IIF recommendations: Improvements in global financial system hinge on transparency and management of risk

• Pages: 110

Page 110

Investors in emerging markets should have more timely and meaningful economic data to enable them to assess risks. This recommendation for improving the global financial system was made by the Institute of International Finance (IIF) in the Report of the Working Group on Transparency in Emerging Markets Finance, one of two reports published on March 21 under the direction of the Steering Committee on Emerging Markets Finance. According to the report, publishing and disseminating macro-economic data encourages country authorities to pursue sound policies because foreign and domestic participants are able to scrutinize their policies and follow economic developments. The report also sets out the strengthened data standards that the IIF considers the best practices for data disclosure.

The working group advocates improved dialogue between private international creditors and investors and the authorities of borrowing countries as a way of improving transparency, and makes a number of specific recommendations.

Data standards

Macroeconomic data transparency was widely recognized as a problem after the 1995 Mexican crisis, the report says, noting that significant progress has been made since then. However, concerns about the quality, comprehensiveness, and timeliness of data have also arisen in the wake of the more recent financial crises.

The working group report calls for the governments of emerging market economies to provide better information on capital movements, bank deposits, holdings of securities, derivatives, and reserves. It proposes that data on reserves be published weekly, with no more than a one-week lag, and that more data be provided on the composition and disposition of reserves, on other foreign currency assets held by central banks, and on potential drains on reserves, such as forward transactions. Data providers should explain their methodology and sources and ensure that their data are accurate and meaningful.

Transparency

National authorities, international financial institutions, and private sector participants in emerging markets are all responsible for full and timely disclosure of information on their activities, the report emphasizes. The report welcomes the advances the IMF has made in increasing the amount of information it publishes. Where the success of an IMF program depends on the private sector response...