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Comments on the Reports on the International Financial Architecture by the G22 Working Group on Transparency and Accountability, Working Group on Strengthening Financial Systems and Working Group on International Financial Crises (Group of 22)



Reports on the International Financial Architecture
 October 1998
Summary (90k pdf file)

The Working Group on Transparency and Accountability
The Working Group on Strengthening Financial Systems
The Working Group on International Financial Crises

The following reports were prepared by three Working Groups of the G-22, a group comprising representatives from 22 economies that examined issues related to the strengthening of the international financial architecture. The reports were sent to the Managing Director of the IMF and the President of the World Bank with the request that they be forwarded through Executive Directors to Finance Minsters and Central Bank Governors meeting in the context of the Annual Meetings. They are intended to complement ongoing discussions in the IMF and other international institutions and fora on certain aspects of strengthening the architecture of the international financial system.
 
In response to the crisis in Asia, Finance Ministers and Central Bank Governors from 22 systematically significant economies met in Washington, D.C. in April 1998 to examine issues related to strengthening the international financial architecture. This initiative was intended to complement ongoing efforts in the IMF, the World Bank and other international institutions and fora, and to help develop a broad international consensus on these important issues.

Ministers and Governors identified three key areas where action is needed: enhancing transparency and accountability; strengthening national financial systems; and managing international financial crises. Recognising the complexity of the issues at hand, working parties were formed to study these issues further with the aim of developing concrete proposals to strengthen the architecture of the international financial system. These groups, of which we are the co-chairs, benefited from the diversity of their participation and the openness of the consultation process. In addition to representatives from finance ministries and central banks with a breadth of experience in systemic issues, each working party included observers from international organisations. The working groups also sought and received the views and contributions of countries not represented in the working groups, private sector representatives and other international groups.

The working groups have prepared reports on their deliberations recommending actions in a number of areas. The international community is invited to consider these recommendations and to take actions to implement them.

These reports are being sent to the Managing Director of the IMF and the President of the World Bank with the request that they be forwarded through Executive Directors to Finance Ministers and Central Bank Governors in anticipation of meetings held at the time of the annual meetings of the Bretton Woods institutions. The reports will be discussed at a meeting of Finance Ministers and Central Bank Governors on 5th October.
Mervyn King
Bank of England		 Mario Draghi
Ministero del Tesoro
Italy		 David Lipton
Department of the
   Treasury
United States
Andrew Sheng
Hong Kong Monetary
   Authority		 Pablo Guidotti
Ministry of Finance
Argentina		 Martin Werner
Ministry of Finance
Mexico
 
PREFACE

The international financial crisis that began in Asia and has now spread to other continents lends urgency to efforts to strengthen the architecture of the international financial system. The importance of these efforts was first given prominence in 1995 at the Halifax summit of heads of state and government of G-7 countries, and progress since has benefited from the involvement of finance ministries and central banks from both developed and emerging market economies.

In response to the crisis in Asia, Finance Ministers and Central Bank Governors from a number of systemically significant economies met in Washington, D.C. in April 1998 to examine issues related to the stability of the international financial system and the effective functioning of global capital markets.1 In their discussions, Ministers and Governors stressed the importance of strengthening the international financial system through action in three key areas: enhancing transparency and accountability; strengthening domestic financial systems; and managing international financial crises.

Three working groups were formed to contribute to the international dialogue on how to proceed in these key areas. A strength of these working groups was the diversity of their participants and the openness of their consultation process. Each working group comprised representatives from finance ministries and central banks of developed and emerging market economies; international organisations were invited to participate in the discussions; and contributions and views from other international groups, countries not represented in the working groups, and private sector representatives were sought.

The three working groups have prepared reports on the outcome of their discussions and recommended a range of actions to strengthen the international financial system.

Enhancing Transparency and Accountability

The Working Group on Transparency and Accountability (197k pdf file) considered the contributions that transparency and accountability can make to improvements in economic performance, as well as the nature of information needed for effective transparency and accountability.2 Members attached particular importance to enhancing the relevance, reliability, comparability and understandability of information disclosed by the private sector. They recommended that priority be given to compliance with and enforcement of high-quality accounting standards.

There was consensus on the need to improve the coverage, frequency and timeliness with which data on foreign exchange reserves, external debt and financial sector soundness are published. Furthermore, members recommended that consideration be given to compiling and publishing data on the international exposures of investment banks, hedge funds and other institutional investors.

Transparency is an important means of enhancing the performance and public accountability of international financial institutions. Members recommended that international financial institutions adopt a presumption in favour of the release of information, except where release might compromise a well-defined need for confidentiality.

Members emphasised the importance of there being transparency about transparency. Members recommended that the IMF prepare a Transparency Report summarising the extent to which an economy meets internationally recognised disclosure standards.

Strengthening Financial Systems

The Working Group on Strengthening Financial Systems (250k pdf file) sought consensus on principles and policies that foster the development of a stable, efficient financial system.3 Members identified several areas—corporate governance, risk management (including liquidity management) and safety net arrangements—where standards for sound practices need to be enhanced or developed. The report outlines elements that such standards might contain and suggests ways forward.

Members emphasised that the implementation of sound practices is best fostered through market-based incentives backed by official sector actions. The report sets out a number of concrete actions to promote implementation.

Members recognised that cooperation and coordination among national supervisors and regulators and international groups and organisations are crucial to the strengthening of domestic financial systems. The report sets out several options for enhancing international cooperation: for example, the establishment of a Financial Sector Policy Forum that would meet periodically to discuss financial sector issues.

Managing International Financial Crises

The Working Group on International Financial Crises (214k pdf file) examined policies that could help to prevent international financial crises and facilitate the orderly and cooperative resolution of crises that may occur in the future.4 The report should not be considered an agenda for addressing the problems currently being experienced in many emerging markets.

Members stressed the need to encourage better management of risk by the private and public sectors, and recommended that governments limit the scope and clarify the design of guarantees that they offer.

Effective insolvency and debtor-creditor regimes were identified as important means of limiting financial crises and facilitating rapid and orderly workouts from excessive indebtedness. The report outlines the key principles and features of such regimes.

Countries should make the strongest possible efforts to meet the terms and conditions of all debt contracts in full and on time. Unilateral suspensions of debt payments are inherently disruptive. The report sets out a framework to promote the collective interest of debtors and creditors in cooperative and orderly debt workouts, and principles that could guide the resolution of future international financial crises.

Consultation

The three Working Groups have sought to develop recommendations in areas where consensus could be achieved and have set out options for consideration in other areas. They recognise the importance of the views of others and welcome their advice and counsel. Interested parties in the private and official sector are invited to convey their comments to the secretariat (fax +41-61 280 9100) by end October, 1998.

1The April meeting was attended by Finance Ministers and Central Bank Governors from Argentina, Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Poland, Russia, Singapore, South Africa, Thailand, the United Kingdom and the United States. The heads of the BIS, IMF, OECD and the World Bank, as well as the Chair of the Interim Committee, attended as observers.
2Representatives of the following economies contributed to the Working Group on Transparency and Accountability: Argentina, Australia, Brazil, Canada, France, Germany, Hong Kong SAR (co-chair), Japan, Malaysia, Thailand, the United Kingdom (co-chair) and the United States.
3Representatives of the following economies contributed to the Working Group on Strengthening Financial Systems: Argentina (co-chair), Brazil, Canada, China, France, Germany, India, Italy (co-chair), Japan, Korea, Malaysia, Mexico, Poland, Russia, Singapore, South Africa, Sweden, Thailand, the United Kingdom and the United States.
4Representatives of the following economies contributed to the Working Group on International Financial Crises: Argentina, Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong SAR, Italy, Japan, Korea, Mexico (co-chair), the Netherlands, Singapore, South Africa, Thailand, the United Kingdom and the United States (co-chair).