed caution, arguing that such involvement would stretch PFTAC’s resources too thin, limiting its ability to provide country-level, hands-on technical assistance and training. Several participants said that management training, in addition to technical training, was vital for the success of technical assistance on tax and customs matters and hoped PFTAC would give attention to this area.
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Banking regulation and supervision
Discussants recognized that the environment has changed dramatically since PFTAC was first established, with the emergence of a large offshore banking sector and, most recently, concern over money laundering in the region. The Asian Development Bank, which is involved in policy-based lending conditional upon financial sector reforms, is particularly concerned with these developments. Eugene Zhukov, Financial Sector Specialist with the Asian Development Bank, expressed the hope that PFTAC would be able to address these problems, as well as expand into advising on the supervision of nonbank financial institutions. The Asian Development Bank, he said, supported the need for a regional supervisory authority, as proposed by PFTAC, and appreciated the center’s efforts to harmonize the regulatory framework within the region.
Many participants noted that central banks were having to implement far-reaching reforms at the same time as they were building capacity, because staff with the requisite skills in prudential supervision did not exist. Some pointed to a recent decline in the provision of long-term capacity-building technical assistance by the IMF and other donors and expressed the hope that this falling off did not mean that PFTAC was expected to shoulder the entire burden.
According to Howard Murad, his role as the statistics advisor has been greatly facilitated by his being part of a team with three other advisors who recognize the importance of good statistics for sound economic and financial management and are able to demonstrate their value to their counterparts. In general, however, statisticians are held in low esteem in the region, their work is underfunded, the demand for their output is low, and their clout is nonexistent, Murad said.
Statistical organizations are poorly managed and ill served by weak legislative authority to collect data and enforce standards. Nevertheless, as countries in the region develop their own reform programs and assume ownership in the implementation and monitoring of these programs, a demand for reliable and current statistics will emerge. PFTAC will build on these developments and perhaps also explore the feasibility of data collection—for example, census work and expenditure surveys—being undertaken by regional teams of specialists.
A consensus of the discussions was that the PFTAC is valued for its provision of high-quality and objective technical services and advice. The center’s location in the region also makes it highly responsive and sensitive to the needs of its client countries and enables it to deliver sometimes unpalatable advice in a manner and form that make it more acceptable and more likely to be acted upon than advice coming from outside the region.
The meeting concluded with strong declarations of support and appreciation from both donors and recipients for the role PFTAC plays in the region. Participants unanimously agreed that it should continue in operation for the foreseeable future. Because the center performed such a valuable role in improving macroeconomic management and supporting economic and financial reforms, the donor representatives assured participants that there would be continued financing from their aid budgets in the years ahead.