Coordinated Technical Assistance in Central Banking: Objectives, Strategies, and Coordination with Multilateral Institutions
- Susana Almuina, Ian McCarthy, Gabriel Sensenbrenner, and Justin Zulu
- Published Date:
- December 1995
Objectives and Strategies
The framework of the IMF-coordinated technical assistance program in central banking and monetary and exchange matters in the Baltic countries, Russia, and other countries of the former Soviet Union has been guided by several broad considerations in design and implementation.
The primary and ultimate objective of the IMF’s technical assistance in central banking has been to establish the capacity in the Baltic countries, Russia, and other countries of the former Soviet Union to enable them to formulate and implement the effective monetary and exchange policies that are necessary to stabilize their economies and move them to a path of sustainable growth. This objective necessitates reform of the legal and financial systems of these countries, including the establishment of central banks appropriately equipped to function in a market economy.
Modernizing the operations of the central banks is a unique and powerful tool for reforming the financial system as a whole. Central banking reforms have a far-reaching influence on the rest of the economy and play a catalytic role in shaping the course of evolution of banking and financial markets, particularly in money, exchange, and debt securities.
The effective and efficient implementation of monetary and exchange policies, including the transition from direct controls to indirect management of these policies, requires a wide range of reforms in the financial sector. Therefore, effective pursuit of structural reforms in the financial sector as a whole requires that the associated technical assistance be timely and comprehensive.
The specific components of financial sector reforms, including central banking reform, need to be coordinated in order to ensure close support for both macroeconomic stabilization objectives and market development, and to ensure that the changes are mutually reinforcing, both in speed and substance. Lack of progress in one critical area invariably constitutes a bottleneck in other areas, hence the need to develop cooperative strategies between the providers of technical assistance.
The IMF and the cooperating central banks1 have adopted a comprehensive approach for the implementation of technical assistance in central banking reforms, with attention to flexibility and the appropriate sequencing of reforms, and the associated technical assistance, that would provide a reasonably smooth transition from the centrally planned to the market system. The historic cooperation has also reinforced both the bilateral technical assistance initiated by the cooperating central banks and the multilateral assistance initiated by the IMF. The comprehensiveness of technical assistance has been assured by creating for each country a team of experts from these central banks, participating with IMF staff in the execution of technical assistance, and each central bank undertaking to provide technical expertise and training support in specific operations of central banking.2 The accompanying table gives details on the technical assistance provided by the cooperating central banks by subject.
Setting out to establish or upgrade 15 central banks poses numerous logistical problems, including the consistency of the content of the advice given. To minimize these problems, the IMF staff and the experts from the cooperating central banks devised coordinating workshops to enable them to exchange experiences and agree broadly on the content of the technical assistance in each subject matter. The workshops also helped to reach agreement on delivery strategies and to ensure the quality and consistency of advice. The pace and sequencing of the reforms was then adapted to the absorptive capacity and developments in the domestic situation of each recipient country.
The semiannual senior-level coordinating meetings in Basle, which bring together the cooperating central banks, the Bank for International Settlements (BIS) and the IMF, have served as a critical review and implementation tool. The participants have exchanged information on the content of the technical assistance programs and reviewed the strategies for effective implementation. More importantly, the IMF has derived from the exchanges a strong feedback on the commitment of resources, as well as advice on how to improve the organization, coordination, and execution of technical assistance.
Taking into account the special circumstances of the Baltic countries, Russia, and other countries of the former Soviet Union, technical assistance has been designed so that transitional reforms of existing systems and structures are implemented in the near term based on absorptive capacity and readily available technology in order to provide immediate support to stabilization objectives. Simultaneously, the planning and implementation of medium-term reforms and institution building have been pursued, based on more elaborate structures and technology and prospective improvements in the technical knowledge and skills of the staffs of the recipient central banks. Within this overall strategy, the technical assistance program has progressed, in most countries, from the initial stage of designing structural reforms to concrete implementation of specific projects. More recently, the need to combine technical assistance with the development of skills has assumed increasing importance.
In the current implementation phase, the appropriate mix of technical assistance and training is critical. The training activities of cooperating central banks implemented bilaterally, as well as in the context of IMF-coordinated technical assistance programs, have provided invaluable support to the authorities of these transition economies. The need to increase the emphasis on skill building in the overall technical assistance had been acknowledged and emphasized at the recent coordination meetings in Basle, and future work programs will reflect this strategy. For the IMF, a program of technical assistance workshops—a framework for an interactive setting that brings together staff from the recipient central banks, the cooperating central banks, and the IMF—focusing on operational and implementation strategies is being given increased emphasis. The BIS and the IMF will also intensify seminar and workshop activities at the Joint Vienna Institute as well as in the Baltic countries, Russia, and other countries of the former Soviet Union with a view to shoring up skills in monetary policy, payments systems, foreign exchange market operations, banking supervision, and accounting. The role of resident experts, both short term and long term, should assume greater importance as the countries increasingly become aware of the urgency of structural reforms and press ahead with their implementation.
Coordination and Collaboration
The Monetary and Exchange Affairs Department of the IMF has worked closely with the European Bank for Reconstruction and Development (EBRD), the European Commission, the World Bank, and the Organization for Economic Cooperation and Development (OECD) in an effort to speed up the transition to a market economy. For instance, all of these multilateral organizations have participated, together with the IMF and cooperating central banks, in the International Steering Committee for Payment System Reform in Russia and the activities of the various working groups that support the Committee.3
The EBRD has expressed its willingness to cooperate with the IMF in providing both hardware and software in parallel projects and also works with the commercial banks. Members of the EBRD staff have participated in the Monetary and Exchange Affairs Department’s technical assistance missions, particularly in payments system reform in Russia. There are also opportunities for the EBRD and the Monetary and Exchange Affairs Department to coordinate efforts regarding the restructuring of the commercial banks in many countries.
The European Commission has been very active in technical assistance to the Baltic countries, Russia, and other countries of the former Soviet Union and to Eastern and Central Europe.4 Its technical assistance activities in central banking have generally been in parallel to those coordinated by the Monetary and Exchange Affairs Department. However, Commission consultants have also participated occasionally in Monetary and Exchange Affairs Department missions, and there has been close cooperation between the Commission and the IMF in the design and implementation of the Russian domestic payment system and the Interstate Bank. In addition, there has been an ad hoc exchange of information between country managers of the Monetary and Exchange Affairs Department and Commission staff and consultants on a country-by-country basis. Such contacts at the field level have helped to minimize duplication and conflicting advice. In Eastern Europe, the Commission’s PHARE has cooperated in assigning longer-term experts in areas that complement technical assistance coordinated by the Monetary and Exchange Affairs Department. This cooperation has been efficient and productive. More recently, the IMF, the BIS, the European Commission, and seven cooperating central banks are cooperating in an in-house training project for developing expertise, including training skills, at different levels in the Central Bank of the Russian Federation.
As sister organizations, with many overlapping areas of responsibility, the IMF and the World Bank have collaborated closely, particularly in the areas of payment system reform and banking supervision and restructuring. The World Bank has also coordinated its allocation of longer-term experts, especially in banking supervision, with IMF-coordinated technical assistance in the same area.
Since the inception of the IMF-coordinated technical assistance program in the Baltic countries, Russia, and other countries of the former Soviet Union, OECD staff have participated in selected Monetary and Exchange Affairs Department missions in public debt management, payment systems, and exchange system issues and in IMF banking supervision seminars, and have co-sponsored and funded training on payment systems as well as a workshop on public debt management for officials of the Baltic countries, Russia, and other countries of the former Soviet Union.
The coordination of the activities referred to above has occurred at the field level, an arrangement that has been pragmatic and effective. It has been conducted through periodic contacts, the exchange of information, mutual participation in technical assistance missions and projects, and the parallel provision of technical assistance in complementary areas.
The IMF has also liaised closely with a few bilateral donors. For example, the Japanese authorities have supported the IMF’s technical assistance activities through the Japan Administered Account. Similarly, the U.S. Treasury and U.S. Agency for International Development have collaborated closely with the IMF, with the IMF helping to devise specific projects, select experts, and supervise technical assistance delivery for projects financed by the Treasury and the Agency. In summary, cooperation and coordination have been flexible and have taken a variety of forms.
Effective February 1994 senior representatives of the EBRD, the European Commission, the World Bank, and the OECD have participated in IMF/BIS-coordinated technical assistance meetings with the cooperating central banks. This development should further strengthen the review of problems and prospects as well as facilitate continued refinements in coordination and cooperative strategies. There will also be opportunities to facilitate the funding and implementation of downstream projects requiring software and hardware in key areas, such as central bank accounting, payment system arrangements, and policy analysis and research.
By and large, significant progress has been achieved in establishing new central banks, but as with most endeavors of this magnitude, fundamental change has been slower than initially thought. Absorptive capacity has varied from country to country, as well as over time within each country. Thus, progress in putting in place the necessary systems and structures has varied. The meaningful exercise of the role of a central bank in monetary policy and surveillance of the soundness of the financial system must also await further developments in political modernization, as well as legal and financial systems reform. A meaningful contribution to price stability has remained somewhat elusive, reflecting expansionary fiscal stances, continuing dislocations in external trade, production and distribution structures, and a generally slow recovery in economic performance.
|Country||Central Bank Accounting System and Internal Audit||Banking Supervision and Regulation||Balance of Payments Analysis and Research||Foreign Exchange Operations. Regulations. Reserve Management, and Market Development||Monetary Operations and Money Market Development||Monetary Analysis and Research||Organization and Management Structure||Payment, Clearing, and Settlement System||Public Debt Management and Government Securities Market||Introduction of New Currency1|
|Armenia||New Zealand||United States||Israel||France||Portugal||Israel||MAE||Netherlands||Portugal||MAE|
|Azerbaijan||Austria||France||Turkey||Japan||Italy||Turkey||Norway||United States United Kingdom||MAE|
|Belarus||Denmark||Netherlands||Ireland||Germany||United Kingdom Finland||United States||Austria||Israel||MAE|
|Georgia||Australia||United States||Canada||Italy||New Zealand||Germany||Germany||Netherlands||New Zealand||MAE|
|Kazakhstan||France||United Kingdom||Italy||Belgium||United States||Canada||United States||Japan||United Slates||MAE|
|Kyrgyz Rep.||France||United Kingdom||Italy||Switzerland||United States||Canada||Netherlands||Japan||United States||MAE|
|Moldova||New Zealand||United States||Israel||France||Portugal||Israel||MAE||Australia||Portugal||MAE|
|Russia||Austria||France||Canada||Japan||Italy||Germany/ United States||Norway||Task force||United Kingdom||MAE|
The Monetary and Exchange Affairs Department (MAE) in conjunction with experts.
The Monetary and Exchange Affairs Department (MAE) in conjunction with experts.
Currently, 23 central banks cooperate with the IMF in providing technical assistance to the Baltic countries, Russia, and other countries of the former Soviet Union, These are the Austrian National Bank, the Bank of Canada, the Bank of England, the Bank of Finland, the Bank of France, the Bank of Italy, the Bank of Israel, the Bank of Japan, the Bank of Norway, the Bank of Portugal, the Bank of Spain, the Sveriges Riksbank, the Deutsche Bundesbank, the Central Bank of Iceland, the Central Bank of Ireland, the Central Bank of Turkey, the Federal Reserve Board of the United States, the National Bank of Belgium, the National Bank of Denmark, the Netherlands Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Swiss National Bank.
IMF assistance with cooperating central banks has covered the following areas of central banking: central bank accounting and audit; banking supervision and regulation; balance of payments analysis and research; foreign exchange systems, operations, and markets; monetary operations and money market development; monetary analysis and research; organization and management methods; payment, clearing, and settlement system; public debt management and government securities market; and introduction of new currency.
The Steering Committee comprises representatives of the cooperating central banks involved in the payment system technical assistance effort in Russia (the U.S. Federal Reserve, the Deutsche Bundesbank, and the Bank of France), representatives of the multilateral organizations (the EBRD, the European Commission, the World Bank, the OECD, and the IMF), and representatives of the Russian commercial banks and the involved departments of the Central Bank of the Russian Federation. The Committee is chaired by the Central Bank of the Russian Federation and supported by six working groups. It provides general direction and coordination for payments projects and promotes a consensus on payments policies and strategies.
The Commission’s Technical Assistance to the Commonwealth of Independent States (TAC1S) covers the countries of the former Soviet Union (excluding the Baltic countries), while its PHARE covers Eastern and Central Europe and the Baltic countries.