IMF's Role Evolves in Financial and Exchange Rate Arenas

• Pages: 169-172

Page 169

On May 22, Manuel Guitián, Director of the IMF's Monetary and Exchange Affairs Department (MAE), discussed his department's work on capital account convertibility, financial sector soundness, and exchange rate regimes. Guitián, a national of Spain with a law degree from the University of Santiago, Spain, and a Ph.D. in economics from the University of Chicago, has been Director of MAE since 1995.

IMF SURVEY: The Interim Committee has endorsed amending the IMF's Articles of Agreement to extend IMF jurisdiction over current account issues to include capital account movements. What is the significance of this for the IMF and the implications for MAE's work?

GUITIÁN: This endorsement is most significant for the IMF. At present, the IMF's jurisdiction is limited to payments and transfers of current transactions. The amendment will not only enlarge the IMF's role, it will also provide for broadly uniform treatment for current and capital transactions. In fact, it will bring the institution's mandate up to date with the evolution of the world economy. Capital flows have become one of the major forces for economic integration of the last two decades, and they represent an important dimension of the phenomenon of globalization. In this respect, events in the international economy have overtaken the Articles of Agreement-the "code of conduct" that has guided international financial relations so far. Granting the IMF a mandate for encouraging capital account liberalization acknowledges that free capital flows arePage 170 beneficial to member countries and help promote an orderly process of liberalization, thereby helping ensure systemic stability-a major IMF responsibility.

A primary source of potential banking difficulties continues to be credit risk.

Even though the IMF's Articles are yet to be amended, institutional work has been under way on capital account issues for some time. The IMF's Research

Department has generated a wealth of research and analysis on international capital markets. And in MAE, apart from our reports on capital account convertibility, we have begun expanding our country information base on the regulatory framework for capital transactions-in collaboration with other departments. We have just issued a Special Supplement to our 1996 Annual Report on Exchange Arrangements and Exchange Restrictions [see IMF Survey, May 12, page 147], the coverage of which includes capital transactions. Institutionally, important efforts are under way to ensure proper coordination with other agencies with an interest in the capital account area, such as the Organization for Economic Cooperation and Development, the World Trade Organization, and the Multilateral Agreement on Investment currently under negotiation.

IMF SURVEY: Will the amendment provide for transitional arrangements?

GUITIÁN: Certainly. We need to take into account that not every country will be in the same position to liberalize or at the same stage of liberalization. Important issues of the pace and sequence of liberalization, as well as the need to ensure a robust framework for appropriate policy setting and implementation, need to be addressed to ensure a durable capital account opening. All these call for well-designed transitional arrangements. In principle, the approach need not be different from that used to handle current account transactions; Article VIII essentially establishes the objective of current account convertibility, and Article XIV provides the necessary transitional arrangements. An analogous framework can be envisaged for capital account transactions.

IMF SURVEY: When will the amendment take effect?

GUITIÁN: The sooner the better. But an amendment requires a...