| Archive
of Quarterly Reports Reports on Observance of Standards and Codes (ROSCs) Standards and Codes See Also: Financial Sector Assessment Program (FSAP) Quarterly Update on the Special Data Dissemination Standard |
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Quarterly Report on the Assessments of Standards
and Codes—June 20021 Prepared by the Policy Development and Review Department In consultation with other Departments June 21, 2002
1. Work on standards continues to progress on several fronts, and this report covers production of Reports on the Observance of Standards and Codes (ROSCs) and summarizes developments related to the work on international standards and codes2 from January 1 to April 30, 2002, the four-month period since the last report.3 ROSC production 2. Between January 1, 2002 and April 30, 2002, an additional 27 ROSC modules were completed for 15 economies, with 18 of these published (Table 1).4 This brings the total number of ROSC modules completed to 228 (for 76 economies) as of end-April 2002, of which 165 have been published (for 59 economies). The bulk of ROSC modules completed since January 1 have been for transition, developing, and emerging market countries, and 44 percent covered financial sector standards assessed in the context of the Financial Sector Assessment Program (FSAP). The World Bank has produced 6 new corporate governance modules and 1 accounting and auditing module since January 1. |
| 3. As the number of completed ROSC modules grows, so does the importance of updating the reports.5 The options to provide updates to ROSCs were recently discussed at a meeting of the Interdepartmental Task Force on Assessment and Monitoring of Standards and Codes (TAMS), an internal grouping of the area, functional, and other Fund departments involved in standards-related initiatives. The options discussed included informational updates to an existing ROSC; more substantive updates that supplement an existing ROSC rather than replacing it; and a complete re-assessment that would yield a new ROSC. The issues involved in choosing between the various options for updating ROSCs include timing, the amount of new information, and resource costs (both in the area and the functional departments).5 This topic will be covered in the forthcoming Executive Board review of the ROSC initiative that will be carried out by the staffs of the Fund and Bank later this year (following up on the earlier review of January 2001) and for financial sector standards in the forthcoming review of the FSAP.
Selected standards-related developments at the Fund and the Bank 4. The Fund Executive Board reviewed data provision to the Fund for surveillance purposes on May 10, 2002 and in this context discussed the dissemination of data to the public on international reserves under the Fund's Special Data Dissemination Standard (SDDS), stressing the importance of frequent and timely disclosure of reserves data to the public. 6 Most Directors considered that increasing the frequency and timeliness for the dissemination of the reserves template under the SDDS from monthly to weekly frequency and reporting is not necessary at this time. Directors stressed that priority should be given to ensuring that the maximum number of member countries can subscribe to the SDDS or participate in the General Data Dissemination System (GDDS), as appropriate. 5. The World Bank held a seminar reviewing the first year of experience with accounting and auditing ROSCs in February 2002. Participants included standard setters, private sector representatives, and Fund and Bank staff. Against the background of high profile examples of corporate failures and questions about the quality of financial reporting, many participants felt there was an urgent need to supplement the current international standards for accounting and auditing to cover enforcement and institutional/governance issues. In this regard, the Bank is advocating the development of a set of regulatory principles. Participants also discussed the concerns expressed by financial statement users and regulators about the quality of financial reporting in all countries assessed to date. They considered that there might also be a need for less complex accounting standards for smaller companies, or at least guidance on what type of firms should be subject to the International Accounting Standards. International standards for public sector accounting 6. The Public Sector Committee (PSC) of the International Federation of Accountants continues its work on the development of international accounting standards for financial reporting by governments and other public sector entities. The mandate of this committee is to adapt the International Accounting Standards applied in the private sector to a public sector context. The PSC expects to complete 20 standards by the end of the year, 17 of which have already been issued. In addition, the PSC has established steering committees to develop guidance in the areas of non-exchange revenue and social policy obligations.7 The IMF is represented on the Social Policy Obligations Committee. Financial sector standards-related issues 7. Within the coordinating framework of the Bank-Fund Financial Sector Liaison Committee (FSLC), the Fund and the Bank staffs have produced papers reviewing the experience with the assessment of the International Organization of Securities Commissions (IOSCO) Objectives and Principles and the Core Principles for Systemically Important Payment Systems (CPSS). 8 A paper reviewing the experience with Basel Core Principles assessments is under preparation. Issues related to the assessment of standards within the FSAP framework will be addressed in a forthcoming paper for the Executive Boards of the Fund and the Bank reviewing the FSAP. Other financial sector issues 8. In the context of the Bank-Fund Spring 2002 Meetings, the International Monetary and Financial Committee (IMFC) underscored that international efforts to counter abuse of the international financial system to finance terrorism and launder the proceeds of illegal activities remain a priority, and welcomed the substantial progress made by the Fund and Bank in implementing all elements of its action plan to intensify the work on anti-money laundering and combating the financing of terrorism (AML/CFT). The IMFC requested a full report on progress on AML/CFT at its next meeting in October 2002. 9. A draft comprehensive AML/CFT methodology, based on a global standard covering the Financial Action Task Force (FATF) 40 plus 8 recommendations, has been prepared by Fund and Bank staffs and the FATF ROSC Working Group, and the Fund and Bank staffs are continuing to work with the FATF, meeting on this topic in Paris with FATF in mid-June to develop modalities for AML/CFT assessments that are compatible with the uniform, voluntary, and cooperative nature of the ROSC process. In late June 2002, the Executive Board will consider the related issues in an informal seminar. Outreach exercises 10. As part of the work on developing and managing the standards and codes initiative, Fund management and staff participated in several outreach exercises during this period. 11. First, the Managing Director of the Fund participated in a workshop on the role of standards and codes as part of his visit to five African countries in April/May 2002.9 The workshop, jointly organized with the AfDB and held in Côte d'Ivoire, explored the timing and sequencing of implementing standards, and their role in creating an enabling environment for investment and growth. 12. In addition, an interdepartmental mission with World Bank participation visited Europe and North Africa in February 2002 to discuss the Fund and Bank's work on standards and codes and to seek feedback on this work. The exercise was the fifth in the series of outreach missions that have been conducted since June 2000. In five cities—Frankfurt, Madrid, Milan, Paris, and Tunis—the seminar targeted representatives of private sector institutions and financial markets and official participants. The mission found participants in all the sites relatively well informed about the standards and codes initiatives. Some market participants indicated that they used information from the Bank-Fund standards assessments in their work. Some saw ROSCs as particularly important for the "sub-investment grade" emerging markets, for which information is relatively scarce. There was support for hyperlinks from the websites of the Fund and the Bank to national databases. 13. Other outreach activities included: · Fund and Bank staffs participated in a February 2002 OECD/Development Assistance Committee (DAC) Forum on Financing for Development, on integrating standards into development cooperation policies. Participants indicated support for the efforts of developing countries to adopt international standards and codes. They asked the Fund to do more to raise awareness of the importance of participation by developing countries in these initiatives; · Fund staff updated a WTO Working Group on Trade, Debt, and Finance in April 2002 on standards initiatives; and · Fund and Bank staffs hosted in Washington, D.C. in January 2002 an outreach meeting for officials whose countries had participated in an FSAP in Fiscal Year 2001. Country authorities noted that participation in the FSAP had been very useful for both policy formulation and capacity building. This outreach followed up on technical consultations the two institutions held in Paris in November 2001 with experts from cooperating official institutions that had participated in financial sector standards assessments in the context of the FSAP. Official sector initiatives 14. There have been a number of developments in official sector initiatives related to standards and codes. The Fund and the World Bank, together with the United Kingdom Department for International Development (DfID), Canada, Switzerland and other donors, have established a Financial Sector Reform and Strengthening Initiative (FIRST). FIRST will respond to the need for technical assistance and a systematic mechanism for follow-up for implementing the recommendations made in ROSCs and FSAPs. The launch meeting for FIRST took place in the context of the 2002 Bank-Fund Spring Meetings, with donors pledging some US$45 million of assistance over the initial four-year term of FIRST. 15. The Fund and the Bank participated in the London meeting of the Multilateral Development Banks (MDBs) Working Group on Financial Sector Reform in February 2002. Three key areas relevant to the international financial architecture on which the MDBs would collaborate with the international financial institutions were discussed, namely, development and dissemination of standards; assessment of financial systems and implementation of financial sector standards; and follow-up and capacity-building. 16. The New Partnership for Africa's Development (NEPAD), an initiative to promote growth, development and poverty eradication in Africa and Africa's integration into the global economy, has recognized the importance of countries' adhering to internationally recognized standards. The NEPAD steering committee has asked the AfDB to lead efforts in fostering implementation of standards in African countries, and the Fund is supporting this work. In addition to the Managing Director's participation in the Côte d'Ivoire workshop on standards and codes noted above, an AfDB team visited the Fund in April 2002 to hold extensive discussions with the staff on these issues. Private sector initiatives 17. ROSCs are increasingly being used as an input into risk assessment and investment decisions by the private sector. In February 2002, one of the largest pension funds in the U.S. (the California Public Employees Retirement System, CalPERS) announced that it had adopted a new process to help determine the countries in which it would invest, based on a model that takes into account broad financial factors as well as transparency, corporate governance, and financial regulation (including ROSCs).10 Deutsche Bank recently announced that it had developed a framework for analyzing key corporate governance issues across countries. This framework assesses performance based on over 50 criteria, encompassing shareholder treatment, management independence, information disclosure, and best business practices. A Spanish consultancy firm has recently started to rank companies in the IBEX 35 (the Madrid stock exchange index) according to their corporate governance and investor relations policies. 18. The Fund staff have welcomed the growing interest in international standards and codes, but have not reviewed or endorsed specific private sector assessments. Some member countries have raised technical issues and sought clarity on private sector assessments. Standards analysis 19. An important part of the international community's work on standards and codes is to determine rigorously how effective standards are, and the Fund and others are carrying out research on the link between standards and crisis prevention and economic development. An IMF Working Paper, "The Role of Corporate, Legal and Macroeconomic Balance Sheet Indicators in Crisis Detection and Prevention," 11 tested the role of standards, among other variables, in external crises in emerging market countries. It found that shareholder rights have a significant inverse impact on the likelihood and depth of external crises, while an indicator combining accounting standards and contract enforcement does not, though this finding may not be robust. 20. The Institute for International Finance has updated its analysis of the impact of countries' subscription to the SDDS on their cost of capital, confirming its earlier preliminary result that emerging market country subscribers to the standard have a lower cost of capital than emerging market countries that do not subscribe to it.12 Fund staff are examining this issue and will report to the Executive Board on this topic at the forthcoming review of the standards and codes initiative. Table 1. ROSC Modules Published by April 30, 20021
1The main authors of this report are Ydahlia Metzgen and Lynn Aylward, with input from Hassan Al-Atrash and Rachel Glennerster. 2See also International Financial Architecture: An Update on World Bank Group Activities. These reports appear at http://www.worldbank.org/ifa/index.html. 3See Quarterly Report on the Assessment of Standards and Codes-December 2001 (SM/02/19, 2/06/02). (http://www.imf.org/external/pubs/ft/stand/q/2001/eng/020602.htm) 4See http://www.imf.org/rosc and http://www.worldbank.org/ifa/rosc.html. 5Article IV consultation reports have contained information updating some 23 ROSCs and 21 of these have been published. There have been 4 ROSC modules which provide a complete re-assessment of ROSCs prepared earlier (in addition to the 228 modules referred to in paragraph 2). 6Summing Up by the Acting Chair: Data Provision to the Fund for Surveillance Purposes (SUR/02/54, 5/16/02). 7Non-exchange revenues include non-reciprocal transactions such as revenue from income taxes, grants, and other agency levies. Social policy obligations include pensions, unemployment benefits, and other social services. 8See Financial Sector Assessment Program-Experience with the Assessment of the IOSCO Objectives and Principles of Securities Regulation (SM/02/121, 4/19/02; http://www.imf.org/external/np/mae/IOSCO/2002/eng/041802.htm) and Financial Sector Assessment Program-Experience with the Assessment of Systemically Important Payment Systems (SM/02/124, 4/22/02; http://www.imf.org/external/np/mae/pay/2002/eng/041902.htm). 9The Managing Director participated in a series of workshop discussions with the authorities, members of legislatures, civil society organizations, and academics on a range of topics of importance to Africa. See IMF Managing Director Horst Köhler to visit Tanzania, Democratic Republic of Congo, Cote d'Ivoire, Burkina Faso, and Ghana (News Brief No. 02/37, 4/25/02). He also signed memoranda of understanding for two of the five regional technical assistance centers in Africa (AFRITACs) that the Fund plans to establish, to increase existing technical assistance to Africa significantly and focus on capacity building. 10For earlier coverage of CalPERS use of information on standards assessments, see the Quarterly Report on the Assessments of Standards and Codes-December 2001. See also CalPERS Press Release of 2/20/02 at http://www.calpers.ca.gov, and for examples of media coverage of the CalPERS announcement, see The Wall Street Journal (2/20/02). 11Christian Mulder, Roberto Perrelli, and Manuel Rocha, The Role of Corporate, Legal and Macroeconomic Balance Sheet Indicators in Crisis Detection and Prevention. IMF Working Paper 02/59, March 2002. 12See the Action Plan of the IIF Special Committee on Crisis Prevention and Resolution in Emerging Markets, at www.iif.com.. |
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