Transparency is key to preventing financial crises

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The more open, direct, and straightforward countries are in making policy decisions and providing data about economic and financial developments, the better they, and the international monetary system as a whole, will function. A lack of transparency was a feature of the buildup to the Mexican crisis of 1994-95 and of the emerging market crises of 1997-98. In these crises, markets were kept in the dark about important developments and became first uncertain and then unnerved as a host of interrelated problems came to light.

Inadequate economic data, hidden weaknesses in financial systems, and a lack of clarity about government policies and policy formulation contributed to a loss of confidence that ultimately threatened to undermine global stability. Transparency and candor are particularly important in today's environment of substantially increased private capital movements and countries' growing integration with international capital markets.

Much has changed since the late 1990s. The international community's efforts to prevent future crises--including through the development of international standards and codes of good practices--stem partly from a commitment to greater openness.

Transparency promotes the orderly and efficient functioning of financial markets by better informing participants.

It can enhance economic performance by encouraging more widespread discussion and analysis of policies. It increases policymakers' accountability and should also make their policies more credible.

Transparency can also help reduce the opportunities for corruption and the likelihood of shocks.

These efforts by the international community have been promoted by the IMF and other international financial institutions and professional organizations.

Country transparency

Many country authorities have made greater openness a key objective.

They are releasing economic data regularly and rapidly, and many have made the policymaking process much more open.

Technical assistance from the IMF and other organizations will be essential if countries are to continue making progress toward greater openness and accountability.

As a key part of its work with member countries, the IMF promotes transparency practices. It has developed data standards to guide countries in disseminating economic and financial data to the public.

These include the Special Data DisseminationPage 8 Standard (SDDS), which is...