IMF Adopts Guidelines Regarding Governance Issues

• Pages: 233-238

Page 233

On August 4, the IMF announced that its Executive Board had adopted guidelines covering the role of the IMF in issues of governance. The IMF has long provided advice and technical assistance that has helped foster good governance, including by promoting public sector transparency and accountability. Traditionally, the IMF's main focus has been to encourage countries to correct macroeconomic imbalances, reduce inflation, and undertake key trade, exchange, and other market reforms needed to improve efficiency and support sustained economic growth. As IMF Managing Director Michel Camdessus noted in remarks last month to the Economic Club of New York,"this is still our first order of business in all our member countries. But, increasingly, we find that a much broader range of institutional reforms is needed if countries are to establish and maintain private sector confidence, and thereby lay the basis for sustained growth"; and "every country that hopes to maintain market confidence must come to terms with the issues associated with good governance."

Reflecting the increased significance the membership of the IMF places on this matter, the declaration "Partnership for Sustainable Growth" that was adopted by the IMF's Interim Committee at its September 1996 meeting in Washington identified "promoting good governance in all its aspects, including ensuring the rule of law, improving the efficiency and accountability of the public sector,Page 234 and tackling corruption" as an essential element of a framework within which economies can prosper. The IMF's Executive Board has since met a number of times to develop guidance for the IMF regarding governance issues.

IMF staff involvement is more likely to be successful when it strengthens national efforts to improve governance.

The Guidance Note below reflects the strong consensus among Executive Directors on the importance of good governance for economic efficiency and growth. The IMF's role in these issues has been evolving pragmatically as more is learned about the contribution that greater attention to governance issues can make to macroeconomic stability and sustainable growth.

In discussing the governance guidelines, Executive Directors were strongly supportive of the role the IMF has been playing in this area in recent years. At the same time, they emphasized that the IMF's involvement in governance should be limited to its economic aspects.

Following is the full text of the governance Guidance Note:

Introduction

1. Reflecting the increased significance that member countries attach to the promotion of good governance, on January 15, 1997, the Executive Board held a preliminary discussion on the role of the IMF in governance issues, followed by a discussion on May 14, 1997, on guidance to the staff. The discussions revealed a strong consensus among Executive Directors on the importance of good governance for economic efficiency and growth. It was observed that the IMF's role in these issues had been evolving pragmatically as more was learned about the contribution that greater attention to governance issues could make to macroeconomic stability and sustainable growth in member countries. Directors were strongly supportive of the role the IMF has been playing in this area in recent years through its policy advice and technical assistance.

2. The IMF contributes to promoting good governance in member countries through different channels. First, in its policy advice, the IMF has assisted its member countries in creating systems that limit the scope for ad hoc decision making, for rent seeking, and for undesirable preferential treatment of individuals or organizations. To this end, the IMF has encouraged, among other things, liberalization of the exchange, trade, and price systems, and the elimination of direct credit allocation. Second, IMF technical assistance has helped member countries in enhancing their capacity to design and implement economic policies, in building effective policymaking institutions, and in improving public sector accountability. Third, the IMF has promoted transparency in financial transactions in the government budget, central bank, and the public sector more generally, and has provided assistance to improve accounting, auditing, and statistical systems. In all these ways, the IMF has helped countries to improve governance, to limit the opportunity for corruption, and to increase the likelihood of exposing instances of poor governance. In addition, the IMF has addressed specific issues of poor governance, including corruption, when they have been judged to have a significant macroeconomic impact.

3. Building on the IMF's past experience in dealing with governance issues and taking into account the two Executive Board discussions, the following guidelines seek to provide greater attention to IMF involvement in governance issues, in particular through:

* a more comprehensive treatment in the context of both Article IV consultations and IMF-supported programs of those governance issues that are within the IMF's mandate and expertise;

* a more proactive approach in advocating policies and the development of institutions and administrative systems that aim to eliminate the opportunity for rent seeking, corruption, and fraudulent activity;

* an evenhanded treatment of governance issues in all member countries; and

* enhanced collaboration with other multilateral institutions, in particular the World Bank, to make better use of complementary areas of expertise.

Guidance for IMF Involvement

Responsibility for Good Governance

4. The responsibility for governance issues lies first and foremost with the national authorities. The staff should, wherever possible, build on the national authorities' own willingness and commitment to address governance issues, recognizing that staff involvement is more likely to be successful when it strengthens the hands...