Speech

Standards and Codes - A Tool for Growth and Financial Stability -- Remarks by Horst Köhler

March 7, 2001

While standards and codes deal with highly technical matters, there is nothing narrow or technical about their purposes. Standards and codes are an important tool for achieving the main objectives of the Fund-namely, to promote sustained growth, which is essential for reducing poverty in member countries, and greater stability in international financial markets. They are an integral part of the Fund's work on crisis prevention. But they are also crucial for our efforts to help member countries strengthen their financial systems and take advantage of the opportunities of global capital markets.

While it is still early in the game, there is already evidence that meeting standards can pay off. For example, countries that have introduced shareholder and creditor rights in line with international standards have developed deeper financial markets and, as a result, have grown faster than those countries where these rights are not protected by regulation. In countries where minority shareholder rights were protected, stock markets generally declined less during the recent emerging markets crises. In addition, it is fairly clear that countries like Argentina and Chile were better placed to resist contagion during the Asian crisis because they were known to have systems of banking supervision and capital adequacy that meet or exceed the Basel standards.

As a part of our constructive engagement with the private financial markets participants, we have explored extensively the role of standards and codes in crisis prevention. It is clear from these discussions that as more information on the observance of standards and codes has become available, private creditors have begun using this information in their country risk assessments. I understand that our Capital Market Consultative Group is considering the establishment of a working group to explore this topic more systematically, and it should be a key area if discussion at the next meeting of the CMCG.

Our experience over the past few years has also made it clear that developing, assessing, and implementing standards and codes is an enormous undertaking. The Fund and Bank, with other standard setting agencies, can help by providing experts to undertake assessments, making recommendations for reforms, and providing technical assistance to help countries implement the necessary changes. But ultimately, it is country authorities themselves who have the most important role in this initiative. This is because it is you who have the task of implementing standards-to the extent that they are appropriate in your different countries. And that is why we have invited you here, to hear your views on how we can improve the role of all countries in developing and implementing standards. I expect there will be very interesting and intensive discussions on these issues tomorrow.

This conference follows the recent review in the Boards of the Fund and the Bank of the experience under our pilot programs with standards and codes. This review demonstrated that there is nearly universal support for the use of standards and codes in our institutions. In particular, our Executive Boards reached four important conclusions:

· First, standards assessments have been useful in helping country authorities identify sources of vulnerability and priorities for institutional development.

· Second, when published, these assessments also enable private market participants to make better investment decisions.

· Third, the Fund and the Bank are uniquely positioned to provide balanced assessments-ones which highlight progress that countries have made in implementing standards as well as the areas where further reform is needed.

· And finally, assessments need to take account of country differences and conditions (for example whether a country has a civil, common, or Islamic system of law). However, it is important to use consistent definitions across countries-a key aspect of international standards.

· a feeling that developing countries have not had a sufficient voice in the design of standards;

· a concern that these standards are not easily applied to countries at an early stage of institutional development, especially low-income countries; and

· a conviction that the administrative burdens imposed on countries by this work, as well as the bottlenecks and constraints that countries face in implementing standards, are not fully appreciated.