Implications for international policy cooperation

This last point brings me to today’s final subject, namely, international policy cooperation.

The European Union has a long experience in exchange of economic information and discussion of economic policies among its members. Such regional "surveillance"—as we call it in the IMF—is starting in the Asian countries, but there is a need for further deepening, which would help policy makers identify imminent risks. Regional surveillance and cooperation, however, cannot substitute for international cooperation. Let me mention the areas where the IMF—an international organization with 181 member countries—is involved.

The IMF engages in surveillance of economic policies in all its member countries as mandated by its Articles of Agreement. This is an ongoing process of policy dialogue with the authorities and includes regular reporting to the Executive Board of the IMF of the economic situation in member countries. The surveillance procedures were strengthened after the Mexican crisis to ensure that we provided candid advice to country authorities on a timely basis. In fact, the Thai authorities were repeatedly warned by the IMF’s Executive Board and Fund management and staff. However, the effectiveness of such advice ultimately depends on the willingness of the authorities to follow it.

In addition, when member countries encounter a balance of payments crisis, the IMF provides financial assistance linked to implementation of agreed economic policies, such as fiscal, monetary, and exchange rate policies, as well as those structural reforms that are most important for maintaining macroeconomic stability. Over the last few months, we have provided substantial financial assistance to the Phillippines, Thailand, and most recently Indonesia. By providing such financing in support of a strong economic program, the IMF helps restore market confidence. Again, the ball is in the court of the authorities. It is the task of the authorities to implement the policies agreed with us. Any delay in implementation risks changing market expectations quickly again. We also provide extensive technical assistance, e.g., in the context of monetary and fiscal policies, the foreign exchange system, central banking, and macroeconomic statistics.

The IMF increasingly promotes transparency and public disclosure in member countries of their policies and economic data. One particular aspect of data provision is the Special Data Dissemination Standard (SDDS), a standard for members having or seeking access to international financial markets to which they may subscribe on a voluntary basis. It was introduced in response to the lack of information in the case of Mexico. By today, 43 countries, primarily industrial and emerging market economies, have subscribed to the SDDS. You will hear more about this system this afternoon.

In light of the need to promote sound banking systems, in 1997 the IMF has developed a general framework for a sound and effective banking system focusing on those issues that are of macroeconomic relevance. In addition, because of its broad membership, the IMF also helps disseminate internationally agreed principles or standards of other institutions, e.g., the Core Principles for Effective Banking Supervision released by the Basle Committee in April 1997.

Finally, at the Annual Meetings of the IMF in Hong Kong SAR in September, it was agreed to move ahead to develop an amendment of the IMF Articles of Agreement to make liberalization of international capital flows one of the purposes of the Fund. This is a natural complement to the liberalization of current account transactions that has taken place in most countries. Globalization of financial markets inevitably has to follow globalization of trade if the world economy is to reap the full benefits of increased integration. The recent events have not led us to draw different conclusions. Elimination of existing capital controls, however, needs to be phased carefully with due regard to the economic situation of each country, including the strength of the balance of payments and the soundness of the domestic banking system. These issues will be high on the IMF’s agenda in the months ahead.