Data to the Rescue

• Author: Adelheid Burgi-Schmelz
• Position: Director of the IMF's Statistics Department
• Pages: 31-33

Page 31

Why improved statistical information will be key for prevention of future crises

Accurate, complete, and timely data are critical to making good economic policy and fi nancial decisions. Without strong data, policymakers cannot manage effectively and business leaders may be left in the dark, unable to spot emerging trends and danger signals.

Every crisis exposes weaknesses, and the current global financial crisis is no exception. The speed at which the crisis developed underlines the importance of indicators that could support early warning efforts and the analysis of cross-border financial linkages. While the analysis of the spread and transfer of risk has been hindered by the complexities created by new financial instruments, the crisis has also helped underscore the need to keep a better eye on the activities of special purpose entities and off-balance-sheet operations, often created specifically because they were "off the radar."

The crises of the mid-to late 1990s prompted major progress in data provision-essentially more and timelier data from emerging economies. In addition, data on foreign exchange reserves and external debt are much improved.

But as these gaps were being plugged, the financial landscape changed further. On the one hand, nonbank financial intermediation grew much faster than bank-based intermediation. At the same time, new instruments, including derivatives and securitized assets, saw explosive growth. The latest crisis has highlighted the lack of consistent data on who holds what, on the balance sheets of nonbanks, and on contingent risks and derivative positions. In addition, private entities in emerging markets have become more financially integrated in global markets, underlining the lack of balance sheet data for the private sector in emerging economies.

This article examines what has been achieved in recent years to strengthen the international collection and distribution of statistical information, and makes suggestions for what should be done to further improve international cooperation and plug gaps highlighted by the crisis.

Major strides

Major improvements in the harmonization and availability of economic and financial data have taken place over the past 10 to 15 years, along with the initiation of projects that support the analysis of the vulnerability of countries to shocks. Partly this has been in response to earlier crises, including the Mexican and Asian crises during the 1990s, when it was felt that slow and incomplete reporting of critical economic data had exacerbated problems. As a result, analysts and policymakers are now able to assess sovereign risk in emerging economies much better than in the 1990s.

Standards and dissemination of data. A big effort was made to set standards for governments to report economic data. The crisis in Mexico in the mid-1990s led to the establishment of two crucial standards-the Special Data Dissemination Standard (SDDS) and the General Data Dissemination System (GDDS). These initiatives provide comprehensive frameworks for the generation and dissemination of a core set of economic and financial data sets. The SDDS prescribes how IMF members that have, or that might seek, access to international capital markets should provide their economic and financial data to the public, while the GDDS suggests good practice for the production and dissemination of statistics.

Later, following the financial crisis in Asia, the SDDS was strengthened to include dissemination of reserves and foreign currency liquidity data, and new requirements were introduced for external debt and a country's international investment position. Consequently, the number of countries disseminating these data sets significantly increased, which improved cross-country comparability.

Among the IMF...