Statement of the Central Bank of Ireland1
- Susana Almuina, Ian McCarthy, Gabriel Sensenbrenner, and Justin Zulu
- Published Date:
- December 1995
The Central Bank of Ireland is pleased to be associated with the IMF’s program of technical assistance to the central banks of the Baltic countries, Russia, and other countries of the former Soviet Union, which can have a key catalytic role in the difficult transition to a market-oriented economic system. Without a sound banking system and an efficient payments system, typically the responsibilities of central banks, progress toward financial liberalization will be impeded. Strong and preferably independent central banks are required in order to attain the necessary degree of price stability to enable market economies to function to best advantage. The issue of central bank independence has received considerable attention in recent years, not least in the context of European integration. Independence can lend credibility to the pursuit by a central bank of the goal of price stability, and postwar experience would appear to confirm that independent central banks have been more successful in controlling inflation.
After two to three years of experience with technical assistance to the Baltic countries, Russia, and other countries of the former Soviet Union, there is now a fuller appreciation of the extent of the task facing the recipient central banks. Reform is not simply a matter of learning new skills and techniques: these will be lost quickly if the environment is not supportive. There must be in place a legal and institutional framework that will both protect property rights and give the right price signals to economic agents. As recent Irish experience in the fiscal area illustrates, radical reform is greatly facilitated when the population at large fully accepts the need for change. Our experience offers encouragement: when this support is present, results can exceed expectations. In short, technical assistance cannot operate in a vacuum: its effectiveness depends in great measure on the existence of a widespread desire for change.
The IMF adopts a sensible strategy of ensuring that technical assistance is provided within the framework of an agreed comprehensive package of reforms and recommendations, and it should ensure the consistency of the advice offered by the technical assistance experts. In this regard, the role of resident experts is vital; they are the link between the recommendations of IMF missions and the introduction of practical measures to institutionalize reforms. It is worth stressing the importance in Western central banks of information systems as an aid, and indeed, spur, to efficient decision taking. Moreover, in these banks information systems are constantly evolving in response to changing circumstances. The content of selected information and the frequency and speed with which it reaches a central bank’s top management and board can be decisive in determining the quality of decision making. This is an aspect that might be emphasized as technical assistance becomes more concerned with the detailed implementation of policy recommendations.
The move to the implementation phase of technical assistance may require smaller and more focused missions than in the first years of transition. By their nature such missions would be less disruptive of the regular workload of the recipient central banks and less demanding of the time of their top management. Of course, smaller more frequent missions would increase the onus on the IMF’s Monetary and Exchange Affairs Department to ensure the necessary coordination.
This statement was submitted after the St. Petersburg meetings.