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Archive of Quarterly Reports Reports on Observance of Standards and Codes (ROSCs) Standards and Codes See Also: Quarterly Update on the Special Data Dissemination Standard |
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Quarterly Report
on the Assessments of Standards and Codes1 — June 2001
Prepared by the Policy Development and Review Department June 29, 2001 1. During the Executive Board's January discussion of standards and codes, 2 it was agreed that staff would provide quarterly reports to the Board on developments with Reports on the Observance of Standards and Codes (ROSCs). This is the first report, and it covers ROSC production and other developments that are relevant to standards assessments, including outreach activities and private sector initiatives. |
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ROSC Production 2. Between December 5, 2000 and April 30, 2001, 3 a further 27 ROSC modules were completed (for 14 countries), and of these 9 were published (for 8 countries) (Table 1). 4 This brings the total number of ROSC modules completed to 110 (for 43 countries), as of April 30, 2001, of which 76 have been published (for 31 countries). The ROSCs produced since December 4, 2000 were mainly for developing and emerging market countries; only one ROSC was prepared for an industrial country. New ROSC modules were mainly for fiscal transparency, and financial sector standards. The Bank completed three more corporate governance assessments. 5 In response to concerns about data quality, the Statistics Department has developed a set of tools or assessment frameworks which could be used to assess data quality. This work has led to the development of a data quality assessment framework (DQAFs) for specific data sets, such as the national accounts. The DQAFs, which are a product of intensive consultation with experts from national statistical offices and international organizations, are being used on an experimental basis in ROSCs. The experience gained with these assessments will be reviewed in the context of the forthcoming Board discussion of the Fourth Review of the Fund's Data Standards Initiative. 3. To develop a better understanding of public reactions to ROSCs, staff recently established a web-based survey of ROSC usage, which gives those visitors to the Fund's external web site who select a ROSC country report the opportunity to provide feedback on particular ROSC reports or ROSCs in general. Standards Conference 4. In March 2001, the Fund and the World Bank hosted a Conference on International Standards and Codes which brought together country representatives, standard-setting agencies, and others to exchange views in particular on the concerns expressed by developing and emerging market countries. 6 Representatives from 21 member countries 7 participated, as well as seven standard-setting agencies, 8 the Financial Stability Forum (FSF), the Reinventing Bretton Woods Committee, and the e-Standards Forum. 9 5. A consensus existed at the Conference that standards and codes provide useful guidelines of good practice for countries and help markets make sound investment decisions. Participants remarked on the shift in attitude that had taken place on this point over the past two years. Participants noted that a striking sign of progress was that the value of international standards is now taken as given, and is no longer a subject for debate. 6. However, concerns were also expressed. The major concern of some country authorities was for greater participation by developing and emerging market countries in the development of international standards. While some standard-setting bodies already have wide membership or conduct consultation with non-member countries, participants at the Conference agreed that more should be done to reflect the views and needs of developing and emerging market countries. A number of emerging market representatives stressed that improving observance of standards was in countries' own interests and that increased transparency of policies in particular was key to improving relations with financial markets. Country representatives stressed that developing and emerging market countries should be given sufficient time and technical assistance to adopt international standards. However, it was also recognized at the Conference that if the international standards are to work effectively, there must be common standards and codes and in particular, consistency of definitions. Without this, the information and data relied upon by policy makers and financial markets will not be comparable across countries, thus undermining the usefulness of standards as a crisis prevention tool. Outreach Exercise 7. An interdepartmental mission with World Bank participation visited Australia (Sydney), the Philippines (Manila), Hong Kong SAR, and Bahrain (Manama) in April 2001 to discuss the Fund's and Bank's work on standards and codes and to seek feedback on this work. The exercise was the fourth in the series of outreach missions that has been under way since June 2000. In each city the mission conducted a seminar targeted at representatives of private sector institutions, financial markets, and official participants. 8. The mission found participants in Australia and Hong Kong to be relatively well-informed about the work on standards and codes, but the discussion was good in all four cities. As in earlier outreach missions, attention was focused on the SDDS and FSAP standards, but new interest was expressed in the Bank's work on corporate governance. Most participants wanted standardized presentation of the information in ROSCs, some participants wanted shorter ROSCs, e.g., one-page summaries, while others requested longer reports. 9. Participants asked about data quality, both in terms of the data dissemination standards and across all standards, and stressed the importance of ROSCs making a distinction between a statutory good practice and its effective implementation. They also asked about the significance of country participation in ROSCs, e.g., what could be read into the list of countries for which ROSCs had been undertaken versus those that had not yet undertaken a ROSC. To this, staff's response has been that country participation to date reflects: the relative newness of the initiative; some bottlenecks in matching demand for the assessments with resources for carrying them; and balancing country prioritization with the objective of achieving a mix of regional and country participation. 10. In addition, outreach activities aimed at familiarizing the public at large, including the media and nongovernmental organizations, with standards and codes, and their relevance for good governance and effective policy making have continued. An Issues Brief on the role of standards and codes was issued and posted on the IMF's external web site in April. Private Sector Initiatives 11. During the January 2001 Board discussion, some Directors had expressed interest in how ROSCs were better informing the private sector. Staff have been informed about the establishment of a private sector standards initiative, the e-Standards Forum. 10 This service, which is subscription-based, aims to give a summary of each country's compliance with standards, and the basis for that conclusion, based solely on information already in the public domain. The Forum has completed an initial profile for 50 countries, 11 and its target is to have at least 75-85 countries covered in its database by end-2001. The Internet service also offers a discussion forum, and there are plans to develop a training directory. This service is evidence of growing private sector interest in standards. There are other initiatives underway. First, rating agencies are beginning to undertake assessments of firms' adherence to corporate governance standards. Second, PriceWaterhouseCoopers (PWC), the international accounting firm, has produced an "opacity index"—an indicator which intends to measure opacity and its costs, based on some standards-related dimensions. 12 The index has five dimensions—corruption, legal systems, economic policies, accounting guidelines, and regulatory frameworks—for which survey responses are obtained. 13 PWC's study purports to find that the risk premium component of the interest rate on a country's debt increases with the opacity of its index. Third, the Fund's work on standards and codes was discussed at the second meeting of the Capital Markets Consultative Group in Hong Kong at end-May. Participants considered this work to be an essential element of crisis prevention and urged the Fund to continue to promote actively its members' adherence to standards. They noted the growing awareness of standards issues in their own operations, and thought that more could and should be done to reflect adherence to standards in the private sector's lending decisions.
Table 1. ROSC Modules Published by April 30, 2001
Source: Staff estimates. * Indicates the module was derived from an FSAP. 1 The main authors of this report are Ydahlia Metzgen, Dennis Jones, Rachel Glennerster and Kirsten Fitchett. 2 See Assessing the Implementation of Standards-A Review of Experience and Next Steps ( January 11, 2001) and Public Information Notice No. 01/17 (March 5, 2001). 3 Assessing the Implementation of Standards-A Review of Experience and Next Steps had reported developments through December 4, 2000. 4 Financial sector ROSCs listed in the tables reflect standards assessments undertaken in the context of FSAPs and included in FSSA reports. 5 Details of the Bank's recent ROSC activities and those planned for FY 2002 were provided in International Financial Architecture: An Update of World Bank Group Activities (April 27, 2001). 6 The Conference was opened with a speech by the Managing Director, with closing remarks by Mr. Fischer. 7 Argentina, Australia, Brazil, Bulgaria, Cameroon, Canada, Chile, China, the Czech Republic, Estonia, France, Germany, India, Japan, Mexico, Pakistan, the Russian Federation, South Africa, the United States, and the United Kingdom. 8 The IMF, World Bank, Basel Committee on Banking Supervision, the Committee on Payments Systems and Settlement (CPSS), the International Association of Insurance Supervisors (IAIS), the International Organization of Securities Commissions (IOSCO), and the Organization for Economic Cooperation and Development (OECD). 9 A private sector body which is setting up a subscription-based Internet database on countries' observance of standards (http://www.estandardsforum.com). 10 This is a private partnership (including Oxford Analytica, the Wharton Financial Institutions Center, the Reinventing Bretton Woods Committee, and a private individual-Mr. George Vojta). Mr. Vojta is also president of the Financial Services Forum, which has endorsed the e-Standards Forum, and whose initial membership includes the chief executive officers of AIG, Allstate, American Express, Associates First Capital Corporation, Bank of America, Bank of New York, Bank One, Chase Manhattan, Citigroup, First Union, FleetBoston, GE Capital, Goldman Sachs, Household International, J.P. Morgan, Merrill Lynch, MetLife, Morgan Stanley Dean Witter and Prudential. 11 The e-Standards Forum has provided completed profiles for G-20 countries to the relevant authorities for comments. 12 "The Opacity Index", PriceWaterhouseCoopers, January 2001. More information is also available at www.opacityindex.com. 13 Interviews were conducted with four different groups of respondents: chief financial officers of medium and large firms based in the 35 countries in the index; equity analysts familiar with the countries; bankers in the countries; and PriceWaterhouseCoopers employees residing in the countries. Response were aggregated and converted using standard statistical procedures to obtain a comprehensive score for each country.
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