Transcript

Transcript of a Press Conference by Stefan Ingves on the Code of Good Practices on Transparency in Monetary and Financial Policies

April 28, 1999

MR. ANJARIA: Good morning, ladies and gentlemen. Thank you very much for coming, and I would like to welcome you to this press briefing by Mr. Stefan Ingves, the head of the Monetary and Exchange Affairs Department of the IMF on the "Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles." This is taken up in a document that has been made available to you, and the contents of our briefing and the document itself are under embargo until conclusion of this press briefing

If you will allow me, and with Mr. Ingves' permission, I would like to take just a minute or two go over some of the material that we have put out. Talking to a few of your colleagues last night, I had the impression that there is so much out there that it is all a bit overwhelming.

And so with your permission, I would like to, first of all, show that, excluding the world economic outlook, which is, by itself, a thick document, the pile of documents that we have released in the last few days is at least an inch think. But let me mention those, and these are available in the press room and, of course, are also available on the Fund's external Web site.

On April 15, we had a press briefing involving the private sector, and there was a paper associated with it which was released; subsequently a transcript of the briefing was also put on the Web site.

On April 16, we issued a public information notice on additional steps to enhance IMF transparency. That is on the IMF's Web site as well.

And then going through very quickly, April 23, we had a press briefing on the highly indebted poor countries initiative jointly with the World Bank. The related papers and transcript are available on the Web site.

April 25, Sunday, those of you who were here, Mr. Ciampi, the chairman of the Interim Committee and the managing director, gave a short briefing on the Contingent Credit Lines, which came into effect on April 26. And, again, the relevant press release is on the Fund's Web site.

April 26, we had a press briefing on standards and transparency, and associate with that is a paper, a news brief, and a transcript.

Yesterday, we had the Interim Committee Meeting. And in that context, we have released the Managing Director’s statement to the Executive Board and his report to the Interim Committee on strengthening the architecture. What we are making available to you, in addition, today, is another fact sheet, also on architecture, which summarizes the Managing Director’s report and is entitled, "A Guide to Progress in Strengthening the Architecture of the International Financial System."

We think it is worth providing this to you in a fact sheet because we hope that this form is clearer and more user friendly than the one in the official report.

Finally, yesterday evening there was a meeting on the international community’s response to the Kosovo crisis, and a report of the meeting is on the Web site. This morning we have just had a joint World Bank-IMF staff press conference on the economic consequences of the Kosovo crisis and a related paper, along with the transcript of the press conference, has been released. And in connection with this press briefing, a draft Code of Good Practices on Monetary and Financial Policies is being released, along with a note introducing the code and asking for the public’s comments. So these are the documentation and information that have been made available in the past fortnight.

Mr. Ingves is responsible for the work that the IMF is undertaking in this area. He joined the IMF quite recently, and before that he was the Deputy Governor of the Central Bank of Sweden. And in that capacity, he was a key moving force behind the initiative which is now you see in the form of this "Code of Good Practices." So he is not only in charge of the project in the Fund, but he is one of the authors and originators of this concept and of this document.

MR. INGVES: Thank you.

This is actually best described as a work in progress. A year ago the Interim Committee asked the IMF to develop this Code together with other appropriate institutions. And over the past year the Fund staff, working together with the Bank for International Settlements and in consultation with representatives of groups from central banks, financial agencies and quite a number of relevant international organizations in this field, have developed this draft "Code of Good Practices on Transparency in Monetary and Financial Policies."

The way this Code is constructed is based on two principles. The first is saying that the effectiveness of monetary and financial policies can be strengthened if the public knows the goals and instruments of power and if the authorities can make credible commitments in meeting these goals. That is the first principle.

Secondly, this Code also says that good governance calls for central banks and financial agencies to be accountable, particularly where the monetary and financial authorities are granted a high degree of autonomy.

In order to make the Code broad enough, since countries are different and there are different legal backgrounds and different historic backgrounds to how you organize the central banks and financial agencies, the Code necessarily has to be quite general in the way it is written. And this you will find when you read the Code.

In addition to this, the next step in this process is for us to develop a supporting document, where we are going to go through different examples of how you can do these things in different countries. That gives those who have to think about how they are running their business at home an opportunity to compare and an opportunity to see how you can structure this in different ways, given that it has been done so in very different ways in different countries.

The Code contains four basic sections describing what we had in mind when this work was being done, and I think that while it is fair to say at this point that the title is "Code of Good Practices on Transparency in Monetary and Financial Policies", you could also actually add that this is a "Code on Governance Principles" because a substantial part of this Code deals with general governance principles and not only transparency as such.

The first section of the Code deals with the clarity of roles, responsibilities and objectives of central banks and financial agencies for monetary policy.

The second part of the Code deals with the open processes for formulating and reporting of monetary policy decisions by the central banks and of financial policies by financial agencies.

The third section of the Code deals with the public availability of information on monetary policy.

And the final part of the Code deals with the accountability and assurances of integrity by the central bank and financial agencies.

The term "financial agency" is a little bit of a new term, and it has been invented in order to cover almost everything, and it had to be done like that because in some cases supervision is handled by the central bank; in other cases, it is handled by the ministry of finance; in other cases, you have independent supervisory agencies; and in some cases, you also have privately organized, self-regulatory organizations, organized financial markets, and so on.

This Code has been deliberately designed in such a way that it is a kind of an umbrella code. This Code covers all these different types of institutions in the financial sector. Then, in turn, many specialized agencies and international bodies have Codes on their own that are much, much more detailed than this Code happens to be. But it has, on purpose, been designed in this way in order to cover as many fields as possible. Part of the discussion over the past year has actually been whether this is the right way to go about this or whether we should have four or five, or whatever the number, different codes? But today, there is agreement that this is the way to do it; to start with something which is sufficiently general to cover many aspects of what is going on in the financial sector.

It is also important here to point out that this Code is dealing with what the public sector agencies, in one form or another, are doing. This Code is not dealing with private sector transparency and reporting practices. This is not saying that this is not important in the private sector. This is also very important in the private sector, just as important as in the public sector, but this Code is designed to deal with public sector issues regarding transparency and governance.

Now, let me just give you a few brief examples of what really is in this Code and what we are dealing with. So I will go through a few of the paragraphs. There are many of them in the Code.

The first section, as I said, deals with the "Clarity of Roles, Responsibilities and Objectives of Central Banks for Monetary Policy." The first paragraph states that "The ultimate objective(s) and institutional framework of monetary policy should be clearly defined in relevant legislation or regulation, including, where appropriate, a central bank law." This is a very general statement saying that there should be something overarching describing what the central bank is doing.

Another example: "The institutional relationship between monetary and fiscal operations should be clearly defined." It should be possible to understand basically where the money comes from, from the central bank or what kind of relationship there is between the central bank and the minister of finance.

And on the same theme it says, "Agency roles performed by the central bank on behalf of the government should be clearly defined." Now, this is dealing with what the role of the central bank.

Then we have the second section on open process for formulating and reporting monetary policy decisions." here it states, "The framework, instruments, and any targets that are used to pursue the objectives of monetary policy should be described, explained, and publicly disclosed," and then this is explained in greater detail.

The third section says that there should be public availability of information on monetary policy." And it is stated here, "Presentations and releases of central bank data should meet the standards related to coverage, periodicity, timeliness of data and access by the public that are consistent with the International Monetary Fund's data dissemination standards." What providing this information really means is then explained in greater detail.

And, finally, the section on accountability and assurances of integrity by the central bank says, "Officials of the central bank should be available to appear before a designated public authority to report on the conduct of monetary policy, explain the policy objective(s) of their institutions, describe their performance in achieving their objective(s) and, as appropriate, exchange views on the state of the economy and the financial system."

Then the same sections are repeated for financial agencies. But in this part, special account has to be taken of how these agencies differ from central banks, and so the Code has been adjusted. But the basic structure of these four sections is exactly the same as for central banks. Doing it in this way will have made it possible to, as far as we can judge, cover almost everything in the financial sector on the public-sector side.

The next step in the process is that this Code is being put on the IMF website. It is a publicly available document. And if people want to comment on the Code, there is going to be another round of discussion in the Board some time in the summer, and that process is ultimately going to produce a finalized Code by the time of the fall IMF meetings.

So this is really work in progress. And when this Code is being adopted, it will become one more of those Codes that presently are being produced. We already have the special data dissemination standard and the Fiscal Code, and this sort of completes the package of these types of Codes.

It is fair to say that a very large number of people have been involved in developing this Code, both in the Monetary and Exchange Affairs Department, but also through consultations with a large number of central banks, regulatory agencies and international organizations of various kinds. So, actually, I think several hundred people must have been involved in this process in coming up with views on how you design a document of this type.

Then, in the end, it has been up to me and my colleagues to find the proper interpretation of where the average is in order to ultimately produce a Code which will make most people happy.

Thank you.

QUESTION: How significant a factor was the absence of transparency in what we saw happen in Southeast Asia in 1997 and 1998?

And what happens if a country rejects this Code, after it is finalized, and sees it as somehow an unwarranted intrusion into its internal affairs? Are there any penalties that would attach to a country that rejects the Code?

MR. INGVES: I was not working for the Fund at that moment in time, but since I have been working in a central bank, and I have been dealing with foreign exchange transactions myself for a number of years, I think it is fair to say that the lack of transparency certainly mattered.

On the issue of what if you do not comply; this Code is not compulsory. This is an example of good practices. But if you do not comply, there is expected to be kind of a peer pressure out there because it will be taken note of in one form or another. But there are no formal sanctions if you do not comply.

QUESTION: I would like to know which countries currently meet the Code and can you name names, which ones do not?

MR. INGVES: No. It is too early for me in the process to go into that, since this is really a work in process. But I think it is fair to say that, given the number of paragraphs and given the number of issues that we have had to deal with in the Code, many countries, including industrialized countries, have had a number of issues to raise. And in many cases, even when it comes to industrial countries, they also have some work to do when it comes to how they go about conducting their business.

QUESTION: Inaudible.

MR. INGVES: Well, at this stage, it is not up to me to make judgments on individual institutions. Let me put it like this: We have had a long and thorough discussion about how to produce this Code, and it has been a very lively debate, and many have participated in an intense way when it comes to producing this document, and this just reflects that the number of issues that are being raised are also important to not only central banks in developing countries, but also actually to many central banks in the industrialized world. So this is really a Code for everybody.

QUESTION: How do you foresee peer pressure inducing a country to adopt this Code if it does not want to?

MR. INGVES: We will see, that process lies ahead of us. Just let me give you one example. The Basle Core Principles were hammered out 10-15 years ago, and when that process started, it was a voluntary process, and the core principles were just out there to look at. That process has been going on now for a number of years, and it has had quite an effect when it comes to what sorts of rules and regulations you put in place in different countries.

Now, when it comes to this Code, we are at a very, very early stage of the process. But if you compare it with that process, in the end, this Code certainly is going to matter.

[Edited transcript]