Chapter

VII. Implications for IMF Governance of the Financial Climate of the 1990s

Author(s):
International Monetary Fund
Published Date:
August 2002
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Distinctive Features of the Crises, 1997-99

The IMF welcomed the unprecedented freedom and magnitude of capital movements in the 1990s as a result of financial market integration and liberalization. This was seen as enhancing the prospect for more efficient international allocation of financial resources, a lower cost of capital, and a higher pace of sustainable growth. In that climate, the IMF favored capital account liberalization and gave increasing thought to an amendment of the Articles of Agreement to extend the IMF’s jurisdiction to cover restrictions on capital account transactions.

Rising capital flows, particularly to a group of middle-income and emerging market economies, and a remarkable growth performance of the developing countries as a group in the first half of the 1990s, were seen as illustrating the benefits of unhampered capital movements. However, failures of national policies and structural weaknesses led to a succession of financial crises in Asia—affecting particularly Indonesia, Korea, and Thailand—and in Russia and Brazil in the second half of the decade. Some of the failures and weaknesses had already appeared in the earlier Nordic, EMS, and Mexican crises, which suggest that the IMF should have been more vigilant to draw the lessons of those events in order to prevent their recurrence.

The principal policy failures and structural weaknesses in some or all of the above-mentioned countries included

  • reliance on pegged exchange rates (which had been most valuable to these countries in achieving and maintaining reasonable price stability) and on the adequacy of large foreign exchange reserves to meet external requirements;

  • poorly sequenced capital account liberalization, which did not adequately encourage inflows of long-term capital and relied, instead, on short-term flows that lenders could easily reverse;

  • excessive short-term borrowing abroad, often without hedging, by the financial and corporate sectors;

  • vulnerable financial systems, undercapitalized, poorly managed, inadequately regulated and supervised, and similar weaknesses in the corporate sector;

  • lack of timely available and reliable financial statistics, particularly on the banking sector, foreign borrowing, external debt, and foreign exchange reserves; and

  • internal governance issues and lack of transparency in public and private sector activities.

The countries most affected by the Asian crisis had rock-solid confidence in the economic strategy that for three decades had produced astounding results. When the crisis struck, the authorities of Korea and Thailand displayed admirable courage to overcome national denial and to subscribe to the IMF-supported programs whose thrust was on the restructuring of the corporate and financial sectors, flanked by decisions to float the exchange rates and by monetary and interest rate policies to overcome the exchange crisis. Fiscal policy was initially too cautious in view of the unanticipated severity of the economic downturn, and was promptly eased in order to support domestic expenditure while monetary restraint was adjusted in step with the return of confidence in the exchange rates. Structural reforms in the IMF-supported programs were initially too ambitious and were adjusted to support the return of confidence.

In Korea, the weight of the short-term external debt and the pace of capital flight created the spectrum that the country might have to default, but the endorsement by the president-elect of the major reforms embodied in the IMF-supported program made it possible to “bail in” the foreign banks with rollovers and extensions of maturities for some $22 billion in short-term debt. In Indonesia, the weight of the domestic governance problems, the related severe weaknesses in the corporate and financial spheres, and the ensuing political crisis added considerably to the hardship on the population and caused great delay in the initiation of corrective policies.

The progress of Russia’s transition to a market economy, to which the IMF contributed sizable financial and technical assistance, suffered increasingly from shifting political priorities and nonobservance of policy commitments. The authorities met their growing inability to collect taxes with expensive short-term borrowing abroad, repayable in rubles, which strengthened the perception of market participants that the IMF would continue to provide finance to support Russia’s fixed exchange rate. In 1997, speculative inflows into Russia’s financial markets temporarily eased the external constraint. However, the tide shifted in the spring of 1998 when contagion reached Russia, prompting massive capital outflows, while interest rates on new Treasury bills rose to over 50 percent a year. Following unprecedented political pressure, the IMF announced a new package of financial assistance in mid-July 1998. Key conditions were promptly broken when the Duma refused to adopt certain tax legislation, while the first disbursement of $4.8 billion under the program was in no time absorbed in outflows of largely Russian capital.

Shortly thereafter, in August 1998, Russia devalued the ruble and defaulted on its Treasury bills. For market participants, the rules of the game had suddenly been turned around, with incalculable consequences for the health of the global financial markets, as illustrated by the enormous losses suffered by the U.S. corporation Long-Term Capital Management on its financial hedging operation, which required a U.S. Federal Reserve–led rescue operation to avoid a spectacular bankruptcy. Holders of Russian Treasury bills suffered major losses but, subsequently, Russia refinanced the bills in the form of three- to five-year ruble-denominated notes carrying interest rates ranging from 20 to 30 percent per annum, or, at the option of holder, in the form of eight-year U.S. dollar–denominated notes with an annual coupon of 5 percent.

In the third quarter of 1998, contagion shifted to Brazil and inflicted severe losses of that country’s official reserves. In negotiating a program with the IMF, Brazil insisted on maintaining its pegged exchange rate because, in the view of the authorities, its abandonment would threaten to rekindle hyperinflation. Brazil’s adjustment policy was based on a major tightening of fiscal policy to control a sizable budget deficit, which was largely financed with short-term borrowing abroad. The interest rates, of the order of 40 percent per annum, which the Bank of Brazil had to pay to entice foreigners to keep their money in the country, created unsustainable debt dynamics, as had been the case in Russia. Capital outflows widened again dangerously, and Brazil shifted to a flexible exchange rate in January 1999. Buttressed by supportive macroeconomic policies, the exchange rate soon strengthened and confidence in the domestic economy returned.

Strengthening the Financial Architecture

The crises prompted the development of a broad program of action to strengthen the financial architecture with a particular emphasis on crisis prevention and crisis resolution. Crisis prevention would be pursued through the strengthening of financial sectors and greater coherence of macroeconomic, exchange rate, and capital account policies, enhanced by policy transparency and the discipline of agreed standards and codes of good policy.

  • The vulnerability of financial systems in virtually all major regions of the globe has become a major systemic threat in the environment of globalized financial markets. Financial vulnerabilities exist in countries at all levels of income and development, and the repair work becomes more complex and time-consuming the higher the degree of sophistication of the financial environment The global financial system today evolves at a great speed as a result of the continuing internationalization of financial operations, the development of new financial products and services, the consolidation of institutions, and the expanding group of “universal banks,” which provide their clients with comprehensive packages of bank and nonbank financial services. As a result, there is a continuing catching-up process between supervision and regulation on the one hand, and the ever-evolving global financial market, on the other. Strengthening financial sector soundness is a daunting task that requires much increased national and international cooperation and institution building. The IMF’s core task in strengthening financial systems is to address the linkages between the real economy and macro policies on the one hand and financial sector issues such as the priorities in financial sector reform on the other.19

  • Inconsistencies between macroeconomic and exchange rate policies contributed importantly to the financial crises of the 1990s, when countries with pegged exchange rates suffered more than countries with floating rates. To be sure, each country is free to choose its exchange rate regime in light of its own circumstances and policies, but the key to a sustainable economic performance is the coherence between the exchange rate regime, the macroeconomic stance, and the resilience of the financial sector. In the current environment of volatile capital movements, countries generally will find it imperative to manage the exchange rate with adequate flexibility.

  • Capital account liberalization should aim at stimulating inflows of long-term capital and discourage excessive inflows of short-term, easily reversible funds. Accurate data on the financial sector’s short-term foreign assets and liabilities are essential and the IMF has formulated guidelines for the management of foreign assets and external debt.20 Controls on capital inflows can be useful on a temporary basis, but they create distortions and prevent countries from benefiting from the efficiency gains to be derived from global capital flows. While there is broad agreement in principle that the IMF is the appropriate body to have jurisdiction over members’ elimination of remaining restrictions on capital movements, many developing countries have emphasized that the IMF already possessed considerable influence over the capital account through surveillance and conditionality. As a result, further work toward the adoption of an amendment of the Articles of Agreement has been deferred. Nevertheless, the practice of a number of countries to maintain capital controls because of financial sector weaknesses risks becoming a “poisonous mix” that retards corrective action. Member countries should, therefore, focus on suggestions to promote both the proper sequencing of capital account liberalization and the strengthening of the financial sector.

  • The development and implementation of standards and codes of good practices have been a major initiative of the 1990s to improve economic performance, strengthen capacity building, and reduce policy vulnerability. The work in standard setting is divided among international institutions according to their areas of expertise.21 Standards and codes will assist surveillance in measuring progress in capacity building and policy performance as well as in the availability and accuracy of data. The reservations of a number of developing countries regarding the implementation of standards and codes reflect the concern that in their cases the quantity and detail of codes may be too exacting. Thus, adequate attention should be paid to differences in levels of development, and the IMF–World Bank Reports on Observance of Standards and Codes (ROSCs) should be further refined in order to keep pace with the growing sophistication of the financial environment.

A great deal of work has recently been undertaken inside and outside the IMF on developing an orderly framework for restructuring unsustainable sovereign debt. Anne Krueger, the IMF’s First Deputy Managing Director, has focused on the statutory approach of an international bankruptcy court to give a debtor country temporary protection from creditors to restructure unsustainable debt in an orderly way. In today’s environment, with numerous creditors who may have different objectives, sovereign debt restructuring risks becoming a disorderly process in the event that some creditors hold out against an agreement reached by a large majority of creditors. A formal restructuring mechanism would prevent creditors from disrupting the negotiations as well as ensure responsible behavior of the debtor.

Under Ms. Krueger’s plan, agreement reached by a supermajority of creditors would become binding on all. IMF endorsement of a request for debt restructuring would activate the standstill. The debtor must negotiate in good faith and act to get its policies back on track. To be effective, a formal bankruptcy court would need to have universal force of law, which could take years to materialize and could perhaps best be achieved through an amendment of the Articles of Agreement of the IMF.22 Ms. Krueger has emphasized that the statutory approach need not involve a major extension of the IMF’s legal authority. Instead, it could be agreed that control over the main decisions would rest with the debtor and a supermajority of the creditors.

The U.S. Treasury favors an alternative contractual approach involving collective action clauses in contracts that would determine the work-out process and how it could be initiated by the debtor. In the view of the U.S. Treasury, incentives could be provided for debtors to include these clauses in IMF borrowing arrangements. The decentralized approach, which has been supported by the Washington-based Institute of International Finance and by several other private financial sector groups, could prove workable but may well be subject to legal challenges in view of the diverse creditor base and the different legal jurisdictions involved. There is also the obvious concern that the inclusion of collective action clauses in contracts would be resisted by lenders and would raise the cost of borrowing. In the meantime, the IMF should give further consideration to Ms. Krueger’s statutory plan. In the process, the reservations that have been expressed from several sides with regard to an international judicial body to arbitrate disputes will have to be allayed.

Stanley Fischer, the former First Deputy Managing Director of the IMF, has argued that the monetary system needs a lender of last resort and that the IMF has, de facto, exercised that role, for example in the Mexican and Asian crises of the 1990s. While the IMF’s money-creating powers are severely limited by the constraints on SDR allocations, it can act in concert with other official entities or call for activation of the GAB or the New Arrangements to Borrow (NAB)23 to put together large lending packages. The introduction in 1997 of the Supplementary Reserve Facility (SRF), through which sizable credit can be made available for relatively short periods of time at penalty rates of interest, moved the IMF closer in the direction of a lender of last resort.

The IMF membership, however, remains divided on this issue. While most developing countries and emerging market economies would like to strengthen the IMF’s lender-of-last-resort function, several industrial countries stress that the IMF is ill-equipped to undertake that role and that its addition to the IMF’s traditional function of providing temporary balance of payments assistance would increase moral hazard resulting from continued lending by private financial institutions in the belief that the IMF would bail them out.

Collaboration Between Civil Society and the IMF

An active dialogue between civil society and the IMF began only in the 1990s—about a decade later than in the case of the World Bank—but it has since developed into a productive relationship that has markedly enhanced the IMF’s institutional transparency and improved conditionality through greater country ownership of IMF-supported programs. Civil society has also been a persistent advocate of debt relief to the poorest countries and made a significant contribution to strengthening the Poverty Reduction and Growth Facility (PRGF) in the context of debt relief for the Heavily Indebted Poor Countries (HIPC). More broadly, the deepening relationship with civil society enhances IMF governance.

Civil society is loosely defined as the countless number and great diversity of organizations that develop in a society outside the realm of government. In addition to nongovernmental organizations (NGOs), which mushroomed in the 1980s and 1990s, civil society includes business and labor organizations, church and charitable groups, political parties, and cultural and academic institutions, etc. Most civil society groups pursue policy and advocacy agendas with respect to governance and aim to advance the welfare of certain groups in society. A democratic environment provides the best breeding ground for civil society.

The number of civil society groups, worldwide, that focus on the activities of the international financial institutions is known to run into the thousands. NGOs in developed countries (so-called northern civil society groups) are generally well established, have working relationships with their governments, and have international ties. Northern NGOs have also become increasingly important channels of official development assistance. A number of northern organizations pursue objectives in the fields of the environment or of labor standards, or seek to limit the pace of global economic integration. These are not acceptable to their southern counterparts, the civil society groups in developing countries. The latter typically seek to advance the goals of sustainable development and economic integration. Southern civil society groups are often less well organized and dependent for their financing on northern organizations. Moreover, many southern civil society groups have an arm’s-length relationship with their governments and may be allied with political opposition groups.

Civil society groups regard IMF accountability to its member governments—and, through them, to their legislatures and electorates—as too distant and decry it as ineffective, especially for an institution whose mandate can affect the welfare of millions of people. They emphasize that, in the 1990s, when public opinion became increasingly sensitive to their criticism of the efficacy of IMF policies and their impact on the poorest, a number of governments echoed that criticism and distanced themselves from the IMF’s decisions. The recent experience, therefore, supports the view that the growing involvement of civil society groups in a triangular relationship with the IMF and with the electorates of members should improve the governance and accountability of the IMF and its effectiveness. Continuing dialogue will be needed to reduce the regrettable degree of mistrust and lack of understanding of the IMF in many civil society groups. The IMF should also address more effectively some of civil society groups’ concerns, such as the impact of free trade and globalization on some developing countries.

Civil society groups have strongly supported the transformation of IMF program design and conditionality to “program ownership” by the country concerned. They increasingly accept the validity of the IMF’s policy approach to fostering sustainable growth and the importance for all members, especially the poorest, of price stability and fiscal discipline in order to free resources for social priorities. In their view, governments should be the generators of change and the agents of adjustment. The growing emphasis on governance issues in adjustment programs further highlights the importance of country “ownership.” Governance issues focus on avoidance of misallocation of resources through corruption, prestige projects, and excessive military spending; on the implementation of standards of policy; on the protection of the poorest from the burdens of adjustment; and on other measures. The IMF now requires that Poverty Reduction Strategy Papers for PRGF countries should be produced through a participatory process involving civil society and development partners.

The evolving relationship between the IMF and civil society is promising but requires more depth. Thus far, the collaboration has remained informal and it would be helpful if the Executive Board established a framework for its further development—globally and regionally—while confirming the IMF’s accountability to member governments through the Board of Governors and the Executive Board. At the same time, civil society groups, particularly the large ones that have acquired name recognition and influence, as well as those that channel sizable amounts of official development assistance, need to ensure their own accountability, legitimacy, and good governance.

The Pursuit of IMF Transparency

Until the late 1980s, institutional transparency was not high on the agenda of the IMF. The IMF generally followed the practices of member countries, particularly their central banks and ministries of finance, which valued the confidentiality of their relationship with the IMF. The IMF saw itself as a technical institution, accountable to its member governments and with little need to explain itself to the broader public. Its main publications were addressed to specialists. In 1963, the quarterly publication Finance & Development was created to access a broader public on IMF and Bank issues and, in the early 1970s, the biweekly IMF Survey was launched to improve the dissemination of current information on IMF activities and international monetary issues.

While there had been a press office in the IMF since the early days, it was not until the early 1980s that an External Relations Department was created. This made a major contribution to improving the public’s understanding of the IMF’s activities and the importance of sound policies for sustainable growth, as well as to strengthening the IMF’s relations with civil society and the media. The range of IMF publications was broadened to include the Occasional Papers series, the biannual World Economic Outlook, and the World Economic and Financial Surveys. Nevertheless, external relations activities remained constrained by the prevailing view in the Board and in capitals that greater openness of the IMF’s activities, such as with regard to the annual consultations with members or in the context of negotiations for the use of IMF financial resources, could be harmful to the confidentiality of IMF relations with its members.

From his arrival in the IMF in 1987, Mr. Camdessus was increasingly active in sharpening the public’s awareness of IMF activities and international monetary issues. In the mid-1990s, transparency became a key issue in the calls for monetary reform. Since then, remarkable progress has been made in a short period of time through an extensive program of publications and outreach as well as through intensive use of the IMF’s website on the Internet (2007 www.imf.org). The institutional discourse has been broadened to cover extensively church groups, labor leaders, NGOs, and other layers of civil society, and it has become the practice to seek input of all such groups in the development of many policy initiatives. Overseas information and public affairs work have acquired a global reach. Press notices, fact sheets, issue briefs, management statements, communiqués, and other releases have multiplied. The publication of policy papers, as well as of the Chairman’s summings up of Board discussions of policy issues, has become an integral part of the IMF’s practices. The policy papers for ministerial meetings and the semiannual work programs of the Board are also made public.

At the same time, rapid progress has been made to secure the collaboration of members for the voluntary publication of IMF country papers. A first phase involved the publication of background material to Article IV consultation papers and of documents detailing national authorities’ policy intentions in support of requests for the use of IMF financial resources. PRGF papers and other material relating to the HIPC initiative were also published. Widespread support has been forthcoming for the publication of the Chairman’s summings up of Board discussions concluding Article IV consultations—the Public Information Notices (PINs). PINs are also used for the Chairman’s statements summarizing Board discussions regarding requests for the use of IMF financial resources.

Finally, the publication of the staff reports on the annual Article IV consultations with members—which until a few years ago was staunchly resisted by a number of members, both industrial and developing—is increasingly becoming accepted practice to enhance transparency and accountability. While publication of Article IV reports does not appear to have adversely affected the candor of the discussions, there is concern that loss of frankness might develop or that a trend toward negotiated documents might emerge. In order to strike the right balance between transparency and confidentiality, the Board has decided that any deletions before publication will be limited to highly market-sensitive information on exchange rates and interest rates.

In 1998, the Board also began to commission external evaluations of key activities of the institution such as surveillance, IMF research, the ESAF, and the IMF’s budgetary process. A major further step to strengthen IMF accountability was taken in early 2000 with the decision to establish an IEO: the IEO Director is independent of IMF management and operates at arm’s length from the Executive Board. IEO reports will be published.

The “conversion” of the IMF in the second half of the 1990s into a transparent institution was a major step in the right direction. The IMF now provides daily accounts of its activities and its website offers extensive assistance to those who wish to remain abreast of developments and policies of the institution. While the public record appears impressive, further improvements are possible, such as through shortening of the time period (presently 20 years) for minutes of Board meetings to become publicly available. Moreover, in recent years, there has been a large increase in informal Board meetings and other gatherings of Executive Directors with management for which no official record is being kept. The public needs to be assured that there is no backsliding in transparency. Public consultation on new policy proposals could be expanded and the public should have better information on how policy formulation in the IMF takes place and how decisions are made. On the other hand, the view has been voiced that IMF transparency could have reached the point where it may not always be compatible with the members’ need or right for confidentiality or where conflicts could arise with the IMF’s own operational requirements. In fact, there has been growing concern that the generalized publication of Article IV consultation reports and country reports on the use of IMF resources as well as ROSCs and FSAP (Financial Sector Assessment Program) reports could, in fact, be used to turn the IMF into a rating agency.

The Task of Refocusing the IMF

“Refocusing” has been a continuous process in the life of the IMF, as changing circumstances in the world economy have required it to redefine and reassess its priorities. This has had a salutary impact on the IMF’s development and governance. In that regard, one of the remarkable developments of the past quarter century has been that the developing countries have occupied an increasingly central position in the institution’s functioning. Earlier, the IMF’s institutional focus had remained largely on the industrial countries. However, in the 1980s, the deterioration of living conditions in many developing countries and the Latin American debt crisis led the IMF to strengthen its focus on growth, structural adjustment, and external debt management in developing countries. In the 1990s, the transformation of centrally planned economies into free market societies and the issues of poverty alleviation in the poorest countries, as well as concerns regarding the functioning of global financial markets and the soundness of financial systems, have prompted a major widening of the core tasks of the IMF, tested its rapid response capability, increased technical assistance needs of many members, and led to increased collaboration between the IMF and other specialized institutions.

On the efforts made to strengthen the financial architecture, it should be kept in mind that the countries most affected by the crises of the 1990s have rebounded remarkably well, with the exception of Indonesia where governance issues and a protracted political crisis have retarded the positive impact of corrective policies. Mexico recorded rapid growth throughout the second half of the decade, supported by consistent macroeconomic policies and structural reforms that shielded Mexico from further contagion. Korea’s sharp rebound in 1999-2000 was spearheaded by wide-ranging structural reforms. Subsequently, the changing fortunes of the technology sector hit Korea hard, but in 2002 the outlook improved again. Korea has completed early repayment of its borrowing from the IMF, while the reforms of the corporate and financial sectors proceed. Thailand’s internal and external adjustment has proceeded satisfactorily but economic reactivation has remained modest because structural reforms have been less dynamic than required. Since the crisis of 1998, rapid growth in Russia has been accompanied by strong fiscal and external positions. Inflation and capital outflows remain areas of concern, while structural reforms focus on the investment climate and on the financial sector. Finally, Brazil enjoyed a strong recovery in 2000, supported by cautious monetary and fiscal policies. Sizable foreign direct investment covered the external current account deficit and the external position was healthy. The credit for these remarkable achievements should go to the countries concerned but the thrust of the IMF-supported programs—and the financing packages—must also have had a distinct impact on the speedy and sustained results that followed.

Surveillance continues to be the key instrument for crisis prevention. In that regard, the IMF has taken the lead in concerted vigilance over the soundness of financial systems—a task that, until a few years ago, remained largely with national authorities. The FSAPs, which the IMF undertakes jointly with the World Bank, strengthen the monitoring of financial systems, and assist in the identification of vulnerabilities and priorities for development and correction. They check the health of a wide range of financial institutions and markets. At the current pace of about 24 FSAPs a year, the reports are an important assessment of financial standards and of gaps in institutional infrastructure.

The IMF’s work on FSAPs and on ROSCs needs to be further deepened and kept up to date with the increasing degree of sophistication and internationalization of the financial environment. Work in these areas is also strengthening collaboration with the Financial Stability Forum, the BIS, and the Basel Committee on Banking Supervision. The Capital Markets Consultative Group and the IMF’s International Capital Markets Department are enhancing the analysis of global capital flows. Quarterly global financial reports provide the overview for comprehensive and integrated surveillance of the markets. The IMF’s work on financial stability policy in an increasingly complex global environment has added a major area of surveillance work for the Executive Board and for the staff, which needed to recruit a sizable number of people with relevant academic or work experience.

The IMF’s financing facilities have been reviewed to make them more effective in preventing and responding to crises and to avoid excessively large or prolonged use of IMF resources. Future use of the Extended Fund Facility is to be limited to cases where major structural reforms are needed, such as transition economies and future graduates of PRGFs. The prequalification guidelines for the Contingent Credit Facility, which offers a precautionary credit line to countries that follow demonstrably sound policies but believe that they could be vulnerable to contagion from elsewhere, have been made more attractive. However, the facility has thus far not been used and further reforms appear to be needed to avoid the perception that recourse to the facility would be perceived as an indication of weakness. Moreover, the critical issue of access to IMF resources in capital account crises needs to be further clarified.

IMF conditionality has also been reviewed and simplified with the objective of strengthening country ownership of IMF programs, which is increasingly seen as essential for effective program implementation and for the fruitful collaboration between the member and the IMF. The emphasis on structural conditionality was cut back. Clearer lines have been drawn to identify whether structural conditions are essential to achieve IMF macroeconomic objectives and to achieve an efficient division of labor in this area with the World Bank and regional development banks.

The current Managing Director, Horst Kohler, and the Executive Board feel strongly that the IMF should play an active part in making global economic integration work for the benefit of all members. Therefore, the IMF should remain engaged in the poor developing countries through the PRGF and the HIPC Initiative. Reducing world poverty requires sustained global expansion, and the industrial countries must recognize that it is in their own interest to come forward with bold initiatives to open their markets, to provide generous debt relief and higher levels of official development assistance. While the World Bank takes the lead in poverty reduction initiatives and the provision of basic social services, the IMF, through its surveillance activities, should encourage members to implement consistent policies, to strengthen their institutions and governance, and to tap the energies of the private sector. Collaboration and coordination of views with the World Bank have, thus, become increasingly important. Particular attention is being devoted to ensure the internal coherence and mutual compatibility between IMF policy advice and Bank programs in developing countries. This collaborative effort has involved the development of a new set of procedures for staff work and Executive Board decisions in both institutions, as well as occasional joint meetings of the IMFC and the Development Committee.

The IMF should also remain a strong force in favor of continued global trade liberalization. Industrial countries should abolish constraints on imports, particularly of agricultural products, textiles, and other labor-intensive manufactures from poor developing countries, for which market access is essential for sustainable growth. At the same time, the inflow of foreign labor in industrial countries and imports of goods and services from developing countries have contributed to the maintenance of cost and price stability in the industrial world.

The interest of the developing countries in the WTO continues to grow and the recent accession of China to membership has been a milestone toward the WTO becoming a global institution. In response to the concerns of the developing countries that they would be at a disadvantage vis-à-vis others in the complex, legal environment of the trade dispute settlement procedure, the WTO has been making efforts to improve its transparency and to demonstrate that trade rules would be secure for all. The IMF strongly supports the WTO’s initiative to launch a new round of global trade liberalization.

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