IMF's Annual Report 2007

7/29/2019 IMF's Annual Report 2007

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I n t e R n A t I o n A l M o n e t A R y F u n d

Aa Rpr 2007

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http://www.imf.org/

http://www.imf.org/



This Annual Report o the Executive Board o the IMF to

the Board o Governors covers the nancial year 2007, which

began on May 1, 2006, and ended on April 30, 2007. Twoevents that occurred ater the close o FY2007 are o such

importance or the IMF, however, that they merit a mention

in this preace.

The rst is the Executive Board’s decision in June 2007 to

revise the Fund’s ramework or surveillance. In the three

decades since the original ramework was established by the

Executive Board in 1977, the nature o the challenges aced

by our members has changed. When the 1977 decision was

adopted, the most serious threats to international nancial and

macroeconomic stability were the manipulation o exchange

rates by countries seeking to correct their balance o paymentsproblems, and short-term exchange rate volatility. Today, in

our increasingly globalized world, as international trade and

cross-border capital fows reach unprecedented levels, the most

serious threats are undamental exchange rate misalignments

and capital account vulnerabilities. The new decision, which

has broad support across the membership, refects the current

environment and provides our members with clear guidelines on

the expectations o the international community regarding the

potential spillover eects o exchange rate policies, and provides

guidance to sta with a view to ocusing the Fund’s advice on

macroeconomic policies that promote stability and growth.

The second event is Managing Director Rodrigo de Rato’s

announcement that he would step down in October 2007.

On behal o the Executive Board, I oer my gratitude to Mr.

de Rato or his strong leadership and immense contributions

to the Fund since he took up the reins in 2005. I would note,

in particular, the Medium-Term Strategy launched in 2006,

an ambitious program calling or reorm o the distribution

o quotas and voting power in the Fund to ensure that all

members are airly and adequately represented, and setting

in motion important changes in Fund operations and policies

that will enable us to better meet the evolving needs o ourmembers. In the process o selecting Mr. de Rato’s successor,

Executive Directors have been invited to nominate candidates

who have distinguished records as economic policymakers

at senior levels and who are nationals o any o the Fund’s

185 member countries. The Executive Board will consider

these candidates in September.

Readers can nd inormation about these and other

developments ater the close o the nancial year at

www.im.org, the IMF’s Web site.

The Executive Board is rightly proud o this new ormat

o the IMF’s Annual Report. To shape it into a more eective

communication tool, the Executive Board decided to

streamline the Report and to have it translated into seven

languages—Arabic, Chinese, French, German, Japanese,

Russian, and Spanish—three more than in the past. Readers

will nd all o the appendixes—including the nancial

statements—that used to be in the print Report on the CD-ROM

axed to the inside back cover. On the CD-ROM, they will

also nd Public Inormation Notices, press releases, assorted

reports, and tables and boxes oering more detail on the

activities described in the print Report .

We trust that readers will welcome these changes, and we invite

your eedback.

Jonathan T. Fried

Chairman

Executive Board Committee on the Annual Report

Preace rom the Executive Board

IMF Aa Rpr | 2

http://www.imf.org/

http://www.imf.org/



2

Contents

IMF Aa Rpr | 2007

Mssag rm h Maagig dircr 4

lr trasmia h Bar Gvrrs 6

1. ovrviw 7

K cmic a acia vpms 9

hiis wrk exciv Bar 12

Sri a mrizi srviac 13

Prram sppr 13

Capaci bii 14

Qa a vic rrm 15

Cmmicai a rasparc 15

Imprvi ira vrac 16

Rviwi acs F 16

2. prmig facia a macrcmic

sabii a grwh hrgh srviac 17Impmi srviac 20

gba srviac 20

Cr srviac 23

Ria srviac a rac 23

Fiacia scr srviac a

Saars a Cs Iiiaiv 25

Mrizi srviac ramwrk

a irai acia scr aasis 27

Irai acia scr a capia

marks aasis i srviac 29

3. prgram sr 31

emri mark cmis 36

li 36

nw aci isrm 37

lw-icm cris 37

Ccssia i 37

db ri 38

db Ssaiabii Framwrk 40

Pic Sppr Isrm 41

emrc assisac 42

Rviw IMF’s r a isrms 42

IMF a ai sb-Saara Arica 42

ex ps assssms 44

Prcaiar arrams 44

4. Caaci biig: chica assisac

a raiig 45

tcica assisac 47

traii b IMF Isi 52

5. Gvrac, rgaizai, a facs 53

Qa a vic rrm 54

Cmmicai a rasparc 56

Cmmicai 56

trasparc pic 59

Maam a raizai 60

hw IMF is r 60

Amiisraiv a capia bs 63

Mrizi risk-maam

ramwrk 64

Sramii 65

Fiacia prais a picis 65

Icm, cars, rmrai,

a br sari 65

Arrars IMF 67

IMF ai mcaisms 67

exciv dircrs a Aras

Ari 30, 2007 68

Sir fcrs Ari 30, 2007 70

IMF rgaizai char 71

Acrms a abbrviais 72Cd-RoM

The ollowing are included on the CD-ROM axed to the

inside back cover o this Rpr:

tx Annual Report 2007 (eis, Frc, Spais)

Sppmar marias r x caprs (eis)

Appixs (eis)

Appix I Iraia Rsrvs

Appix II Fiacia prais a rasacis

Appix III Prss cmmiqés IMFC a

dvpm Cmmi

Appix IV exciv dircrs a vi pwr Appix V Cas i mmbrsip

exciv Bar

Appix VI Fiacia sams

http://appendix_i/2007-Appendix%20I-Sept%204.pdf

http://appendix_ii/Appendix%202.pdf

http://appendix_iii/Appendix_III_combined.pdf

http://appendix_iv/2007-Appendix%20IV-Sept%204.pdf

http://appendix_v/2007-Appendix%20V-Sept%204.pdf

http://appendix_vi/2007-Appendix%20VI-Sept%204.pdf




http://appendix_iii/Appendix_III_combined.pdf


http://appendix_i/2007-Appendix%20I-Sept%204.pdf



Bxs

1.1 Prrss impmi

Mim-trm Sra 10

2.1 Srviac aciviis 192.2 Mar a Capia Marks dparm 20

2.3 RoSCs a daa Saars Iiiaivs 22

3.1 Spcia drawi Ris 33

3.2 tracki prrss war Miim

dvpm gas 39

3.3 tra ibraizai a w-icm cris 40

4.1 Ria tcica Assisac Crs 48

5.1 Iiiai tir gra

Rviw Qas 55

5.2 liais wi irvrma,

iraia, a ria raizais 58

5.3 Aciviis Ieo i Fy2007 59

5.4 Prrmac iicars 62

5.5 Saar assssms 64

5.6 Ivsm Acc 66

tabs

3.1 IMF i aciiis 34

3.2 PRgF arrams apprv i Fy2007 38

4.1 tcica assisac b cr icmrp, Fy2007 49

4.2 IMF cica assisac rsrcs

a ivr, Fy2005–07 49

4.3 drs IMF’s cica

assisac prram 50

5.1 Amiisraiv bs, Fy2005–08 62

5.2 Arrars IMF cris wi

biais vr b six ms r

mr, b p 65

Figrs

1.1 Ra gdP rw 9

1.2 Crr acc baac 9

1.3 eqi mark prrmac 12

1.4 Svri spras 12

3.1 Rar as sai, Fy1997–Fy2007 36

3.2 Ccssia as sai,

Fy1997–Fy2007 38

5.1 esima rss amiisraiv xpirs

b k p aras, Fy2007 62

5.2 esima rss amiisraiv xpirs

b k p aras, Fy2008 63

t IMF’s acia ar is Ma 1 r Apri 30.

t i acc IMF is Spcia drawi Ri (SdR); cvrsis IMF acia aa u.S. arsar apprxima a prvi r cvic. o Apri 30, 2007, SdR/u.S. ar xca ra was

uS$1 = SdR 0.65609, a u.S. ar/SdR xca ra was SdR 1 = uS$1.52418. t ar-arir ras

(Apri 30, 2006) wr uS$1 = SdR 0.67978 a SdR 1 = uS$1.47106.

“Bii” mas a sa mii; “rii” mas a sa bii; mir iscrpacis bw csi

rs a as ar ri.

As s i is Annual Report, rm “cr” s i a cass rr a rriria i a is a sa as

rs b iraia aw a pracic. As s r, rm as cvrs sm rriria iis a ar

sas b r wic saisica aa ar maiai a spara a ip basis.



4

IMF Aa Rpr | 2007

This is a time o transormation, in the global economy and in

the International Monetary Fund. The sources o global growth

have broadened: Europe, Japan, and the United States have allenjoyed solid economic perormance over the past year, while

middle-income emerging economies, including China and

India, were also important contributors to global growth.

Innovation in nancial markets has continued, bringing with

it many opportunities and some new risks. In the Fund, work

on the reorms set out in the Medium-Term Strategy has

proceeded, and we saw its rst ruits in Financial Year 2007.

Some o the most important changes we have made in the past

year have been in our economic oversight unction, or surveillance,

which is the Fund’s core activity. The introduction o multilateral

consultations gives the Fund—and the international community—an important new tool to orge consensus on approaches to

common problems. The rst multilateral consultation, which

ocused on reducing global imbalances while sustaining strong

global growth, resulted in the ve participants—China, the euro

area, Japan, Saudi Arabia, and the United States—jointly setting

out their policy plans in a document circulated at our Spring

Meetings to ministers representing the Fund’s 185 members. The

participating countries putting orward these policies and

discussing them collaboratively shows their commitment to

multilateralism. As they are implemented, these policy plans will

reduce global imbalances while helping to sustain growth.

The Fund also made important progress in deepening its work on

nancial markets and nancial systems. We are better integrating

our work on nancial sectors with our work on macroeconomic

issues. And through the merger o two Fund departments into the

Monetary and Capital Markets Department in June 2006, we

have established a center o excellence in nancial market issues—

an area o growing importance to the global economy and to the

Fund’s members.

In FY2007 we also began work on reorms o the legal

ramework or bilateral surveillance, which culminated in

an Executive Board Decision on a New Framework orSurveillance early in FY2008. The new decision is the rst

major revision o the surveillance ramework in some 30 years,

and has broad support rom our membership. It refects

current best practice in our work o monitoring members’

exchange rate policies and domestic economic policies;

rearms that surveillance should be ocused on the Fund’s

core mandate—promoting countries’ external stability;

updates the principles or the guidance o members in the

conduct o their exchange rate policies; and sets out clearly

what is expected o surveil lance, including candor and

evenhandedness.

The Fund’s work with low-income countries has remained

intense. Ten new programs under the Poverty Reduction and

Growth Facility were approved last year, and 24 countries

have now beneted rom debt relie under the Multilateral

Debt Relie Initiative. We are also taking steps to ensure that

we are ocus ing on critical macroeconomic and nancial areas,

which is where we can make the greatest contribution to

stability, growth, and poverty reduction in low-income

countries. We will continue to work in partnership with the

World Bank and other development agencies, and in doing so

can now draw on an important report on Bank-Fund

collaboration by a committee o external experts headed by Pedro Malan. The Committee’s report, delivered in February

2007, will help us clariy roles and work better with our

World Bank colleagues.

Technical assistance and training remain important elements

o our work, especially in low-income countries. FY2007 saw

the opening o a regional technical assistance center in

Libreville, Gabon, the third in Arica, as well as the opening

Message rom the Managing Director



o the Joint Indian-IMF Training Program in Pune, India, the

seventh regional training center worldwide. Meanwhile, the

consolidation o anti–money laundering and combating thenancing o terrorism (AML/CFT) activities in the Fund’s

Legal Department has made it the largest multilateral provider

o technical assistance on AML/CFT.

In January 2007, we received a report rom a Committee o

Eminent Persons chaired by Andrew Crockett. Arguing that the

Fund needs a new income model and that it should not continue

to rely almost entirely on lending to nance public goods such

as surveillance and technical assistance, the Crockett Report

recommended that the Fund broaden its sources o income.

Establishing reliable income sources—together with eective

management o expenditure—is important to give our memberscondence that the Fund will be able to carry out its mandate in

the uture and to enable us to make reliable plans to implement

agreed policies. We have already acted on expenditure: the

medium-term budget or FY2008–10 implies a reduction in the

IMF’s real administrative resources in each o the next three years,

to be achieved by increasing eciency and by scaling back or

eliminating lower-priority activities. Addressing the income side

o the equation will be a major priority or FY2008.

The September 2006 Annual Meetings were held in Singapore.

The meetings gave all o our members a chance to see how ar

Asia has come since the crisis a decade ago. They also saw theFund take a major step orward with the completion o the rst

stage o reorm o quotas and voice. On September 18, 2006,

our Board o Governors approved ad hoc quota increases or

our countries—China, Korea, Mexico, and Turkey—that were

clearly underrepresented and agreed on more undamental

reorms to be delivered within two years. This was a historic

agreement or the Fund. In January 2007, the Executive Board

began work on a proposed amendment to the Articles o

Agreement to increase basic votes, with the aim o protecting

the voting share o low-income countries as a group. And at its

meeting on April 14, 2007, the International Monetary andFinancial Committee (IMFC) gave us guidance on a new

ormula or broader changes in quotas. The IMFC agreed that

the new ormula should be simple and transparent, and

appropriately capture the relative positions o members in the

global economy. The reorm should also result in higher shares

or dynamic economies, many o which are emerging market

economies, whose weight and role in the global economy have

increased. Our objective remains to complete these reorms by

the 2007 Annual Meetings i possible, and by no later than the

2008 Annual Meetings. Meeting this target will require

leadership rom members, and compromises among them. But

i we can continue to draw on the spirit o multilateralcooperation that we saw in Singapore then I am condent that

we will succeed.

The past year has been a year o great change at the Fund, and

there are many changes still to come. There have also been

changes in sta and management. Anne Krueger, First Deputy

Managing Director rom 2001 to 2006, has been succeeded

by John Lipsky. Agustín Carstens, Deputy Managing Director

rom 2003 to 2006, has become Secretary o Finance o

Mexico and has been succeeded by Murilo Portugal. Among

the changes to come will be my own departure. I will step

down as Managing Director ater the 2007 Annual Meetings.

However, there are also important continuities: in the commit-

ment to the Fund o our members, represented by our excellent

Executive Board; in the dedicated career sta o the Fund; in

the work o the institution; and in our sense o vision and

purpose. I am proud to be have been able to help guide the

Fund during this time o change, and to have had the opportu-

nity to serve all o the members o this great institution.

Rodrigo de Rato, IMF Managing Director and Chair o the Executive Board



6

IMF Aa Rpr | 2007

August 3, 2007

Dear Mr. Chairman:

I have the honor to present to the Board o Governors the Annual Report o the Executive Board or the nancial year ended

April 30, 2007, in accordance with Article XII, Section 7(a) o the Articles o Agreement o the International Monetary Fund

and Section 10 o the IMF’s By-Laws. In accordance with Section 20 o the By-Laws, the administrative and capital budgets o the

IMF approved by the Executive Board or the nancial year ending April 30, 2008, are presented in Chapter 5. The audited

nancial statements or the year ended April 30, 2007, o the General Department, the SDR Department, and the accounts

administered by the IMF, together with reports o the external audit rm thereon, are presented in Appendix VI. The external

audit and nancial reporting processes were overseen by the External Audit Committee, comprising Dr. Len Konar (Chair),

Mr. Satoshi Itoh, and Mr. Steve Anderson, as required under Section 20(c) o the Fund’s By-Laws.

Rodrigo de Rato

Managing Director and Chair o the Executive Board

Letter o Transmittalto the Board o Governors

The IMF Executive Board and senior management





Chapter 1



During the nancial year beginning on May 1, 2006, and ending on April 30, 2007, the Executive

Board ocused on adapting Fund policies and operations to better meet the evolving needs o the

IMF’s member countries, whose number increased to 185 in January 2007, when Montenegro

joined. Although many o the IMF’s members experienced another year o strong economic

growth and avorable market conditions, the economic and nancial environment was not with-

out risk. Large global imbalances persisted, the U.S. economy slowed, prices or oil and nonuel

commodities remained high, and investors continued to show a large appetite or risky assets.

The IMF made considerable progress in implementing the objectives set out in the Medium-Term

Strategy (MTS) launched by the Managing Director in FY2006 (Box 1.1). With capital fows to

emerging market economies reaching unprecedented levels in recent years, and demand or Fund

lending declining as a result, the IMF has been increasingly concentrating on surveillance,1 policy

advice, and technical assistance. During FY2007, it developed a new surveillance vehicle—the

multilateral consultation—with which it sought to help its members address the problem o global

imbalances. It also began a review o its ramework or surveillance and moved to better integrate

nancial sector work into its surveillance activities to help members manage the risks associated

with, and reap the benets rom, globalized nancial markets.

In recognition o the growing economic weight o some Fund members, the Executive Board

undertook quota and governance-related reorms designed to ensure the air distribution o quotas

and adequate representation o all members. The Board also took steps to improve the Fund’s

internal governance, enhance the eciency o Fund operations, and develop a new income modelmore closely aligned with the variety o unctions the institution now perorms.

Chapter 1 Overview

1 The monitoring o global, regional, and national economic policies; see Box 2.1.

IMF Aa Rpr | 2007

8



ovrviw | 1

Key Economic and Financial Developments

Global economic growth accelerated to 5.4 percent in 2006—

up rom 4.9 percent in 2005—marking the ourth successive

year o a strong global expansion (Figure 1.1). Moreover, theexpansion became better balanced, as a slowing in the U.S.

economy was oset by rming o growth elsewhere. Emerging

market countries grew particularly ast, supported by benign

international nancial conditions and, in many cases, high

commodity prices. Infation in the advanced economies

declined in the second hal o 2006 as oil prices ell rom a

peak in August.

Current account imbalances continued to be large (Figure 1.2).

The external decit o the United States stabilized at 6½ percent

o GDP in 2006, with a marked narrowing toward the end o

the year. The surpluses o the oil-exporting and East Asian

countries continued to rise, while decits grew in both western

and emerging Europe2 and in rapidly growing emerging market

economies such as India.

Growth in the United States slowed markedly, declining rom

an annual rate o 2½ percent in the second hal o 2006 to

0.6 percent in the rst quarter o 2007, primarily because o

declines in net exports, inventories, and residential investment. Although export growth remained solid, aster import growth

reversed some o the improvement that had been made in the

trade balance ater August 2006. Rising oil imports accounted

or more than hal o the increase in imports. Business invest-

ment also slowed. However, private consumption remained

solid, supported by continued employment growth and rising

equity prices.

Economic activity in the euro area gained momentum during

the same period. GDP growth reached 2½ percent (seasonally

adjusted annual rate) in the rst quarter o 2007, almost double

the pace in 2005 and the highest rate since 2000, driven by strong investment and net exports, while consumption spending

slowed signicantly, refecting in part the impact o the increase

in the German value-added tax.

Japan’s economic expansion hit a sot patch in the middle o

2006, mainly because o an unexpected decline in consump-

tion, but growth rebounded strongly in the ourth quarter

o 2006 as domestic demand regained momentum. The pace

o activity moderated in early 2007, but growth remained

above potential.

Activity in emerging Asia continued to expand briskly, led by strong growth in China and India. In China, real GDP grew by

10.7 percent in 2006. The pace o xed-asset investment cooled

in the second hal o 2006 but gathered pace again in early

2007. India’s growth o 9.7 percent in 2006 was supported by

strong consumption and, especially, investment. In the newly

industrialized economies (Korea, Taiwan Province o China,

Hong Kong SAR, and Singapore), resilient external demand

supported activity, notably in the electronics sector. GDP

growth also increased in the ASEAN-4 economies (Indonesia,

Malaysia, the Philippines, and Thailand).

Growth in Latin America accelerated to 5.5 percent in 2006rom 4.6 percent in 2005, bringing the average growth rate or

the past three years to 5¼ percent, the best perormance since

the late 1970s. Growth picked up in Brazil and Mexico,

although it remained below the regional average. As Latin

America’s recovery matured, domestic demand became the

main engine o growth. Net exports exerted a downward pull

2 As used in Fund publications, this term includes Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic, and Turkey.

Figure 1.1 Real GDP growth

(In percent change rom a year earlier)

Wr ui Avac dvpi emri las Sb-SaaraSas cris Asia mark vp Arica

(xcp u.S.) cris cris(xcp Asia)

109

8

7

6

5

4

3

2

1

0

2004 20062005

Figure 1.2 Current account balance

(In percent o world GDP)

F xprrs

ui Sas

Japa

er ara

dvpi Asia

1.0

0.5

0.0

–0.5

–1.0

–1.5

–2.095 96 97 98 99 00 01 02 03 04 05 06



Box 1.1 Progress on implementing the Medium-Term Strategy

IMF Aa Rpr | 2007

10

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taki a miara prspciv

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rar aasis crss-cr spivrs; icras acia

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(Global Monitoring Report)

dpi ivvm i ai

wi ai fws

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ovrviw | 1

on activity, partly as a consequence o weaker growth in the

United States, the region’s largest trading partner, although

commodity exporters continued to benet rom buoyant world

commodity prices.

In emerging Europe, growth accelerated to 6 percent in 2006.

Domestic demand increased as consumption was boosted by

rising employment and real wages. Current account decits

widened urther but, in most cases, were nanced without

diculty by bank infows and oreign direct investment.

However, concerns about large external decits in Hungary

and Turkey led to downward pressure on the exchange rates or

those two countries, and policies were tightened. Activity in the

Commonwealth o Independent States, the group ormed by 12

o the ormer Soviet republics, also continued to expand briskly,

supported by high prices or oil and non-oil commodities.

Middle Eastern oil exporters enjoyed another year o solid

growth in 2006, accompanied by strong external and scal

balances. Oil revenues continued to grow rapidly, the strong

momentum o the non-oil sector continued, and governments

planned large expenditures on social programs and investment

in the oil and non-oil sectors.

Growth in sub-Saharan Arica moderated somewhat in 2006

but remained robust, driven increasingly by domestic invest-

ment, rising productivity, and, to a lesser degree, government

consumption. Higher oil revenues and debt relie supportedgovernment spending in many countries. Infation remained

subdued or most, owing to prudent macroeconomic policies

and another good harvest.

Oil prices continued to be high and volatile. Ater reaching a

record high o $76 a barrel in August 2006, the average

petroleum spot price declined in subsequent months, refecting

a combination o slowing demand in industrial countries, a

recovery o non-OPEC supply, and some easing o geopolitical

tensions. However, OPEC’s production cuts ater November

and a recovery in demand in the rst quarter o 2007 caused

prices to rebound. Renewed geopolitical tensions in the MiddleEast pushed prices up even urther in March and April o 2007,

to $65 a barrel by the end o April. Prices o nonuel commodities,

led by metals, also rose sharply during the second hal o 2006

and the rst our months o 2007, as did prices o some

agricultural commodities—notably corn—refecting, in part,

the prospect o growing demand or biouels.

The monetary policies adopted by IMF member countries

refected dierent cyclical positions. The U.S. Federal Reserve

kept the Fed unds rate on hold rom June 2006 on, balancing

the risks o a cooling economy against continued concerns about

infation. With infation in Japan continuing to hover around

zero, the Bank o Japan raised its policy rate to 0.5 percent in two

quarter-point moves, ater abandoning its zero interest rate policy

in July 2006. By contrast, the European Central Bank and

European national central banks steadily tightened monetary

policy. Some emerging market countries—notably China, India,

and Turkey—also tightened monetary conditions, China and

Turkey because o concerns about overly rapid growth, India

because o concerns about infationary pressures. Turkey was alsoresponding to external pressures. Regarding scal policies,

industrial countries made some progress in reducing structural

decits, largely as a result o unusually strong revenue growth.

Nonetheless, with their aging populations, these countries will

need to make urther substantial adjustments going orward to

achieve scal sustainability.

Container terminal, Hamburg, Germany



12

IMF Aa Rpr | 2007

In emerging markets,3 yield spreads declined to new historical

lows (Figure 1.4). The market was supported by continued

improvements in credit quality (with rating upgrades ar

exceeding downgrades), more sovereign debt buybacks (and,in the process, the continued reduction o the stock o Brady

bonds), and reduced sovereign issuance. Global investors

increased their portolio allocations in local emerging markets.

Net fows to emerging equity markets fuctuated. In particu-

lar, sharp outfows were recorded during the corrections o

May/June 2006 and February/March 2007, with the largest

outfows experienced in those markets that had run up the

most. Nonetheless, emerging market equities produced strong

returns, with the MSCI local currency emerging market

equity index gaining 15.2 percent between May 1, 2006, and

end-April 2007.

In oreign exchange markets, slower growth in the United

States contributed to a weakening o the U.S. dollar. Between

May 2006 and the end o April 2007, the dollar depreciated

8.4 percent against the euro and 9.5 percent against theBritish pound. The yen also weakened urther, as low interest

rates continued to encourage capital outfows. The renminbi

depreciated slightly in real eective terms, despite a mild

acceleration in its rate o nominal appreciation against the

U.S. dollar and a urther rise in China’s current account

surplus to 9½ percent o GDP in 2006. Overall, currency

market conditions remained orderly and volatility, low.

Financial market stability continued to be underpinned by

avorable global economic prospects. Despite bouts o

nervousness in May/June 2006 and again in February/March

2007, market volatility generally remained at low levels. Thelatter episode was triggered by a variety o actors against a

backdrop o growing concern about the impact o the rapidly

slowing U.S. housing market on housing-related securities, as

mortgage delinquencies and deault rates picked up, particularly

in loans to lower-quality (subprime) borrowers.

Corporate bond spreads remained low. Strong corporate balance

sheets, including ample cash cushions, supported a wave o

mergers and acquisitions. This activity, combined with higher-

than-expected corporate prots, contributed to double-digit

returns in most global equity markets, Japan being a notable

exception (Figure 1.3). During the IMF’s nancial year 2007,the S&P 500 gained 13.1 percent and the Eurorst 300 gained

13.9 percent, while the Topix lost 0.9 percent.

3 Emerging market economies are mainly developing countries that have advanced ar enough in capital market development to attract oreign portolio investment and/or borrow signicantly in international capital markets.

4 The Executive Board’s calendar and work program can be ound on the CD-ROM. General inormation on the Board’s responsibilities and activities can be ound in the IMF Handbook, also on the CD-ROM.

Figure 1.4 Sovereign spreads

(In basis points)

Source: JPMorgan Chase & Co.

Asia

300

250

200

150

100

Ma J J A Sp oc nv dc Ja Fb Mar Apr Ma

2006 2007

erpeMBI gba

lai Amrica

Figure 1.3 Equity market performance

(May 1, 2006 = 100)

Source: Bloomberg L.P.

S&P 500

120

110

100

90

80

Ma J J A Sp oc nv dc Ja Fb Mar Apr Ma

2006 2007

errs 300

MSCI emri Marks

tpix

Highlights o the Work o the Executive Board

The common thread running through the IMF’s activities in

FY2007 was the continued acceleration o globalization, the

greatest challenge acing both the IMF and its members in the

early twenty-rst century. With this challenge in mind, the

Executive Board made considerable progress toward key

objectives set orth in the Fund’s MTS: strengthening and

modernizing surveillance; seeking new ways to support

emerging market countries; deepening Fund engagement with

low-income countries; reorming governance and strengthening

internal management to make the Fund a more ecient and

eective institution; and placing the IMF’s nances on a

sustainable ooting.4

http://chapter_1/EB%20Calendar.pdf

http://chapter_1/Ch1_WorkProgram_Combined.pdf

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ovrviw | 1

Strengthening and modernizing surveillance

To serve the purposes o the IMF’s membership, surveillance

must be ocused, candid, transparent, evenhanded, and

accountable, and devote careul attention to cross-country

spillovers. In FY2007, the Executive Board took steps to

strengthen and modernize the ramework or surveillance.

It began a review o the 1977 Decision on Surveillance over

Exchange Rate Policies, the ramework adopted by the Board

in 1977 that has guided the IMF’s work in this area, to ensure

that it refects best practice and sets out a coherent vision o

the IMF’s core activity. In their review, Executive Directors

ound important areas o broad agreement, and, during the

period covered by this Report, worked to build common

ground in other areas. They also examined possible ways to

introduce more explicit priorities or surveillance and more

rigor in the IMF’s methodologies or assessing the eectiveness

o its surveillance work.

The Board supported several innovations in the implementation

o surveillance. Among these was the IMF’s rst multilateral

consultation, which ocused on ostering common under-

standing and cooperation on how to reduce global imbalances

while sustaining strong global growth. In addition, the

ramework or surveillance o the nancial sector and capital

markets was strengthened, based in part on the recommenda-

tions o an internal task orce on integrating the nancialsector into the surveillance work o the IMF. The task orce

urged the IMF to make better use o the Financial Sector

Assessment Program (a joint IMF–World Bank initiative

described in detail in Chapter 2) in the context o country

surveillance and to devote more attention to the links between

the nancial sector and the macroeconomy. As called or in

the MTS, the IMF’s analytical tools were increasingly applied

to capturing cross-country spillovers and drawing policy

lessons, while regional surveillance continued to be expanded,

with a view to deepening understanding o the impact o

regional developments on both the global economy andnational economies. The Board advocated sharpening country

surveillance, calling on sta to ocus on the most important

risks conronting members and on topics that are core to the

IMF’s mandate. The IMF also experimented with streamlined

Article IV consultations or a small number o countries.

High oil prices complicated policymaking, and the Board

provided advice to both exporters and importers o oil on

appropriate policy responses, bearing in mind that rising

demand, production constraints, and supply disruptions could

pose a threat to global growth or uel infationary pressures.

The Board continued to emphasize the need or more investment

in the oil sector and encouraged member countries to pass

international oil prices through to consumers in order to avoid

a distortion o consumption patterns.

The Board’s discussions o the World Economic Outlook

and the Global Financial Stability Report, the IMF’s primary vehicles or global surveillance, and other issues related to the

IMF’s surveillance activities in FY2007 are described in greater

detail in Chapter 2.

Program support

Many emerging market economies have strengthened their

policies, addressed vulnerabilities, and improved debt struc-

tures. Some—particularly in Asia—have accumulated large

reserves and expanded regional reserve pooling arrangements.

The prospects or emerging market economies remain positive,

with avorable nancial conditions and urther robust growth

expected to continue. As a result, most are now able to meet

their nancing needs or the coming year in the international

nancial markets, and their demand or IMF lending has

declined dramatically. Nonetheless, macroeconomic undamen-

tals still vary widely among emerging market economies and

vulnerabilities remain.

The IMF’s rst multilateral consul-

tation ocused on reducing global imbalances while sustaining strong

global growth. China, the euro

area, Japan, Saudi Arabia, and

the United States participated.



14

IMF Aa Rpr | 2007

In FY2007, the Executive Board considered ways to strengthen

the IMF’s support or emerging market economies. Given their

growing reliance on international capital fows, the deepening

o nancial sector and capital market surveillance would haveparticular relevance or these economies’ crisis-prevention

eorts. The Board also made progress toward developing an

instrument that would make nancing available to emerging

market economies with sound policies in the event o a

temporary loss o liquidity. Recognizing that a member’s own

policies are central to crisis prevention, the Board considered a

sta paper on the sources and costs o shocks and the policy

options that can best insulate members rom crisis.

new unsustainable debt burdens. The Board provided advice on

putting in place the kinds o macroeconomic policies that will

allow low-income countries to use aid eectively, and reviewed

a report by the Independent Evaluation Oce (IEO; see Box 5.3) on the IMF’s prior advice and actions with respect to aid

fows to sub-Saharan Arica (the IEO’s ndings are discussed in

Chapter 3). Given that the economic development o low-

income countries depends crucially on trade, the Executive

Board urged Fund members to work toward a successul

conclusion to the Doha Round o multilateral trade negotia-

tions. The IMF also continued to oer technical assistance in

such areas as tax and customs reorm to enable low-income

countries to benet ully rom trade liberalization, and stood

ready to provide nancial assistance to countries that might be

harmed in the short run by other countries’ trade liberalization.

A table detai ling the instruments through which the IMF

provides nancial and other assistance to member countries

can be ound in Chapter 3 (Table 3.1), along with more

inormation about the IMF’s lending activities and other

program support in FY2007.

Capacity building

As country surveillance has become more ocused, the close

relationship between surveillance and capacity building has

become increasingly apparent. The technical assistance and

training provided by the IMF can help member countries

implement the policy advice they receive during the course o surveillance. Work during FY2007 continued to ocus on

ensuring that technical assistance and training were more closely

aligned with the priorities o both the IMF and recipient

countries, and better coordinated with services provided by others.

In view o the critical need or additional capacity building in

developing countries, the Central Arica Regional Technical

Assistance Center (AFRITAC) was opened in Gabon to serve

countries in that area and a new regional training program was

established in India. The new AFRITAC—the third in Arica

and the sixth regional technical assistance center worldwide—

will complement the activities o the East AFRITAC and the West AFRITAC. The training center in India is the seventh

such center worldwide, with other regional training centers

located in Arica, East Asia, Europe, Latin America, and the

Over the past ew years, the IMF

has broadened the array o nanc-

ing and other instruments avail-

able to low-income countries.

The Executive Board also explored ways to deepen the IMF’s

engagement with low-income countries, in collaboration with

the World Bank, while ocusing on helping them achieve

macroeconomic stability and accelerate growth, the areas in

which the IMF is best equipped to assist as they strive to reduce

poverty and achieve the Millennium Development Goals.

Over the past ew years, the IMF has broadened the array o

nancing and other instruments available to low-income

countries. In FY2007 the Executive Board ocused on nding ways to help countries that have received debt relie—through

the Heavily Indebted Poor Countries (HIPC) Initiative and the

Multilateral Debt Relie Initiative (MDRI)—avoid building up



ovrviw | 1

Middle East. The IMF began to develop a plan, in collabora-

tion with the World Bank, to enhance capacity building in the

design o medium-term debt strategies in both emerging

market economies and low-income countries, to help themavoid the reaccumulation o unsustainable debt.

The process or allocating technical assistance resources has

been improved with the introduction o medium-term regional

plans that will be integrated with the IMF’s budget process.

The Board has also begun to explore ways to ensure adequate

nancing or capacity building amid growing demand,

including by increasing external nancing.

Quota and voice reorm

I the IMF is to reinorce its legitimacy, it must truly

represent—and must be seen as truly representing—all o itsmember countries. Thus, in FY2007, the Executive Board

embarked on ar-reaching quota and voice reorms, a central

goal o the MTS, to better align members’ quotas with their

economic weight in the global economy and to enhance the

participation and voice o low-income members.

In its communiqué o April 22, 2006, the International

Monetary and Financial Committee (IMFC) emphasized the

importance o governance reorm to saeguard and enhance the

IMF’s eectiveness and credibility as a cooperative institution,

and called or concrete proposals rom the IMF’s Executive

Board by the time o the September 2006 Annual Meetings.In response to the Executive Board’s recommendations,5 on

September 18, 2006, the Board o Governors adopted a

Resolution on Quota and Voice Reorm granting ad hoc quota

increases or China, Korea, Mexico, and Turkey, the our most

clearly underrepresented countries, and setting out a package

o more undamental reorms to be completed, i possible, by

the Annual Meetings o 2007 and no later than the Annual

Meetings o 2008.6

A work program involving consultations with the member-

ship and inormal and ormal Board discussions on various

elements o the package was initiated ater agreement wasreached on the Resolution. In a preliminary discussion in

January 2007, the Board generally endorsed the overall

ramework proposed by Fund sta or an amendment to the

IMF’s Articles o Agreement related to an increase in basic

votes.7 It also considered additional stang or Executive

Directors representing large constituencies—namely, the two

chairs or sub-Saharan Arica (see Chapter 5, ootnote 58).

In addition, the Board held two inormal discussions on

principles or a new quota ormula that will orm the basis

or a second round o ad hoc increases. In its April 14, 2007,

communiqué, the IMFC welcomed the progress to date and

called on the Executive Board to continue its work on the

reorm package as a matter o priority.

Communication and transparency The MTS stresses the importance o communication and

transparency in enhancing the eectiveness o surveillance and

in building support or sound economic policies. The Executive

5 See Press Release 06/189, “IMF Executive Board Recommends Quota and Related Governance Reorms,” on the CD-ROM or at www.im.org/external/np/sec/pr/2006/pr06189.htm.

6 See Press Release 06/205, “IMF Board o Governors Approves Quota a nd Related Govern ance Reorms,” on the CD-ROM or at www.im.org/external/np/sec/pr/2006/pr06205.htm, as well as the Board’s Resolution, which can be ound on the CD-ROM.

7 As stipulated in the Articles o Agreement, each member country’s voting power in the IMF is the sum o its 250 basic votes (the same or each member) and one vote per SDR 100,000 o its quota in the IMF. Until the mid-1970s, each member’s basic votes accounted or more than 10 percent o total votes; however, general increases in quotas have since reduced that share to about 2 percent.

Girl on bus, Tanzania

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16

IMF Aa Rpr | 2007

Board plays a key role in the Fund’s communication eorts,

providing strategic guidance, conducting regular reviews o the

IMF’s communication strategy (the th review began during

FY2007), and, more generally, approving the IMF’s budget, which includes the resources allotted to communication and

outreach. During FY2007, the Board identied concrete steps

or strengthening the links between the IMF’s operations and

its communications, and or increasing the impact o commu-

nication and outreach—or example, by making key IMF

documents more readily available in languages other than

English, as described in greater detail in Chapter 5. The

Executive Board’s Committee on the Annual Report took steps

to make the Report a more eective communication vehicle,

not only or the IMF’s ocial stakeholders but also or a

broader audience.8

Executive Directors led the Fund’s eorts to increase its

transparency. In FY2006, they called on the sta to publish

annual updates on the implementation o the Fund’s

transparency policy. The second annual update, released in

February 2007, shows that the number o member countries

choosing to publish—publication is voluntary—all reports

on their economies and use o Fund resources increased to

142 in 2006, rom 136 in 2005, and the percentage o such

reports that were published increased or the third consecu-

tive year.

Improving internal governance

The IMF is committed to becoming a more cost-eective

institution, without compromising its ability to deliver the key

outputs called or in the MTS. Hence a collective eort by the

whole institution—the Board, the management, and the sta—

is in train to enhance eciency.

As discussed in more detail in Chapter 5, during FY2007,

the IMF continued to strictly limit administrative expendi-

tures. The medium-term budget called or zero growth, in

real terms, in FY2007, and real reductions in FY2008 and

FY2009. A number o initiatives were undertaken to deliver the

IMF’s outputs more eciently and at a lower cost, including

increased outsourcing, oshoring o some support services,

and a reexamination o travel expenditures.

The IMF took steps during the year to strengthen its risk-

management ramework. The Executive Board regularly reviews

the IMF’s risk-management policies, and, in 2006, it adopted

measures to implement a comprehensive risk-assessment systembased on the recommendations o a task orce. These measures

ocus on our broad categories o risks—strategic, core mission,

nancial, and operational. In FY2007, the IMF conducted its rst

risk-assessment exercise, which identied the main risks acing the

IMF and the measures in place to mitigate them. In their

discussion, Executive Directors stressed their oversight role and

critical duciary responsibility or the IMF’s risk management.

The Executive Board also acted to streamline Fund procedures,

lengthening the intervals between most policy reviews,

consolidating some reports, and eliminating others. It

considered a report on Bank-Fund collaboration, which wasprepared by an external review committee commissioned by

IMF and World Bank management, and sought possible

improvements in the way the two institutions work together

that would enable the IMF to deliver policy advice and

capacity-building services to member countries more eectively

and eciently (see Chapter 5). In addition, the Board reviewed

the report by the Independent Evaluation Oce (IEO) on the

IMF and aid to sub-Saharan Arica and endorsed a number o

recommendations that in its view would enable the IMF to

improve its policies and operations in this region (Chapter 3).

Reviewing the fnances o the Fund In May 2006, the Managing Director appointed a Committee

o Eminent Persons to study the IMF’s income model. The

Committee’s report, submitted to the Executive Board and

issued in January 2007, concluded that the IMF’s current

income model, under which the main source o income is the

interest charged on loans, is not appropriate given the wide

range o the IMF’s unctions and responsibilities.9 The

committee recommended a new set o revenue measures,

including expanded investment guidelines and operations, the

creation o an endowment rom limited IMF gold sales, and

charges or services to member countries. In its April 2007

meeting, the IMFC indicated that the committee’s report

provided “a sound basis or urther work on the development o

a new income model.” The Board’s work on a model that can

garner broad support across the IMF’s membership is ongoing.

8 Although the print version o the current Annual Report is much shorter than past Reports, the Report remains a comprehensive document o record because much o the material previously included in the print version has been transerred to the CD-ROM accompanying the Report.

9 The report can be ound on the CD-ROM or on the IMF’s Web site, at www.im.org/external/np/oth/2007/013107.pd.

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Chapter 2



18

IMF Aa Rpr | 2007

The IMF monitors the international monetary and nancial system to ensure that it is unction-

ing smoothly and to identiy vulnerabilities that could undermine its stability. To the same end, it

oversees economic policies in its 185 member countries, oering members analysis and advice and

encouraging them to adopt policies that promote nancial and macroeconomic stability and sus-

tained growth. The IMF’s surveillance activities at the global and country levels are complemented

by periodic assessments o regional developments, including the economic policies pursued under

ormal regional arrangements such as monetary unions. This combination o oversight and advice

is known as surveillance (Box 2.1).

During FY2007, the IMF introduced several innovations in its surveillance work. It experimented

with a new orum—multilateral consultations—where countries, or entities composed o groups

o countries, can work together on common issues. The rst multilateral consultation was set up

by the IMF to help its members address the risks posed by current global imbalances. The IMF

also devoted more attention to cross-country spillovers; increased its emphasis on regional devel-

opments in an eort to achieve a better understanding o how these aect individual countries as

well as the global economy; sharpened the ocus o its Article IV consultations, placing a greater

emphasis on exchange rate and nancial sector issues; and strengthened its outreach eorts, to

promote good policies and build consensus around them (see Chapter 5 or more inormation on

IMF outreach).

IMF Aa Rpr | 2007

18

Chapter 2 Promoting nancial and macroeconomic stability and growth through surveillance



Prmi acia a macrcmic sabii a rw r srviac | 2

Going beyond changes in the day-to-day implementation o

surveillance, the Executive Board worked to strengthen and

modernize the IMF’s surveillance ramework. The Medium-

Term Strategy (MTS) calls or more emphasis on the originalgoal o IMF surveillance—assessing the consistency o

exchange rate and macroeconomic policies with national

and international stability. In FY2007, the Executive Board

reviewed the IMF’s 1977 Decision on Surveillance over

Exchange Rate Policies, which—together with Article IV

o the Articles o Agreement—is the main statement guid-

ing surveillance, and considered ways to clariy surveill-

ance priorities.

The IMF also took steps to better integrate nancial sector

analysis into Article IV consultations and regional surveillance

and to identiy links between the nancial sector and the

macroeconomy. Supporting these eorts is the new Monetary and Capital Markets Department (MCM), which was created

in early FY2007 (Box 2.2). As part o the reorganization o the

IMF’s nancial sector work in FY2007, responsibility or work

on issues related to anti–money laundering/combating the

nancing o terrorism (AML/CFT) was centralized in the IMF’s

Legal Department, which shares responsibility with MCM or

policy and operational questions regarding the integration o

AML/CFT into nancial sector work.

Box 2.1 Surveillance activities

t IMF’s exciv Bar ccs srviac a

ba, cr, a ria vs. gba srviac is

carri r Bar’s rviws wr cmic

a acia mark vpms a prspcs. t

sa’s World Economic Outlook (Weo) a Global Financial

Stability Report (gFSR), wic ar sa prpar wic a

ar, prvi majr ips Bar’s iscssis a

ar sbsq pbis. t Bar as s irma

iscssis wr cmic a acia mark

vpms. Ar impra isrm ba

srviac is Annual Report on Exchange

Arrangements and Exchange Restrictions (AReAeR), wic

F as pbis sic 1950.1

W a cr jis IMF, i maks a cmmim

r Aric IV IMF’s Arics Arm

sk prs picis cciv rr cmic

rw a pric sabii a avi maipai

xca ras r air cmpiiv avaa. I as

cmmis prvii IMF wi aa ab is

cm. t IMF is maa b Aric IV cc

srviac vrs mmbrs’ cmpiac wi s

biais, a i s s r rar (sa ar)

sa visis—kw as Aric IV csais—

mmbr cris.2 (Irma sa visis ak pac

bw csais.) t IMF sa am ccs

cmic a acia aa a iscsss wi vr-m a cra bak cias cmic vpms

sic prvis csai, as w as cr’s

xca ra a mar, sca, acia scr, a

srcra picis. o, am as ms wi r

rps sc as isars, ra is, acamics, a

acia mark paricipas. I prpars a smmar is

is a pic avic, wic i avs wi

aia ariis, w av pi pbisi i.

o rr IMF aqarrs, sa am prpars a

rpr scribi cmic siai a aks

wi ariis a vaai cr’s picis.

t rpr is sbmi exciv Bar r rviw

a iscssi. A smmar Bar’s viws is

rasmi cr’s vrm. tr is

ki pr rviw, ba cmmi prvis pic

iac a avic ac is mmbrs, a

sss iraia xpric ar br bar

aia picis. I mmbr cr ars,

Aric IV csai rpr a a Pbic Irmai

nic (PIn), wic smmarizs Bar iscssi, ar

pbis IMF’s Wb si, i i wi IMF’s

rasparc pic (s Capr 5).

Sppmi s ssmaic a rar Bar

rviws iivia mmbr cris ar exciv

Bar assssms cmic vpms a

picis i mmbr cris brrwi rm IMF, as

w as rq irma sssis a wic Bar

iscsss vpms i iivia cris. o a

var basis, cris ma as cs paricipai ji F-Bak Fiacia Scr Assssm

Prram (FSAP) r rqs Rprs obsrvac

Saars a Cs (RoSCs; Bx 2.3).

1 Appendix II, “Financial operations and transactions,” to this Rpr contains a brie summary o members’ exchange rate regimes in Table II.9, “De actoclassication o exchange rate regimes and monetary policy ramework.” The Appendix can be ound on the CD-ROM and on the IMF’s Web site, at www.im.r/xra/pbs//ar/2007//ix.m.

2 The IMF’s Articles o Agreement can be ound at www.im.r/xra/pbs//aa/ix.m.


http://www.imf.org/external/pubs/ft/ar/2007/eng/index.htm

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20

IMF Aa Rpr | 2007

Implementing Surveillance

Surveillance ocused on several key issues in FY2007, including

heightened volatility in nancial markets; the potential

spillovers and risks associated with a disorderly unwinding o

global imbalances; the possible impact o the slowdown in the

U.S. housing market on the global economy; and the eect o

high prices or oil and other commodities on both importing

and exporting countries. The analytical tools used in the

preparation o the World Economic Outlook and the Global

Financial Stability Report were applied to capture cross-

country spillovers and draw policy lessons.

Global surveillance

World Economic Outlook

In its August 2006 and March 2007 discussions o the World Economic Outlook (WEO), the Executive Board welcomed

the continued strong, broad-based expansion o the global

economy during calendar year 2006, noting that activity

in most regions met or exceeded expectations. Executive

Directors believed that the global expansion would slow only

modestly in 2007 and 2008 and that infationary pressures

would remain contained. They were generally o the view that

the market turbulence o February and March 2007 repre-

sented a correction ater a period o asset price buoyancy that

did not require a undamental revision in the positive global

economic outlook.

At the time o the March 2007 discussion, risks to the global

economy—the ongoing correction in the U.S. housing

market, persistently higher nancial market volatility, the

chance o a reversal o the decline in oil prices, and the

possibility o a disorderly unwinding o large global imbal-

ances—were still seen as tilted to the downside but appeared

to be more evenly balanced than they had been six months

earlier. The key question in assessing these risks is whether the

world economy will remain on a sound growth trajectory even

i the U.S. economy slows more sharply—that is, whether

global prospects might decouple rom the United States,

especially in view o the limited impact o the recent cooling

o U.S. activity.10

Global Financial Stability Report

At their March 2007 discussion o the Global Financial

Stability Report (GFSR), Executive Directors agreed that

global nancial and macroeconomic stability continued to be

underpinned by solid economic prospects, although downside

risks had increased somewhat in a ew areas. A number o

market developments warranted increased attention, refecting

a shit in underlying nancial risks and conditions since the

Board’s discussion o the previous GFSR in August 2006.

While none o the identied short-term risks constituted, in

and o itsel, a threat to nancial and macroeconomic stability,

adverse events in one area could lead to a reappraisal o risks

in other areas, with possible broader implications or the

economy. The market turbulence o February and March

10 The ull summings up o the Board discussions on the WEO are on the CD-ROM.

Box 2.2 Monetary and Capital Markets Department

Fwi p rcmmais i

nvmbr 2005 rpr exra Rviw grp

oraizai Fiacia Scr a Capia

Marks Wrk a F (xprs cmmissi b

IMF maam), Mar a Capia Marks

dparm (MCM) was cra i ar Fy2007.1

MCM, a mrr Iraia Capia Marks

a Mar a Fiacia Ssms par-

ms, craizs rspsibiiis, cis, a

xpris s w parms wii a w

raizaia srcr a srvs as a rsrc r

r F parms.

MCM is rspsib r pic, aaica, a

cica wrk rai acia scrs a

capia marks, a mar a rixca ssms, arrams, a prais.

Is pricipa asks ar ii pia risks

ba acia a macrcmic sabii a

ir impicais r iivia cris; assss

vrabii r sss cris’

mar a acia ssms a civ-

ss mmbr vrms’ vrsi s

ssms; prm saars r prvi

acia criss a crib prai

iraia arcicr risk miiai a

maam; a sppr capaci bii i

mmbr cris. MCM’s capaci-bii

aciviis ar scrib i Capr 4.

1 See Press Release 06/21, at www.im.r/xra/p/sc/pr/2006/pr0621.m.

http://chapter_2/Ch2_WEO_Combined.pdf

http://www.imf.org/external/np/sec/pr/2006/pr0621.htm

http://chapter_2/Ch2_WEO_Combined.pdf





2007 validated this assessment and served to remind market

participants that such reevaluations could occur quite rapidly.

Macroeconomic risks as well as risks aced by emerging

markets had eased marginally since the previous GFSR, but

market and credit risks had risen, albeit rom relatively low

levels, and large capital infows to a number o emerging

market countries posed challenges to policymakers. The risks

o a disorderly unwinding o global imbalances had also eased

somewhat but remained a concern.

Hedge unds were playing a constructive role in improving

market eciency and stability, but the Board cautioned that

their size and complex risk structure could lead to increased

transmission or amplication o shocks. While observing that

the increased diversity o assets, source countries, and investortypes contributed to a globalized nancial system that, by

allowing capital to fow reely, should enable a more eective

diversication o risks, enhance the eciency o capital

markets, and support nancial and macroeconomic stability,

the Board underscored the importance o gradual and careully

sequenced liberalization o nancial markets. They welcomed the

GFSR’s contribution to nancial sector surveillance, including

in encouraging national legal, regulatory, and supervisory

systems to adjust to the more globalized nancial environment.

Executive Directors avored improved mechanisms or multi-

lateral collaboration, specically or strengthening supervisory coordination, including through better application o well-

established international standards and urther work on crisis

management and resolution arrangements.11

First multilateral consultation

In his April 2006 Report on Implementing the Fund’s Medium-

Term Strategy, the IMF’s Managing Director proposed that

existing IMF surveillance arrangements be complemented by

a new vehicle—multilateral consultations—that would oster

cooperation by appropriate groups o countries on policy

actions to address challenges to the global economy andindividual members. The proposal was endorsed by the

International Monetary and Financial Committee (IMFC),

the ministerial-level committee that provides the IMF with

policy guidance (see Chapter 5, “How the IMF is run”).

The IMF’s rst multilateral consultation has given its ve

participants—China, the euro area, Japan, Saudi Arabia, and

the United States—a orum or discussing global imbalances

and how best to reduce them while sustaining robust globalgrowth. The Executive Board will review the experience with

the rst multilateral consultation in FY2008.

Commodity prices

Because fuctuations in both oil and nonuel commodity

prices have important policy implications, the IMF has

been increasing its coverage o these markets in multilateral

surveillance. The Board has consistently advised oil-importing

countries, or example, on the importance o market-based

pricing—that is, putting an end to subsidies and allowing

the pass-through o oil prices to consumers. A chapter in the

September 2006 WEO was devoted to nonuel commodities—metals as well as ood and other agricultural commodities—

while considerable attention in both the September 2006

and the April 2007 WEO was given to the analysis o the

oil market and the eects o oil price changes on the global

economy. In their discussions o the WEO, Executive

Directors recognized the possibility that infationary pressures

could revive as resource utilization constraints start to bind.

They observed that sharply rising prices o nonuel commodi-

ties, particularly metals, had underpinned strong growth in

many emerging market and developing countries and advised

11 The ull summings up o the Board discussions on the GFSR are on the CD-ROM.

Worker in oil eld, Zhangaozen, Kazakhstan

http://chapter_2/Ch2_GFSR_Combined.pdf

http://chapter_2/Ch2_GFSR_Combined.pdf



22

IMF Aa Rpr | 2007

Box 2.3 ROSCs and Data Standards Initiatives

Rrs h obsrvac Saars a

Cs (RoSCs). Mmbr cris ca rqs

RoSCs, assssms ir bsrvac saars

a cs, i a wi 12 aras:

acci; aii; ai–m ari a

cmbai aci rrrism (AMl/CFt);

baki sprvisi; crpra vrac; aa

issmiai; sca rasparc; isvc a

crir ris; israc sprvisi; mar a

acia pic rasparc; pams ssms; a

scriis rai. t rprs—ab 76 prc

wic av b pbis—ar s p

sarp F a Wr Bak pic iscssiswi aia ariis a sr aia

capaci paricipa i, a b rm,

baiz cm. t ar as s i priva

scr (ici b rai acis) r risk assssm.

Paricipai i Saars a Cs Iiiaiv

cis rw. As -Apri 2007, 811 RoSC

ms a b cmp r 137 cris, r

74 prc F’s mmbrsip, a ms

ssmica impra cris a vr r

assssms. Mr a 380 RoSCs wr

acia scr saars. o s, ab -ir

wr ra baki sprvisi, a rs

wr air v isrib acrss r

saars a cs.

Scia daa dissmiai Saar (SddS).

Cra i 1996 b exciv Bar, SddS is a

var saar ws sbscribrs—cris wi

accss iraia capia marks r ski i—

cmmi mi iraia accp rms

aa cvra, rqc, a imiss. SddS

sbscribrs prvi irmai ab ir aa

cmpiai a issmiai pracics (maaa)

r psi IMF’s dissmiai Saars

Bi Bar (dSBB).1 eac sbscribr is as rqir

maiai a Wb si a issmias aca

aa a a is crica ik dSBB.

SddS sbscribrs ba issmiai prscrib

aa xra b i Spmbr 2003; aa r

58 cris ar pbis i Wr Bak’s

Quarterly External Debt Statistics (QedS). Mva

a lxmbr bcam sbscribrs i Fy2007,

raisi mbr SddS sbscribrs 64 as

Apri 30, 2007.

Gra daa dissmiai Ssm (GddS). t

exciv Bar sabis gddS i 1997 p

IMF mmbr cris imprv ir saisica ssms.

t 88 paricipas i gddS a -Apri 2007prvi maaa scribi ir aa cmpiai

a issmiai pracics, as w as ai pas

r imprvm, r psi IMF’s dSBB.

Bw exciv Bar’s six rviw daa

Saars Iiiaivs i nvmbr 2005 a Apri 30,

2007, i cris a rriris ba paricipa-

i i gddS. o 94 cris a rriris

a av paricipa i gddS sic i was

irc, 6 av raa SddS.

t cmpm SddS a gddS, IMF sa av

ac Saisica daa a Maaa

exchag (SdMX) iiiaiv a daa Qai

Assssm Framwrk (dQAF). t SdMX, wic

is bi vp i cabrai wi r

iraia raizais, aims mak cric

xca a maam saisica irmai

am aia a iraia iis mr

ci b prvii saar pracics, cr

prcs, a r irasrcra bpris r

rpri, xcai, a psi aa Wb

sis. t dQAF is a assssm m a

was ira i srcr aa RoSCs

wi r rviw daa Saars

Iiiaivs i 2001.

1 The Web site address is sbb.im.r/Appicais/wb/sbbm.




these countries to save or invest current revenue windalls to

support uture growth in noncommodity sectors. They also

stressed the risk o a reversal o the recent decline in oil prices

given continuing geopolitical tensions and limited spareproduction capacity.

The international community is working to improve the quality

and transparency o oil market data. In this context, the IMF

is increasing the provision o metadata in the General Data

Dissemination System and the Special Data Dissemination

Standard (see “Standards and codes, including data dissemina-

tion” on page 26 and Box 2.3 above). In responding to

extensive demand or better data, the IMF is sharing its

expertise in data-quality assessment with other international

organizations and collaborating with major oil exporters in

resolving oil-related data issues. The IMF has also participatedin training on the Joint Oil Data Initiative (JODI).12

Country surveillance

In FY2007, the Board completed 134 Article IV consultations

(see CD-Table 2.1 on the CD-ROM). Country surveillance is

becoming more ocused on identiying the most important risks

acing members and on topics that are core to the IMF’s

mandate. As an approach or cases in which it appeared useul to

concentrate on a ew key issues, and in keeping with the MTS’s

calls or enhancing the eciency o Fund procedures, the IMF

experimented with streamlined consultations with 10 countries

during FY2007 to allow additional resources to be devoted to

areas o priority work. The Board plans to review the IMF’s

experience with the streamlined consultations early in FY2008.

As discussed in detail below, considerable work was undertaken

in FY2007 to modernize the ramework or IMF surveillance

and to integrate the analysis o developments in the nancial

sector and capital markets more ully into country surveillance.

Recent eorts have also ocused on a deeper examination o

cross-country spillovers. As demonstrated by a stocktaking o

the quality o exchange rate surveillance (see below), these

eorts are gradually bearing ruit.

The IMF’s Global Fiscal Model13 has been used in the context

o country surveillance, notably to evaluate the broader impacts

o scal policy changes—including scal consolidation, tax

reorm, and social security reorm—in a number o industrial

and emerging market countries. The WEO’s analysis o the

impact o a slowdown in the U.S. economy on the rest o the

world used a variety o econometric and modeling approaches

to assess cross-country spillovers.

Regional surveillance and outreach

Since members o currency unions have devolved responsibili-

ties over monetary and exchange rate policies—two central

areas o Fund surveillance—to regional institutions, the IMF

holds discussions with representatives o these institutions in

addition to its Article IV consultations with the unions’

individual members. In response to guidance by the Executive

Board under the Medium-Term Strategy, IMF sta also

conduct other regional surveillance activities, including the

production o semiannual regional economic outlooks

(REOs), dialogues with various regional orums, and research

on issues in which countries in the same region share an

interest; and more systematically apply relevant fndings o

regional surveillance in conducting Article IV consultations.Selected papers and reports increasingly ocus on regional

spillovers and cross-country experiences.

During FY2007, the IMF’s Executive Board discussed

developments in the Central Arican Economic and Monetary

Community (CEMAC), the Eastern Caribbean Currency

Union (ECCU), the euro area, and the West Arican

Economic and Monetary Union (WAEMU).14

12 Following a period o exceptional volatility in oil prices in the 1990s, in 2001 six international organizations—Asia-Pacic Economic Cooperation (APEC),Eurostat, the International Energy Agency (IEA), Organización Latinoamericana de Energia (OLADE), OPEC, and the United Nations Statistics Division (UNSD)—launched the initiative, originally called the Joint Oil Data Exercise, to raise awareness o the need or more data transparency in oil markets. More inormation can be ound on JODI’s Web site, at www.jodidata.org/FileZ/ODTmain.htm.

13 The Global Fiscal Model (GFM) is a multicountry general equilibrium model developed at the Fund based on the New Open Economy Macroeconomics (NOEM) tradition, but designed to examine scal policy issues. It is particularly suitable or studying temporary or permanent changes in taxes or expenditures, whether occurring rapidly or gradually (as in the case o age-related expenditure pressures). The multicountry eature o the GFM allows the analysis o international spillover eects as changes in government debt infuence world interest rates. The GFM also permits practitioners to assess the macroeconomic eects o a number o alternative scal-consolidation strategies.

14 The summings up o these Board discussions can be ound on the CD-ROM and on the IMF’s Web site: PIN 06/90, “IMF Executive Board Concludes 2006 Discussion on Common Policies o Member Countries with CEMAC,” www.im.org/external/np/sec/pn/2006/pn0690.htm; PIN 07/13, “IMF Executive Board Concludes 2006 Regional Discuss ions with Eastern Caribbean Currency Union,” www.im.org/external/np/sec/pn/2007/pn0713.htm; PIN 06/86,“IMF Executive Board Discusses Euro Area Policies,” www.im.org/external/np/sec/pn/2006/pn0686.htm; and PIN 07/55, “IMF Executive Board Concludes 2007 Consultation with West Arican Economic and Monetary Union,” www.im.org/external/np/sec/pn/2007/pn0755.htm.

http://chapter_2/CD_TABLE_2.1.pdf

http://www.jodidata.org/FileZ/ODTmain.htm

http://chapter_2/imf.org_external_np_sec_pn_2006_pn0690.htm.pdf









http://www.jodidata.org/FileZ/ODTmain.htm



24

IMF Aa Rpr | 2007

CEMAC. At their July 2006 discussion, Executive Directors

commended CEMAC’s positive macroeconomic perormance

in 2005, which was due in part to oil windalls and improved

implementation o macroeconomic policies. Per capita incomein most CEMAC members remains low, however, and these

countries ace signicant challenges in meeting the Millennium

Development Goals. The Board urged the authorities to take

advantage o improved macroeconomic and nancial condi-

tions to address long-standing structural issues that are critical

or raising non-oil growth and employment and reducing

poverty. They also noted the potential or regional integration

to increase market size and oster growth and called or a

renewed ocus on the promotion o trade. CEMAC participated

in an FSAP (see below), which ound that nancial sector

soundness had improved but that important challenges

remained. Executive Directors urged CEMAC countries to

urther strengthen nancial and macroeconomic stability and

accelerate reorms, particularly as the nancial sectors in the

region are among the least developed in the world.

ECCU. The Board welcomed the resurgence in economic

activity in recent years, driven by tourism, preparations or

the Cricket World Cup, and a pickup in private investment.

ECCU’s quasi-currency-board arrangement has resulted in a

long period o price stability, and the currency appears

competitive. The challenge will be to sustain the growth

momentum in 2007 and beyond. The ECCU countries,

which are oil importers, continue to ace s ignifcant

obstacles, including elevated world energy prices and a

heavy public debt burden, and exporters o sugar and

bananas will need to adjust to the erosion o trade preer-

ences. Further regulatory, administrative, and legal reorms

are needed to remove impediments to private business

activity. Executive Directors urged continued strengthening

o the supervisory and regulatory environment that supports

fnancial market development.

Euro area. Growth has picked up and broadened in the euro

area, the reormed Stability and Growth Pact is regaining traction over scal policies, scal outcomes have been better

than originally projected, and progress has been made in the

reorm o product and services markets and nancial

integration. However, the Board saw risks tilting to the

downside or 2007 and beyond. Productivity growth

continues to be sluggish, employment and consumption

continue to lag, oil prices are volatile, and global imbalancesremain unresolved. Executive Directors underscored the

need or accelerated scal consolidation and urther s truc-

tural reorms that aim at strengthening incentives to work

and invest.

WAEMU. The overall economic situation in WAEMU was

challenging in 2006. Infation ell sharply despite higher prices

or uel imports, and oreign reserve levels remained adequate,

but average growth declined to 3.4 percent and the current

account decit widened. Progress on policy convergence,

economic integration, and structural reorms has been slow,

and growth and deeper regional integration are hampered by

macroeconomic shocks, structural weaknesses, and, in some

countries, sociopolitical problems. However, WAEMU is

stepping up eorts to remove these obstacles. In 2006, it

embarked on trade reorm and instituted an ambitious reorm

program or 2006–10. Given that the region’s nancial sector is

unintegrated and shallow, the Board welcomed the authorities’

request or a regional FSAP.

Regional Economic Outlooks (REOs) are produced semiannu-

ally or sub-Saharan Arica, Asia and the Pacic, the Middle

East and Central Asia, and the Western Hemisphere.15 Upon

publication o the REOs, the IMF organizes press conerences

or seminars at headquarters or in the eld. Area department

sta oten go on road shows to present REO ndings at

dierent venues to diverse audiences in the region in question.

The Middle East and Central Asia Department, or example,

organizes outreach activities in association with its REOs twice

a year in Dubai, Central Asia, and North Arica.

Intensied outreach has contributed to wider dissemination o

the ndings o IMF studies and stimulated debate on regional

issues. In addition to the activities undertaken in connection

with the publication o the REOs, the Fund organizes regionalconerences and seminars either on its own or in collaboration

with regional entities. (For examples, see the section on

outreach in Chapter 5.)

15 The ull text o these reports can be ound on the IMF’s Web site, at www.im.org. There are plans to publish a Regional Economic Outlook or Europe beginning in the all o 2007.

http://www.imf.org/

http://www.imf.org/




Financial sector surveillance and the Standards

and Codes Initiative

For countries to reap the ull beneit o cross-border capital

lows, which have increased dramatically over the past two

decades, their inancial sectors must be resilient and well

regulated. In 1999, the IMF and the World Bank intro-

duced a joint initiative, the FSAP, to provide member

countries, on a voluntary basis, with a comprehensive

evaluation o their inancial systems. The FSAP, a corner-

stone o inancial sector surveillance, provides the basis or

the IMF’s Financial System Stability Assessments (FSSAs)

—assessments o risks to macroeconomic stability stem-

ming rom the inancial sector, including the latter’s ability

to absorb macroeconomic shocks.

Regional FSAPs can be undertaken or currency unions,

notably where signicant regulatory and supervisory structures

are at the regional level. As described above, a regional FSAP—

or CEMAC—was completed in FY2007, and WAEMU

requested an FSAP. In addition, the IMF has undertaken

regional nancial sector projects in Central America, the

Maghreb, and the Nordic-Baltic region.16

With a total o 123 initial assessments now completed or under

way, the IMF and the World Bank are increasingly ocusing on

FSAP updates. The core elements o updates include nancial

stability analysis, actual updates o the observance o standards

and codes included in the initial assessment,17 and reexamination

o key issues raised in the initial assessment. Updates usually

require only a single visit by an IMF–World Bank team (initial

assessments require two)—and a smaller team—and hence are

typically less resource-intensive than initial assessments.

In FY2007, 18 FSAPs were completed, o which 6 were

updates;18 another 53 (o which 30 are updates) are either

under way or agreed and being planned.

16 See Box 3.4, “Regional nancial integration in Central America,” in the IMF’s Annual Report 2006, at www.im.org/external/pubs/t/ar/2006/eng/index.htm.

17 Factual updates describe developments that are relevant to compliance with standards and codes but do not reassess the ratings in the initial FSAP.

18 These numbers reer to FSSAs discussed by the Board during FY2007.

The Bovespa stock exchange, São Paulo, Brazil





26

IMF Aa Rpr | 2007

Work is progressing on incorporating a nancial sector

component into the IMF’s Global Economy Model.19 The

IMF is also studying both the implications o growing

international nancial integration or national scal policiesand the linkages between the nancial sector and scal

institutions and policy.

Standards and codes, including data dissemination

In the wake o the Asian crisis o 1997–98, during their

discussions on strengthening the international nancial

architecture, Executive Directors stressed the need to develop

and implement internationally recognized standards and codes

o good practice that would oster nancial and macroeconomic

stability at both the domestic and the international levels. The

result was the launch o the Standards and Codes Initiative in

1999. The IMF and the World Bank evaluate member

countries’ policies against international benchmarks o good

practice in three broad areas—transparent government

operations and policymaking, nancial sector standards, and

market integrity standards or the corporate sector—and issue

Reports on the Observance o Standards and Codes (ROSCs;

see Box 2.3), which are intended to help countries strengthen

their economic institutions, to inorm the work o the IMF and

the Bank, and to inorm market participants. Following up

on the Executive Board’s review o the Standards and Codes

Initiative in FY2006 and the recommendations o the MTS,

the Initiative has been strengthened, with clearer country prioritization o ROSCs and updates, better integration o

ROSCs with surveillance and technical assistance, and greater

clarity o ROSCs. Several standards have been revised in recent

years, and the revised standards are now being used as the basis

or assessments. For example, in April 2007, the Board

endorsed the new Basel Core Principles20 standard and

methodology released in October 2006.

Underpinning assessments o scal transparency in 86 countries

under the Standards and Codes Initiative is the IMF’s Code o

Good Practices on Fiscal Transparency, which was revised during

FY2007, ater a broad public consultation process. The Code,launched in 1998, is a central element in the IMF’s eorts to

help members implement standards in the areas o transparency

and good governance. Fiscal transparency leads to better-

inormed public debate about scal policy, makes governments

more accountable or policy implementation, and strengthens

government credibility, thereby strengthening countries’

capacity or sound macroeconomic policymaking, public debt

management, and budget preparation.21 A major aim o the

revised Code is to ully integrate issues related to resource-

revenue transparency, drawing on experience gained rom use o

the IMF’s 2005 Guide on Resource Revenue Transparency, which

ocuses on the problems o countries that derive a signicant

share o their revenues rom hydrocarbon and mineral

resources. The revised Code also extends the coverage o good

practice to address more explicitly some key scal transparency

issues, such as scal risk management, the openness o budgets

and policy decisions, external audit processes, and the publica-

tion o a citizens’ guide to the budget. Extensive revisions have

also been made to the Manual on Fiscal Transparency, which

provides detailed guidance on good scal transparency

practices, with examples rom a range o developing, emerging,

and advanced economies.22

19 The Global Economy Model (GEM), which the IMF has been developing since 2002, is a large, multicountry macroeconomic model based on an explicit micro- economic ramework in which consumers maximize utility and producers maximize prots. The integration o domestic supply, demand, trade, and international asset markets in a single theoretical structure allows transmission mechanisms to be ully articulated, providing new insights not obtainable rom earlier models. A range o GEM simulations have been used in IMF work to assess issues such as the domestic and international consequences o policies to increase competition in markets, the impact o oil price increases, the eects on emerging market countries o exchange rate volatility across industrial countries, and appropriate monetary

policy rules or emerging market countries. A detailed description o the model can be ound at www.im.org/external/np/res/gem/2004/eng/index.htm.

20 The Core Principles or Eective Banking Supervision, which the Basel Committee on Banking Supervision originally published in September 1997, were updated in 2006 to keep pace with changes in banking regulation. The Core Principles and the Core Principles Methodology are used by countries as a benchmark or assessing the quality o their supervisory systems and or identiying uture work that needs to be done to overcome regulatory and supervisory shortcomings. The IMF and the World Bank also use the Core Principles in the context o the Financial Sector Assessment Program to assess countries’ banking supervision systems and practices.

21 The Code can be ound at www.im.org/external/np/ad/trans/code.htm.

22 Available at www.im.org/external/np/ad/trans/manual/index.htm.

Since the Asian crisis o 1997–98,

the analysis o balance sheet

vulnerabilities has become an

increasingly important part o

country risk assessment at the IMF.

http://www.imf.org/external/np/res/gem/2004/eng/index.htm

http://www.imf.org/external/np/fad/trans/code.htm


http://www.imf.org/external/np/fad/trans/manual/index.htm

http://www.imf.org/external/np/fad/trans/manual/index.htm


http://www.imf.org/external/np/res/gem/2004/eng/index.htm




In addition, in September 2006 the IMF began publishing

International Financial Statistics, Supplement on Monetary and

Financial Statistics, Supplement Series No.17, a quarterly

compilation o monetary and nancial statistics or 65countries. These data are an important input or compiling

the matrices o the IMF’s balance sheet approach to assessing

debt vulnerabilities. Since the Asian crisis, the analysis o

balance sheet vulnerabilities has become an increasingly

important part o country risk assessment at the IMF.

Inormation about balance sheets in a country’s key eco-

nomic sectors (public, private nancial and nonnancial,

and household and nonresident) acilitates assessments o

maturity, currency, and capital structure mismatches as well

as intersectoral linkages.

In view o the evolving economic environment and changing needs or economic analysis, the IMF is updating macro-

economic statistical standards in close collaboration with

member countries and other international organizations. The

IMF is contributing to the update o the System o National

Accounts 1993, and it has drated and posted on its Web site

or worldwide consultation the sixth edition o the Balance o

Payments and International Investment Position Manual and the

Export and Import Price Index Manual. The update o the

various statistical standards is being coordinated to ensure

maximum harmonization o statistical methodologies. The

methodological standards in statistics underpin the IMF’s

work on data ROSCs, technical assis tance, and training, andpromote the comparability o data and best practices in

statistical methodology.

Modernizing the Surveillance Framework

and Integrating Financial Sector Analysis

Over the past 30 years, the Executive Board has reviewed the

IMF’s surveillance work at regular intervals. From 1988 to

2004, reviews were conducted biennially. A decision was made

in 2006 to move to triennial reviews in accordance with the

MTS’s call or streamlining IMF procedures. The most recent

review, conducted in 2004, called or deeper treatment o

exchange rate issues, including (1) clear identication o the

de acto exchange rate regime in sta reports, (2) more

systematic use o a broad set o indicators and analytical tools

to assess external competitiveness, and (3) a thorough and

balanced presentation o the policy dialogue between the sta

and the authorities on exchange rate issues.23 Following up on

these recommendations, in August 2006, the Executive Board

discussed a paper by IMF sta assessing the quality o recent

work by the IMF on exchange rate issues in 30 large econo-

mies accounting or more than 90 percent o world GDP.24

Executive Directors generally agreed that exchange rate

surveillance had improved appreciably since the 2004 review

and that the quality o the analysis was mostly adequate in

three o the our dimensions reviewed—the description o the

exchange rate regime, the assessment o the regime, and the

consistency o exchange rate policies with external stability—

23 The Biennial Surveillance Review can be ound on the IMF’s Web site, at www.im.org/external/np/sec/pn/2004/pn0495.htm.

24 The paper, “Treatment o Exchange Rate Issues in Bilateral Fund Surveillance—A Stocktaking,” can be ound on the IMF’s Web site, at www.im.org/external/pp/longres.aspx?id=3951. The summing up o the Board discussion can be ound on the CD-ROM and on the IMF’s Web site: PIN 06/131, “IMF Executive Board Discus ses Treatment o Exchange Rate Issues in Bilateral Surveillance—A Stocktaking,”

www.im.org/external/np/sec/pn/2006/pn06131.htm.

Currency exchange board, Bangkok, Thailand

http://www.imf.org/external/np/sec/pn/2004/pn0495.htm

http://www.imf.org/external/pp/longres.aspx?id=3951







28

IMF Aa Rpr | 2007

but that there was room or better analysis in the ourth, the

assessment o exchange rate levels and external competitive-

ness. The Board also called or a greater ocus on the spillover

eects o countries’ exchange rate policies.

As part o the eort to strengthen the IMF’s ramework or

assessing exchange rate issues, at an inormal seminar in

November 2006, the Executive Board discussed a sta report

on revised and extended methodologies or exchange rate

assessments by the IMF’s Consultative Group on Exchange

Rate Issues (CGER). The CGER, which has provided

exchange rate assessments or a number o advanced econo-mies since the mid-1990s, has extended its methodologies to

cover about 20 emerging market countries. These methodolo-

gies can help gauge the consistency o current account

balances and real eective exchange rates with their underly-

ing undamentals. Sta organized outreach events with

ocials, academics, and market participants in Europe, Asia,

and Arica to discuss this extension and approaches to

exchange rate modeling.25

Complementing the periodic eorts o the Executive Board and

the Fund’s management and sta to take stock o the eective-

ness o surveillance, the IMF’s Independent Evaluation Oce

(IEO; see Box 5.3) completed an evaluation in FY2007 o the

IMF’s exchange rate policy advice, or discussion by the

Executive Board in early FY2008.26 The IEO set out to answer

three main questions: Is the role o the IMF clearly dened and

understood? How good is the quality o the IMF’s advice andits underlying analysis? And how eective is the IMF in its

policy dialogue with country authorities? Its report acknowl-

edges that the quality o the IMF’s advice to its member

countries had improved in some ways rom 1999 to 2005,

citing many examples o good analysis and dedicated sta

teams. At the same time, it identies a need to revalidate the

undamental purpose o IMF exchange rate surveillance and

thus clariy the expected roles o the IMF and member

countries, oering detailed recommendations or improving the

management and conduct o the IMF’s exchange rate policy

advice and interactions with member countries.

The principles and procedures governing the scope and

operational modalities o surveillance over exchange rate

policies were adopted by the Executive Board in 1977, ater

the collapse o the Bretton Woods system o xed exchange

rate parities.27 In FY2007, the Board held discussions on the

possibility o revising the Decision to broaden it to cover

surveillance more comprehensively, and to align it more

closely with Article IV and current best practice.28 A revised

decision would not only demonstrate the Fund’s resolve to

strengthen the eectiveness o surveillance, including over

exchange rates, but also serve as a basis or the practice o surveillance, uniying guidance, clariying issues and proce-

dures, and providing a better oundation or surveillance to

address priority issues. In their discussion, Executive Directors

ound important areas o broad agreement and subsequently

worked to build common ground on other areas. At the

Spring Meetings o the IMF and the World Bank, the IMFC

agreed that the ollowing principles should guide urther

work: (1) there should be no new obligations, and dialogue

and persuasion should remain key pillars o eective surveil-

lance; (2) surveillance should pay due regard to country

circumstances and emphasize the need or evenhandedness;

and (3) a revised decision should be fexible enough to allow

surveillance to evolve as circumstances warrant.29

25 See Press Release 06/266, “IMF Strengthening Framework or Exchange Rate Surveillance,” on the CD-ROM or at www.im.org/external/np/sec/pr/2006/pr06266.htm.

26 The IEO’s report can be ound at www.ieo-im.org/eval/complete/eval_05172007.html.

27 The 1977 Decision on Surveillance over Exchange Rate Policies can be ound on the IMF’s Web site, at www.im.org/external/pubs/t/sd/index.asp?decision=5392-(77/63).

28 See “Article IV o the Fund’s Articles o Agreement: An Overview o the Legal Framework,” a paper prepared by IMF sta, at www.im.org/external/np/pp/eng/2006/062806.pd.

29 On June 15, 2007, ater the end o the nancial year, the Board adopted the 2007 Decision on Bilateral Surveillance over Members’ Policies, which replaces the 1977 Decision. The summing up o the Board discussion can be ound at www.im.org/external/np/sec/pn/2007/pn0769.htm.

The IMF Executive Board has

strengthened surveillance over exchange rate policies and called

or greater scrutiny o the linkages

between the nancial sector and

the macroeconomy.


http://www.ieo-imf.org/eval/complete/eval_05172007.html

http://www.imf.org/external/pubs/ft/sd/index.asp?decision=5392-

http://www.imf.org/external/np/pp/eng/2006/062806.pdf



http://www.imf.org/external/np/pp/eng/2006/062806.pdf

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During FY2007, the Board also exchanged views on the

possibility o introducing a clear statement o surveillance

priorities to guide implementation and acilitate ex post

monitoring o eectiveness (a “remit”), against the backgroundo the existing accountability and independence ramework. In

doing so, it examined methods or assessing the eectiveness o

IMF surveillance and agreed that a strengthened methodology

should be introduced in the context o the next review o

surveillance, scheduled to take place in FY2008.

Integrating fnancial sector and capital markets analysis

into surveillance

A task orce was established in FY2006 to study the issue o

how to better integrate the IMF’s nancial sector work into its

surveillance. The task orce delivered its recommendations in

FY2007, emphasizing the need or a broader multilateral

perspective, more ocus on the nancial sector’s impact on

growth and the macroeconomy, and a thorough assessment o

risks. Following up on these recommendations, the IMF has

increased interdepartmental cooperation and prioritized its

nancial sector work, with heightened monitoring o both

systemically important countries and countries vulnerable

to crisis.

The IMF also contributes to international eorts to combat

money laundering and the nancing o terrorism, in collabo-

ration with the Financial Action Task Force on Money Laundering (FATF), the World Bank, the United Nations,

and FATF-style regional bodies (FSRBs). As a collaborative

institution with near universal membership, the IMF is a

natural orum or sharing inormation, developing common

approaches to issues, and promoting desirable policies and

standards. In addition, the IMF’s broad experience in

conducting nancial sector assessments, providing technical

assistance in the nancial sector, and exercising surveillance

over members’ economic systems is particularly valuable in

evaluating country compliance with international AML/CFT

standards and in developing programs to help them address

shortcomings. In 2004, the Executive Board agreed to make

AML/CFT assessments and technical assistance a regular part

o Fund work and to expand this work to cover the ull scope

o the FATF’s 40 recommendations designed to guide national

policymakers in implementing eective anti–money launder-

ing programs and 9 additional recommendations on combat-ing the nancing o terrorism.

In its June 2006 discussion o a paper jointly prepared by

IMF and World Bank sta on the quality and consistency o

assessments o national AML/CFT regimes,30 which are carried

out by the IMF, the World Bank, the FATF, or the FSRBs,

using an agreed common methodology, the Executive Board

reiterated the importance o AML/CFT in strengthening the

integrity o nancial systems and deterring nancial abuse and

conrmed the IMF’s collaborative arrangements with the

FATF and FSRBs or assessing AML/CFT regimes. As part o

its review, the Executive Board examined the ndings o anexpert panel that had analyzed a sample o AML/CFT

assessments prepared by dierent bodies and concluded that

there was a high degree o variability in the quality and

consistency o the reports. The Executive Board noted that

a number o initiatives had been taken or were under way to

improve the assessments and called on IMF sta to provide

technical assistance to, and cooperate more closely with,

the FSRBs.

The Board also agreed that every assessment or update under

the FSAP or Oshore Financial Center (OFC) assessment

program31 should include a ull AML/CFT assessment using

the most recent methodology and that ull AML/CFT

assessments should be conducted approximately every ve

years. The Fund is expected to continue monitoring

signicant nancial sector problems arising rom money

laundering or terrorism-nancing activities through other

vehicles, such as assessments o other nancial sector

standards, Article IV consultations, and participation in

FATF and regional orums.

The Executive Board has consistently underscored the

importance o nancial soundness indicators (FSIs) in

acilitating nancial sector surveillance, increasing the

transparency and stability o the international nancial

30 The sta paper is available at www.im.org/external/np/pp/eng/2006/041806r.pd. The summing up o the Board’s discussion can be ound on the CD-ROM and on the IMF’s Web site, at www.im.org/external/np/sec/pn/2006/pn0672.htm.

31 The OFC assessment program was initiated in 2000. The monitoring o OFCs, to ensure their compliance with supervisory and integrity standards, has become a standard component o the IMF’s nancial sector work.

http://www.imf.org/external/np/pp/eng/2006/041806r.pdf




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30

IMF Aa Rpr | 2007

system, and strengthening market discipline. Ater developing

a core set and an encouraged set o FSIs in consultation with

the international community, the IMF launched the three-

year pilot Coordinated Compilation Exercise (CCE), which was endorsed by the Board, in March 2004 to (1) build the

capacity o the 62 part icipating countries to compile FSIs;

(2) promote cross-country comparability o FSIs;

(3) coordinate eorts by national authorities to compile FSIs;

and (4) disseminate the FSI data compiled in the CCE, along

with metadata, to increase t ransparency and strengthen

market discipline. The methodology recommended by the

IMF to ensure cross-country comparability is presented in the

Financial Soundness Indicators: Compilation Guide.32

By the end o FY2007, FSI data and metadata or 52 o the

62 countries participating in the CCE were posted on the

IMF’s Web site.33 Many countries also regularly compile

and disseminate FSIs on their own, and these indicators are

included in FSAP documents.

32 The Guide can be ound at www.im.org/external/pubs/t/si/guide/2006/index.htm. The list o core and encouraged FSIs can be ound at www.im.org/external/np/sta/si/eng/si.htm.

33 Another ve countries posted their data and metadata in the rst month o FY2008; see www.im.org/external/np/sta/si/eng/cce/index.htm.

http://www.imf.org/external/pubs/ft/fsi/guide/2006/index.htm

http://www.imf.org/external/np/sta/fsi/eng/fsi.htm

http://www.imf.org/external/np/sta/fsi/eng/cce/index.htm

http://www.imf.org/external/np/sta/fsi/eng/cce/index.htm

http://www.imf.org/external/np/sta/fsi/eng/fsi.htm

http://www.imf.org/external/pubs/ft/fsi/guide/2006/index.htm



Prram sppr | 3

Chapter 3



32

IMF Aa Rpr | 2007

The IMF provides nancial and other kinds o support to its member countries through a variety

o instruments, including lending acilities, tailored to their dierent circumstances (Table 3.1).

Review and approval o members’ requests or nancial assistance and program support are core

responsibilities o the Board, alongside surveillance.

Under the Fund’s lending acilities, the Board makes temporary nancing available to members to

help them address a variety o balance o payments problems, such as a lack o sucient oreign

exchange to purchase needed imports or make payments on external obligations. IMF loans give

countries time to adjust their policies so as to overcome short-term balance o payments problems,

stabilize their economies, and avoid similar problems in the uture. IMF lending is not intended to

cover all o a borrower’s needs but, rather, to have a catalytic eect—enabling a country to restore

condence in its policies and attract nancing rom other sources. Loans are accompanied by eco-

nomic reorm programs developed by the borrowers in collaboration with the IMF. The Executive

Board regularly reviews borrowers’ perormance under their programs, and, in most cases, unds

are disbursed as program targets are met.

IMF Aa Rpr | 2007

32

Chapter 3 Program support



Prram sppr | 3

34 CD-Tables 3.1 and 3.2 , which show subsidy contribution pledges as o April 30, 2007, or the ESF and or Emergency Assistance, respectively, can be ound on the CD-ROM.

35 The HIPC Initiative was launched by the IMF and the World Bank in 1996 and enhanced in 1999 to provide aster, deeper, and broader debt relie and to strengthen the links between debt relie, poverty reduction, and social policies. CD-Tables 3.3 and 3.4, which show the delivery o debt relie as o

April 30, 2007, can be ound on the CD-ROM. More inormation about the HIPC Initiative can be ound on the IMF’s Web site, at www.im.org/external/np/exr/acts/hipc.htm.

Regular nancing activities. The bulk o the IMF’s loans are

provided through Stand-By Arrangements (SBAs), which

address members’ short-term balance o payments diculties,

and the Extended Fund Facility (EFF), which ocuses onexternal payments diculties caused by longer-term structural

problems. For members experiencing a sudden and disruptive

loss o access to capital markets, these loans can be supple-

mented with short-term resources rom the IMF’s Supplemental

Reserve Facility (SRF). In addition, special Emergency

Assistance is available to countries recovering rom conficts or

natural disasters. All o these loans incur interest charges, and

many may be subject to surcharges, depending on the type and

duration o the loan and the amount o IMF credit outstand-

ing. Repayment periods vary by type o loan. The IMF’s regular

lending activities are nanced out o a revolving pool o unds

held in the General Resources Account (GRA) and consisting mainly o members’ quota subscriptions. In addition, the IMF

has in place two ormal borrowing arrangements with member

countries and can borrow to supplement its quota resources.

Financing or low-income countries. The IMF provides support

to its low-income members through a variety o instruments.

These include highly subsidized lending through the Poverty

Reduction and Growth Facility (PRGF) and the Exogenous

Shocks Facility (ESF); subsidized Emergency Assistance or

eligible post-confict countries and countries hit by natural

disasters;34 and debt relie under the Heavily Indebted Poor

Countries (HIPC) Initiative and the Multilateral Debt Relie Initiative (MDRI).35 The PRGF, the main instrument or

provision o IMF nancial support to low-income countries,

ocuses on poverty reduction in the context o a growth-oriented

economic strategy, while the ESF provides concessional assistance

to low-income members that are acing sudden exogenous shocks

but do not have a PRGF arrangement in place. A low-income

country seeking a PRGF or ESF loan or debt relie must prepare

a Poverty Reduction Strategy Paper (PRSP) in a participatory

process involving civil society; the PRSP is considered by the

Boards o the IMF and the World Bank, but the strategy is

developed and owned by the country. The unds or PRGF loans

come rom trust unds administered by the IMF, and the subsidy

resources are nanced by contributions rom the IMF and a

broad spectrum o its member countries.

Box 3.1 Special Drawing Rights

t SdR is a rsrv ass cra b IMF i 1969 i

rsps ra a sra iraia

iqii. SdRs ar “aca”—isrib—

mmbrs i prpri ir IMF qas. Sic

SdR’s crai, a a SdR 21.4 bii as b

aca mmbrs—SdR 9.3 bii i 1970–72 a

SdR 12.1 bii i 1979–81.ta, SdR as

imi s as a rsrv ass. Is mai ci is

srv as i acc IMF a sm r

iraia raizais a a mas pam r

mmbrs i si ir IMF acia biais. t

SdR is ir a crrc r a caim IMF. Rar,

i is a pia caim r sab crrcis

IMF mmbrs. hrs SdRs ca bai s

crrcis i xca r ir SdRs i w was: rs,

r arram var xcas

bw mmbrs; a sc, b IMF’s sia-

i mmbrs wi sr xra psiis prcas

SdRs rm mmbrs wi wak xra psiis i

xca r r sab crrcis.

t va SdR is bas wi

avra vas a bask majr ira-

ia crrcis, a SdR irs ra is a

wi avra irs ras sr-rm

isrms i marks r crrcis i

vaai bask. t m vaai is

rviw vr v ars. t as rviw was

cmp i nvmbr 2005, a IMF exciv

Bar ci cas i vaai bask

civ Jaar 1, 2006. t SdR irs ra is

caca wk a prvis basis r

rmii irs cars rar IMF

aci a irs ra pai mmbrs aar crirs IMF.

Special Drawing Rights. The IMF can create international

reserve assets by allocating Special Drawing Rights (SDRs)

to members (Box 3.1). Recipient countries can use SDRs to

obtain oreign exchange rom other members and to makepayments to the IMF. SDRs are also the IMF’s unit o account.





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34

IMF Aa Rpr | 2007

Cri acii(year adopted) prs Ciis phasig a mirig1

Cri rachs aex F Facii4

Sa-B Arrams (1952) Mim-rm assisac r cris Ap picis a prvi cfc Qarr prcass (isbrsms)wi baac pams icis a mmbr’s baac pa- ci bsrvac prr- a sr-rm caracr. ms icis wi b rsv mac criria a r ciis.

wii a rasab pri.

ex F Facii (1974) lr-rm assisac sppr Ap 3-ar prram wi src- Qarr r smiaa prcass(ex Arrams) mmbrs’ srcra rrms arss ra aa, wi aa ai (isbrsms) ci

baac pams icis a sam picis r x bsrvac criria a r-rm caracr. 12 ms. ciis.

Scia aciiisSppma Rsrv Sr-rm assisac r baac Avaiab i cx Sa-B Facii avaiab r ar; r-

Facii (1977) pams icis ra criss r ex Arrams wi a accss wi w r mr mark cc. asscia prram a wi prcass (isbrsms).

sr picis arssss mark cc.

Cmpsar Fiaci Mim-rm assisac r mp- Avaiab w sra/ tpica isbrs vr a miimmFacii (1963) rar xpr sras r cra xcss is ar b cr six ms i accrac wi

impr xcsss. ariis a a mmbr as pasi prvisis a arram wi ppr cri arram.rac ciiai, r w is

. baac pams psii xc-i sra/xcss is saisacr.

emrc Assisac Assisac r baac pams n, a ps-cfic assis-icis ra wi: ac ca b sm i w r

mr prcass.

(1) nara isasrs (1962) nara isasrs Rasab rs vrcmbaac pams icis.

(2) Ps-cfic (1995) t arma civi rs, Fcs isiia a amiis-piica rmi, r iraia raiv capaci bii pav arm cfic. wa war a ppr cri rac

arram r PRgF.

Faciiis r w-icm mmbrsPvr Rci a grw lr-rm assisac r p- Ap 3-ar PRgF arrams. Smiaa (r ccasia qarr

Facii (1999) sa baac pams i- PRgF-sppr prrams ar bas isbrsms ci bsrv-cis srcra ar; aims a a Pvry Rci Sray Papr ac prrmac criria assai pvr-rci rw. (PRSP) prpar b cr i a rviws.

paricipar prcss a iraimacrcmic, srcra, apvr rci picis.

exs Scks Facii (2006) Sr-rm assisac arss a Ap a 1–2 ar prram ivvi Smiaa r qarr isbrsmmprar baac pams macrcmic ajsms awi bsrvac prrmac criri a is a xs mmbr ajs sck a, i ms cass, cmpi sck. a srcra rrm csir a rviw.

impra r ajsm sck, r r miiai impac

r scks.

Table 3.1 IMF lending facilities

1 Except or the PRGF, the IMF’s lending is nanced rom the capital subscribed by member countries; each country is assigned a qa that represents its nancial commitment. A member provides a portion o its quota in oreign currenciesacceptable to the IMF—or SDRs (see Box 3.1)—and the remainder in its owncurrency. An IMF loan is disbursed or drawn by the borrower prcasi oreigncurrency assets rom the IMF with its own currency. Repayment o the loan isachieved by the borrower rprcasi its currency rom the IMF with oreign cur-rency. See CD-Box 5.1 on the IMF’s nancing mechanism. PRGF lending is nanced by a separate PRGF-ESF Trust.

2 The ra car on unds disbursed rom the General Resources Account (GRA) is set at a margin over the weekly interest rate on SDRs. The rate o charge is applied to the daily balance o all outstanding GRA drawings duringeach IMF nancial quarter. In addition, a one-time service charge o 0.5 percentis levied on each drawing o IMF resources in the GRA, other than reservetranche drawings. An up-ront commitment ee (25 basis points on committed amounts up to 100 percent o quota, 10 basis points thereater) applies to theamount that may be drawn during each (annual) period under a Stand-By or Extended Arrangement; this ee is reunded on a proportionate basis as subsequent

http://chapter_5/CD_BOX_5.1.pdf




Prram sppr | 3

Rrchas (ram) rms3

obigai excai

sch schAccss imis1 Chargs2 (Years) (Years) Isams

Aa: 100% qa; Ra car ps srcar 31 / 4–5 21 / 4–4 Qarrcmaiv: 300% qa. (100 basis pis ams abv

200% qa; 200 basis pis ams abv 300% qa).5

Aa: 100% qa; Ra car ps srcar 41 / 2–10 41 / 2–7 Smiaacmaiv: 300% qa. (100 basis pis ams abv

200% qa; 200 basis pis ams abv 300% qa).5

n accss imis; accss r Ra car ps srcar 21 / 2–3 2–21 / 2 Smiaaacii w accss r (300 basis pis, risi b 50 basisasscia rar arram pis a ar ar rs isbrsmw rwis xc ir a vr 6 ms rar aaa r cmaiv imi. maximm 500 basis pis).

45% qa ac r xpr a Ra car. 31 / 4–5 21 / 4–4 Qarrcra cmps. Cmbiimi 55% qa r bcmps.

gra imi 25% qa, Ra car; wvr, ra 31 / 4–5 n Qarr arr ams p car ma b sbsiiz 0.5 pr- appicab 50% ca b ma avaiab i c a ar, sbjc rsrcxcpia cass. avaiabii.

140% qa; 185% qa i 0.5% 51 / 2–10 n Smiaaxcpia circmsacs. appicab

Aa: 25% qa; 0.5% 51 / 2–10 n Smiaacmaiv: 50% qa appicabxcp i xcpia circmsacs.

drawings are made under the arrangement.

3 For purchases made ater November 28, 2000, members are expected to makerepurchases (repayments) in accordance with the schedule o expectation; the IMF may, upon request by a member, amend the schedule o repurchase expecta-tions i the Executive Board agrees that the member’s external position has not improved suciently or repurchases to be made.

4 Cri racs reer to the size o purchases (disbursements) in terms o propor-tions o the member’s quota in the IMF; or example, disbursements up to

25 percent o a member’s quota are disbursements under the rs credit trancheand require members to demonstrate reasonable eorts to overcome their bal-ance o payments problems. Requests or disbursements above 25 percent arereerred to as ppr credit tranche drawings; they are made in installments asthe borrower meets certain established perormance targets. Such disbursementsare normally associated with a Stand-By or Extended Arrangement. Access toIMF resources outside an arrangement is rare and expected to remain so.

5 Surcharge introduced in November 2000.



36

IMF Aa Rpr | 2007

Emerging Market Economies

Many emerging market economies have moved rom programs

to a surveillance-only relationship with the IMF. As these

countries have gained access to international capital markets,

they have repaid their IMF loans ahead o schedule and their

need or new IMF lending has decreased dramatically.

Lending

IMF credit outstanding at the end o FY2007 declined to

SDR 7.3 billion rom SDR 19.2 billion in April 2006, owing

to continued early repayments o outstanding loans and a low

level o new disbursements (Figure 3.1).36 During FY2007, nine

members—Bulgaria, the Central Arican Republic, Ecuador,

Haiti, Indonesia, Malawi, the Philippines, Serbia, and

Uruguay—repaid their outstanding obligations to the IMF

ahead o schedule, or a total o SDR 7.1 billion. IMF disburse-

ments totaled SDR 2.3 billion, the bulk o which went to Turkey.

New IMF commitments ell sharply, rom SDR 8.3 billion in

FY2006 to SDR 237 million in FY2007, with two new Stand-By

Arrangements approved or Paraguay and Peru. Seven Stand-By

and Extended Arrangements were in eect as o the end o

FY2007, o which our are being treated as precautionary since

borrowers have indicated their intention not to draw on them. At

the end o April 2007, undrawn balances under all current Stand-

By and Extended Arrangements amounted to SDR 3.9 billion.

The Fund can also provide loans under its lending acilities

through the Trade Integration Mechanism (TIM), which it

introduced in FY2004. The TIM is not a lending acility

itsel, but, rather, a policy. It is designed to help mitigate

concerns among some developing countries that their

balance o payments positions could suer, albeit temporar-

ily, as multilateral trade liberalization changes their competi-

tive position in world markets.

Detailed inormation about the amounts o lending

approved by the IMF, credit outstanding, and repayments,

broken down by lending acility and nancial year, can be

ound in the Appendix II tables on the CD-ROM.

The IMF’s Executive Board requently reviews and renes

the IMF’s policies and instruments to ensure that they meet

members’ evolving needs. During FY2007, the IMF’s

Executive Board began work on the development o a new

contingent nancing instrument that emerging market

countries active in international capital markets could draw

on i they experience a sudden, temporary loss o liquidity.

To help low-income countries avoid building up excessive

debt ater beneting rom debt relie, the Boards o the IMF

and the World Bank decided to strengthen the Debt

Sustainability Framework (DSF) developed by the twoinstitutions in 2005, and the IMF and the World Bank

engaged in outreach on ways to use the DSF more eec-

tively. The Board also reviewed the report o the

Independent Evaluation Oce (IEO; Box 5.3), “The IMF

and Aid to Sub-Saharan Arica,” concluded a review o “ex

post assessments”—assessments o the successes and ailures

o IMF-supported programs with repeat or longer-term

borrowers—and reviewed the IMF’s experience over 1992–

2005 with precautionary arrangements, which give countries

not acing immediate balance o payments problems the right

to draw on nancial assistance rom the IMF should the need

arise, conditional on the implementation o specic policies.

36 The IMF’s liquidity, as measured by the Forward Commitment Capacity (FCC), rose to an all-time high o SDR 126.1 billion at the end o April 2007, rom SDR 120.1 billion at the end o April 2006, largely because o the signicant decline in lending.

Figure 3.1 Regular loans outstanding, FY1997–FY2007

(In billions o SDRs)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

80

70

60

50

40

30

2010

0

Source: IMF Finance Department.





Prram sppr | 3

37 “The Role o Fund Support in Crisis Prevention” (March 23, 2006) can be ound on the IMF’s Web site, www.im.org.

38 The summing up o the Board’s discussion is contained in PIN 06/104, which can be ound on the CD-ROM and on the IMF’s Web site, at www.im.org/external/np/sec/pn/2006/pn06104.htm. A act sheet about the Contingent Credit Lines can be ound at www.im.org/external/np/exr/acts/ccl.htm.The IMF introduced the CCL in 1999 as part o its response to the rapid spread o turmoil through global nancial markets during the Asian crisis o 1997–98. The instrument was intended to provide a precautionary line o deense or members that had sound policies and were not at risk o an external payments crisis o their own making, but that were vulnerable to contagion eects rom capital account crises in other countries. Despite changes intended to make the CCL more attractive to members, it was never used, and the Board decided in 2003 to allow it to expire.

39 The sta paper, “Further Consideration o a New Liquidity Instrument or Market Access Countries—Design Issues,” February 13, 2007, can be ound on the IMF’s Web site, at www.im.org/external/pp/longres.aspx?id=4044.The summing up o the Board’s discussion, PIN 07/40, can be ound on the CD-ROM as well as on the Fund’s Web site, at www.im.org/external/np/sec/pn/2007/pn0740.htm.

New fnancing instrument

A number o the IMF’s members have called or consideration

o a new nancing instrument designed specically to support

crisis-prevention eorts by members active in internationalcapital markets. As part o the analytical backdrop to the

design o such an instrument, in May 2006 the Executive

Board held an inormal seminar to discuss a study on the role

o IMF-supported programs in crisis prevention.37 Based on

theoretical and empirical work, that study ound that the

availability o IMF resources can have a signicant impact on

lowering the likelihood o a crisis. Moreover, the marginal

impact o IMF support depends on the quality o the

member’s policies and economic undamentals—accordingly,

the availability o IMF nancial resources can have a strong

complementary eect to the member’s own crisis-prevention

eorts. Building on this analytical work, at a seminar in

August 2006, the Executive Board discussed the objectives or

a new nancing instrument, taking into account the IMF’s

experience with an earlier instrument, the Contingent Credit

Lines (CCL).38

A successul instrument would reduce the risk o a crisis by

granting qualied members—that is, countries ollowing

sound policies—access to a credit line, thereby lowering the

incentive or private investors to reduce their exposure early,

at the rst sign o trouble. It would also need to balance

predictable access to IMF nancing against adequate

saeguards or IMF resources, and manage the tension

between the provision o strong positive signals when

conditions are good and the possibility that entry or exit rom

the instrument could generate negative signals when circum-

stances deteriorate.

At the September 2006 Annual Meetings, the IMFC

requested that the IMF continue to work on designing a new

instrument, tentatively called the Reserve Augmentation

Line. Outreach by IMF management and sta with ocials

and market participants acilitated urther work on the

instrument’s design, and in March 2007 Executive Directors

discussed a paper that sought urther convergence o views on

key design issues, such as qualication, monitoring, access,

terms, and a sunset clause.39 The discussion claried areas o

emerging common ground and revealed areas where urther

progress is needed. The Executive Board called on IMF sta

to prepare a ollow-up paper rening the proposals.

Low-Income Countries

The MTS identies the need to make the IMF’s engagement

with low-income countries more fexible, as well as more

ocused on what is essential and on areas where the IMF has a

comparative advantage and expertise. Over the past ew years,

the Board has approved a wide array o instruments to help

the IMF’s low-income members achieve macroeconomic

stability and sustainable growth, which are critical to the

achievement o the Millennium Development Goals (Box

3.2). In addition to the advice given to countries in the course

o its surveillance activities, the IMF provides advice, nancial

assistance, and debt relie in connection with the acilities

described above, and 90 percent o its technical assistance goes

to low- and lower-middle-income countries (see Chapter 4).

For low-income countries eligible or PRGF lending that do

not want nancial assistance rom the IMF but do want

support o their policies through counsel and advice, the IMF

created the Policy Support Instrument (PSI) in FY2006. As o

April 30, 2007, our countries had applied or and received

PSIs. The Fund also continues to advocate a successul

outcome to the Doha Round o trade negotiations (Box 3.3).

Concessional lending

During FY2007, the Executive Board approved 10 new PRGF

arrangements (Table 3.2), with commitments totaling

SDR 401.2 million. The Board also approved the augmenta-

tion o two PRGF arrangements, or a combined total o

SDR 36.8 million. In addition, the Board approved Kenya’s

request to reduce access under its PRGF arrangement by

SDR 75 million, in light o its improved external position. As

o April 30, 2007, the reorm programs o 29 member

countries were supported by PRGF arrangements. Total

concessional loans outstanding amounted to SDR 3.9 billion

(Figure 3.2). To date, no country has requested assistance

under the ESF.

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IMF Aa Rpr | 2007

Table 3.2 PRGF arrangements approved in FY2007

(In millions o SDRs)

AmMmbr eciv a arv1

nw arragms

Aaisa J 26, 2006 81.0

Brkia Fas Apri 23, 2007 6.0

Cra Arica Rp. dcmbr 22, 2006 36.2

gambia, t Fbrar 21, 2007 14.0

haii nvmbr 20, 2006 73.7

Maaascar J 21, 2006 55.0

Mariaia dcmbr 18, 2006 16.1

Mva Ma 5, 2006 80.1

Rwaa J 12, 2006 8.0

Sirra l Ma 10, 2006 31.1

Sba 401.2

Agmais/rcis

Brkia Fas Spmbr 8, 2006 6.0

Mva dcmbr 15, 2006 30.8Ka Apri 11, 2007 (75.0)

Sba (38.2)

ta 363.0


1 For augmentations/reductions, only the amount o the increase/decreaseis shown.

Debt relie

Debt relie eorts under the enhanced HIPC Initiative and

the MDRI continued during FY2007. A sunset clause was

introduced at the start o the HIPC Initiative in 1996,

restricting eligibility to countries that had embarked onprograms supported by the IMF or the International

Development Association (IDA)40 within a two-year period to

prevent the Initiative rom becoming permanent, minimize

potential moral hazard arising rom excessive borrowing in

anticipation o debt relie, and encourage early adoption o

reorms. Following numerous extensions over the years, at a

meeting in September 2006 the Executive Boards o the IMF

and the World Bank acknowledged that letting the sunset

clause take eect at end-2006 without any modication could

leave several countries with debt burdens in excess o the

Initiative’s thresholds and no urther possibility o beneting rom this comprehensive ramework. Accordingly, agreement

was reached to let the sunset clause take eect while granda-

thering all countries assessed to have met the income andindebtedness criteria based on end-2004 data, including

countries that might be assessed to have met these criteria at

some point in the uture.

Executive Directors called on the sta to conduct a stock-

taking exercise in a ew years’ time to review the options or

the remaining duration o the HIPC Initiative. They also

urged sta to continue working with country authorities to

develop and implement reorm strategies and to assist these

countries in qualiying or HIPC Initiative assistance

promptly. At the same time, they encouraged the remaining

countries to make every eort to establish a track record o policy perormance and implement satisactorily their

poverty reduction strategies so that they can begin receiving

debt relie.41

As o April 30, 2007, 30 countries had reached the decision

point under the enhanced HIPC Initiative; o these, 22 had

reached their completion points.42 The IMF has committed

SDR 1.9 billion under the HIPC Initiative and disbursed

SDR 1.7 billion. During FY2007, one member (Haiti) reached

its decision point, three others (Malawi, Sierra Leone, and São

Tomé and Príncipe) reached their completion points, and

Aghanistan was added to the list o countries eligible orassistance under the HIPC Initiative.

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

8

7

6

5

4

3

2

1

0


MdRIbri

Figure 3.2 Concessional loans outstanding,FY1997–FY2007

(In billions o SDRs)

40 IDA is the World Bank agency that provides interest-ree loans and grants to the poorest member countries.

41 For the summing up o the Board’s discussion, see “IMF Executive Board Discusses Issues Related to the Sunset Clause o the Initiative or Heavily Indebted Poor Countries,” PIN 06/107, on the CD-ROM or at www.im.org/external/np/sec/pn/2006/pn06107.htm.

42 To qualiy or HIPC assistance, a country must pursue strong economic policies supported by the IMF and the World Bank. Ater establishing a track record o good perormance and developing a PRSP or an interim PRSP, the country is said to have reached its decision point, at which time the IMF and the World Bank ormally decide on the country’s eligibility and the international community commits itsel to reducing the country’s debt to a sustainable level. The country must then continue its good track record with the support o the international community, implementing key policy reorms,maintaining macroeconomic stability, and adopting and implementing a PRSP. Paris Club and other bilateral and commercial creditors reschedule obligations coming due. A country reaches its completion point once it has met the objectives set at the decision point. It then receives the balance o the debt relie committed.





Prram sppr | 3

43 For more inormation on the MDRI, see PIN 05/164, at www.im.org/external/np/sec/pn/2005/pn05164.htm.

Box 3.2 Tracking progress toward the Millennium Development Goals

1 t gba Miri Rpr: Cri Cas gr eqai a Frai Sascan be ound on the IMF’s Web site, at www.im.r/xra/pbs/ca/rs.cm?sk=20364.0.

t IMF a Wr Bak rack prrss mab w-icm cris war acivm

Miim dvpm gas (Mdgs), ji

pbisi ir is aa i Global

Monitoring Report (gMR). t r gMR, iss

i Apri 2007, a prrss rs a—

avi pvr b 2015—was rack i a

vpi ris xcp sb-Saara Arica, b

a rs aai as rci ci

mrai a isas a acivi virma

ssaiabii wr ai sr. I ca r rar

ai r qai— bcas

qi csirais b as bcas mpwri

wm is ssia cmic w-bi a

avacm r Mdgs—a raisas, wic acc r 27 prc vp-

i wr’s xrm pr (s ivi ss a

$1 a a).1 Frai sas—w-icm cris a

rriris m av spcia wak isiis

a vrac a rmi cmic prr-

mac a ivr basic scia srvics—ar,

i ra, as ik aciv Mdgs. Ma

ar mri rm cfic.

A sbsaia icras i ai wi b i

vpi cris ar accra ir rs

rac Mdgs. hwvr, aca cmmims

ai i 2005–06 as risr b oeCd-dAC

(oraizai r ecmic Cprai advpm–dvpm Assisac

Cmmi)—xci xcpia b ri

rasacis—av ci, a prjcis

r 2008 av ai vms ai w sr

ps ma b iraia cmm-

i a Iraia Crc Fiaci

r dvpm a k pac i Mrr,

Mxic, i 2002, a a grp 8’s

gas smmi i 2005. t IMF cis

r biara rs icras ai vs a

mak ai mr pricab. t F is as

prvii avic a cica assisac i is

aras xpris ai rcipis sr a

ca s icras ai civ wirmii macrcmic sabii, crwi

priva ivsm, r ai back i

siais ssaiab xra ibss.

t IMF wrks cs wi Wr Bak ma

isss ra w-icm cris i aii

gMR, ici PRSP prcss, b ri

r hIPC Iiiaiv a MdRI, db

Ssaiabii Framwrk, a Fiacia Scr

Assssm Prram ( FSAP is scrib i

Capr 2). A exra Cmmi carri a

s Bak-F cabrai, wic is iscss

i Capr 5, ri Fy2007.

tion point under the enhanced HIPC Initiative. In addition,

the IMF provides MDRI debt relie to all its members with

yearly per capita incomes at or below $380 (including two non-

HIPCs, Cambodia and Tajikistan).43

As o Apri l 30, 2007, the IMF had delivered MDRI debt

relie totaling SDR 2.7 billion to 24 countries. The debt relie was nanced by a combination o resources rom undisbursed

The MDRI was launched in early 2006 to urther reduce the

debts o qualiying low-income countries and provide them

with additional resources to help meet the MDGs. Proposed by

the Group o 8 countries, the MDRI is a dierent mechanism

rom the HIPC Initiative but linked to it operationally. Under

the MDRI, the IMF, IDA, the Arican Development Fund, and

the Inter-American Development Bank provide 100 percentdebt relie on eligible claims o countries reaching the comple-


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Box 3.3 Trade liberalization and low-income countries

1 The paper is available on the IMF’s Web site, at www.im.r/xra/pp/rs.aspx?i=3886; PIN 06/105, which contains the summing upo the Board’s discussion, can be ound on the CD-ROM or at www.im.r/xra/p/sc/p/2006/p06105.m.

2 The recommendations include the establishment o a new executive secretariat in the WTO Secretariat, measures to strengthen capacity inthe least-developed countries, a unding target o $400 million over an initial fve-year period, and a monitoring and evaluation ramework.

I As 2006, exciv Bar iscss

“da dvpm Aa a Ai r tra,” a

papr ji prpar b sas IMF a

Wr Bak.1 exciv dircrs srss a wrk

Ai r tra s prc rarss sas

da R. A Ai r tra ca

sbsi r a ambiis cm da

R, b pi vpi cris arss

irasrcra a r spp csrais, i ma

ab m ak avaa ra ppri-

is arisi rm ba mark pi. t IMF

s ci wi sciv irvis wii is

maa a cr aras cmpc, ici

macrcmic impicais cas i rapicis a ba ra virm, a avic

ax a csms rrm.

t Bar k prpsas Wto task

Frcs a eac Ira Framwrk r

tra-Ra tcica Assisac (IF) a Ai r

tra. A prs, ra-ra pririis i ma

as-vp cris rmai iscc

rm PRSP prcss. Aais is backr,

exciv dircrs bsrv a impmai

rcmmais IF task Frc c aw

IF pa a mr civ r i pi ii

ai-r-ra s a criai ra-ra

cica assisac. t wcm rcmma-

is r sr capaci i IF bciar

cris a imprv IF vrac, a rciz

r cmmims r aci is r.2

A bs ra ibraizai wi

css vra, crai w-icm cris ma b

r i sr r b ra ibraizai masrs

a xps ir xprs rar cmpii,

rc ir rvs as aris ar wr, r rais

cs imprs as aricra sbsiis ar

abis. I 2004, IMF irc tra

Irai Mcaism (tIM), a vic a aws

cris icras ir accss IMF rsrcs

r a xisi arram r a w arram

wii F’s aciiis i cssar cp

wi rsi ra prrcs a c

r cris’ ra ibraizai ir baac

pams. I Fy2007, exciv Bar apprv

acivai tIM r Maaascar, i i

pssib impac cr’s xi xprs

xpirai xi qas i 2005 as ca r b

Wto’s Arm txis a Ci a

impmai u.S. Arica grw a

oppriis Ac i 2007. Wi acivai

tIM, Maaascar bcam iib r a amai

accss IMF rsrcs r is PRgF arra-

m. I is ir IMF mmbr r wic tIM as

b aciva.

HIPC accounts (SDR 0.4 billion), IMF resources (SDR 1.2 bil-

lion), and bilateral contributions (SDR 1.1 billion). During

FY2007, our members (Malawi, Mauritania, Sierra Leone,

and São Tomé and Príncipe) received debt relie totaling

SDR 189.2 million under the MDRI.44

Debt Sustainability Framework

The primary aim o the DSF is to help guide the borrowing

decisions o low-income countries, balancing their need or unds

against their ability to service debt. The Executive Board had a

second discussion in FY2007 about how the DSF, which was

44 CD-Table 3.3 and CD-Table 3.4 on the CD-ROM list the countries covered by the MDRI and describe the implementation o the MDRI.











Prram sppr | 3

45 The rst discussion took place in April 2006; see PIN 06/61, at www.im.org/external/np/sec/pn/2006/pn0661.htm.

46 For the summing up o the Board’s discussion, see PIN 06/136, “IMF Executive Board Discusses the Application o the Debt Sustainability Framework or Low-Income Countries Post Debt Relie” on the CD-ROM or at www.im.org/external/np/sec/pn/2006/pn06136.htm.The sta report can be ound on the IMF’s Web site, at www.im.org/external/pp/longres.aspx?id=3959; a sta guidance note on the application o the DSF is also posted on the IMF’s Web site, at www.im.org/external/np/pp/2007/eng/041607.pd.

47 See www.im.org/external/pubs/t/dsa/lic.aspx o r debt sustainability analyses included in country reports. The Web page on the IMF’s concessionality was launched in January 2007; see www.im.org/external/np/pdr/conc/index.htm.

48 See PIN 05/145 at www.im.org/external/np/sec/pn/2005/pn05145.htm o r the summing up o the Board discussion at which the PSI was approved.

endorsed by the Boards o the IMF and the World Bank in April

2005, could be used to help low-income countries that have

received debt relie avoid reaccumulating excessive debt.45 The

November 2006 discussion, which was based on a paper prepared jointly by the stas o the IMF and the World Bank, ocused on

how best to integrate into the DSF the policy challenges arising

rom the perceived increase in borrowing space created by debt

relie in some low-income countries, the emergence o new

creditors, and the rising weight o domestic debt. These develop-

ments, while welcome, create new risks that need to be addressed

as countries make progress toward implementing prudent debt-

management policies. The Board thereore called or improve-

ments to the rigor and quality o debt sustainability analyses.

Executive Directors reiterated that concessional fows remain

the most appropriate source o external nance or low-incomecountries and called or continued eorts by the international

community to improve the availability and predictability o

such nancing. However, they recognized that consideration

should be given, on a case-by-case basis, to nonconcessional

nance, depending on its impact on debt sustainability, on the

overall strength o a borrowing country’s policies and institu-

tions, and on the quality o both the investment to be nanced

and the overall public expenditure program.

Executive Directors underscored that the eectiveness o the

DSF ultimately depends on its broader use by debtors and

creditors and stressed the need or urther outreach to ocial

creditors. They also stressed the importance o timely, high-

quality data on borrowing and lending operations and

encouraged IMF sta, working with Bank sta, to dissemi-

nate more broadly and eectively the results o debt sustain-

ability analyses.46 The Board welcomed the creation o a

dedicated Web page on the IMF’s Web site where debt

sustainability analyses can be easily located and supported the

establishment o a similar Web page on concessionality.47 The

IMF and the World Bank have stepped up their outreach on

the DSF, including to non-OECD creditors, to oster

responsible lending practices, and they stand ready to help

design principles in this area. They are also increasing eorts

to provide borrowing countries with training and technical

assistance to strengthen their debt-management capacities.

Policy Support Instrument

In recent years, several low-income countries have made

signicant progress toward economic stability and no longer

require IMF nancial assistance. However, regardless o whether

they seek the Fund’s nancial support, they may still seek IMF

monitoring and support o, and advice and counsel on, their

economic policies. Approved by the Executive Board in

FY2006, PSIs are designed to address the needs o these

members by providing policy support and “signaling.”48

Signaling reers to the inormation Fund activities can

indirectly provide about countries’ perormance and prospects.

Such inormation can be used to inorm the decisions o

outsiders, including private creditors, ocial donors and

creditors, and the public at large. In low-income countries, such

signals have been sent mainly in the context o the PRGF and

the related PRSP process. PSIs mirror the design and achieve

many o the purposes o the PRGF, and like PRGF arrange-

ments and debt relie, are based on development o a PRSP.

They are also voluntary—members that want PSIs must request

Agricultural worker in Tajikistan




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49 For details, see Press Releases 06/172, “IMF Executive Board Approves a Three-Year Policy Support Instrument or Cape Verde,” and 07/13, “IMF Executive Board Completes the First Review Under the Policy Support Instrument or Cape Verde,” at www.im.org/external/np/sec/pr/2006/pr06172.htm an d

www.im.org/external/np/sec/pr/2007/pr0713.htm, respectively; Press Releases 05/229, “IMF Executive Board Approves a Two-Year Policy Support Instrument or Nigeria,” and 06/293, “IMF Executive Board Completes the Second Review Under the Policy Support Instrument or Nigeria,” at

www.im.org/external/np/sec/pr/2005/pr05229.htm an d www.im.org/external/np/sec/pr/2006/pr06293.htm, respectively; Press Release 07/26,“IMF Executive Board Completes Sixth Review Under Tanzania’s PRGF Arrangement and Approves a Three-Year Policy Support Instrument,” at

www.im.org/external/np/sec/pr/2007/pr0726.htm; and Press Releases 06/14, “IMF Executive Board Completes Final Review o Uganda’s PRGF Arrangement and Approves 16-Month Policy Support Instrument,” and 06/281, “IMF Executive Board Completes the First Review Under the Policy Support Instrument or Uganda and Approves a New Three-Year Policy Support Instrument,” at www.im.org/external/np/sec/pr/2006/pr0614.htm and www.im.org/external/np/sec/pr/2006/pr06281.htm, respectively.

50 The IEO’s report and press release, as well as the summing up o the IMF Board’s discussion, can be ound at www.ieo-im.org/eval/complete/eval_03122007.html.

them—and thus demonstrate strong country ownership o

policy programs, and programs are expected to meet the same

high standards as programs supported by Fund nancial

assistance. In the event o a shock, an on-track PSI couldprovide the basis or rapid access to PRGF resources through

the ESF. The publication o PSI documents, like that o PRGF

documents, is voluntary but presumed.

Emergency Assistance

The IMF provides emergency nancial assistance to both

emerging market economies and low-income countries

recovering rom conficts (Emergency Post-Confict Assistance,

or EPCA) or natural disasters (Emergency Natural Disaster

Assistance, or ENDA). The interest charged on Emergency

Assistance provided to PRGF-eligible members is subsidized

subject to the availability o subsidy resources contributed by

member countries; the subsidized rate is 0.5 percent a year.

During FY2007, the Executive Board approved Emergency

Assistance o SDR 50.8 million or Lebanon under EPCA, and

the Central Arican Republic and Haiti repaid their EPCA loans,

totaling SDR 33 million, earlier than scheduled. As o April 30,

2007, two countries, Iraq and Lebanon, had outstanding EPCA

credit, which amounted to SDR 347.9 million. No new ENDA

loans were made during FY2007. During FY2007, Malawi repaid

ENDA loans totaling SDR 8.7 million. Three countries—

Grenada, Maldives, and Sri Lanka—had outstanding ENDA

credit, or a total o SDR 111.5 million, at end-April 2007.

Review o the IMF’s Role and Instruments

In FY2007, the Executive Board reviewed the IMF’s advice on

the use o aid in sub-Saharan Arica, based on an IEO evaluation;

considered the ndings and value o ex post assessments; and

compared the perormance o countries under precautionary

arrangements with that o countries that had arrangements on which they drew nancial assistance. The Board also requested

additional policy papers to dene more clearly the IMF’s role in

low-income countries.

IMF and aid to sub-Saharan Arica

In March 2007, the Executive Board discussed the IEO evaluation

o the IMF and aid to sub-Saharan Arica.50 The IEO report

conrmed the steady improvement in the region’s macroeconomic

perormance during 1999–2005 and attributed this improvement

in part to the advice and actions o the IMF, including on debt

relie, while also recognizing the contribution o the authorities’

own eorts and exogenous actors. Nevertheless, the report

The IMF provides emergency

nancial assistance to emerging

market economies and low-income

countries recovering rom conficts

or natural disasters.

In addition to promoting a close policy dialogue between

the IMF and its low-income members, PSIs provide more

requent Fund assessments o members’ economic andnancial policies than is possible under the Article IV

consultation process: while Article IV consultations usually

take place yearly, the Board reviews perormance under PSIs

semiannually. Members with PSIs are expected to provide

timely and accurate data to the Fund to ensure the integrity

o these assessments.

In the past two years, the Board has approved PSIs or our

countries: Nigeria and Uganda in FY2006, and Cape Verde

and Tanzania in FY2007.49 In FY2007, the Board reviewed

Uganda’s 16-month PSI and approved a new, 3-year PSI at

Uganda’s request.























Prram sppr | 3

identied areas where urther improvements were needed,

including the IMF’s role in poverty reduction eorts, the

mobilization o aid, the preparation o alternative scenarios or

reaching the MDGs, and the application o poverty and social

impact analysis. The IEO ound that IMF sta did not receive

clear directives on work in these areas because o dierences in the

views o Executive Directors on the IMF’s role and policies in low-

income countries, and that management and the Board should

have done more to resolve these dierences. The report also ound

a disconnect between the IMF’s external communications on aidand poverty reduction and its practice in low-income countries.

The IEO made the ollowing recommendations: (1) the Executive

Board should clariy IMF policies on macroeconomic perormance

thresholds or the accommodation o additional aid, the mobiliza-

tion o aid, alternative scenarios, poverty and social impact analysis,

and pro-poor and pro-growth budget rameworks; (2) IMF

management should establish transparent mechanisms or

monitoring and evaluating the implementation o the claried

policy guidance, including with respect to collaboration with the

World Bank, and ensure that institutional communications are

consistent with Fund policies and operations; and (3) management

should clariy its expectations o, and the resources available to, the

IMF’s resident representatives and mission chies with respect to

their interactions with local donor groups and civil society.

In their discussion o the IEO’s report, Executive Directors were

encouraged by the improvements in sub-Saharan Arica’s

macroeconomic perormance. They noted that the HIPC Initiative

and the MDRI had greatly reduced debt-related vulnerabilities and

the costs o debt servicing. Executive Directors also noted the

improvements in the IMF’s assistance to low-income countries.They considered that the IMF’s engagement in low-income

countries should remain ocused on its core mandate and that the

IMF should not play a coordinating role in aid mobilization. They

also conrmed that distributional policies lie outside the IMF’s

core mandate and emphasized the importance o improving IMF

collaboration with development partners, in particular the World

Bank, to take these issues into account when helping countries

ormulate their macroeconomic policies. Many Executive Directors

thought sta should be prepared to design alternative scenarios

related to the scaling-up o aid, but most thought that normative

advice would all outside the IMF’s mandate: they considered that

the IMF’s role should be limited to assessing the consistency o

Post-confict reconstruction in Lebanon



44

IMF Aa Rpr | 2007

51 The paper can be ound on the IMF’s Web site, at www.im.org/external/np/pp/eng/2006/032006R.pd. The summing up o the Board discussion can be ound in PIN 06/96, on the CD-ROM, as well a s on the IMF’s Web site, www.im.org/external/np/sec/pn/2006/pn0696.htm.

52 These EPAs were or the ollowing countries: Albania, Armenia, Azerbaijan, Benin, Bolivia, Bulgaria, Cambodia, Cameroon, Chad, Ethiopia,The Gambia, Georgia, Guinea, Guinea-Bissau, Honduras, Kazakhstan, the Kyrgyz Republic, Lesotho, the ormer Yugoslav Republic o Macedonia,Madagascar, Malawi, Mali, Moldova, Mozambique, Niger, Peru, Romania, Sierra Leone, Uganda, Uruguay, Vietnam, Zambia.

53 PIN 06/94, which contains the ull summing up o the Board discussion, can be ound on the CD-ROM and on the IMF’s Web site, at www.im.org/external/np/sec/pn/2006/pn0694.htm.

additional aid fows with macroeconomic stability and the

absorption capacity o the country. The Board supported the

report’s recommendation on the need or urther clarication o

IMF policy and asked sta to come back with specic proposals inthis area. Early in FY2008, Fund management submitted its plan

or implementing Board-endorsed recommendations to the Board.

Ex post assessments

Ex post assessments (EPAs) provide the IMF with an opportunity

to step back rom ongoing longer-term program engagement

with a member country so that it can take a resh look at its

overall strategic approach and draw lessons or uture programs.

In May 2006, the Executive Board discussed the IMF sta’s

“Review o Ex Post Assessments and Issues Relating to the Policy

on Longer-Term Program Engagement.”51 Through May 15,

2006, 57 members had been identied as having longer-termprogram engagement, o which more than 80 percent were low-

income countries, and 42 EPAs had been completed. The IMF

introduced EPAs in 2003 in response to the IEO’s report on

prolonged use o Fund resources because o concerns that, in

some cases, longer-term program engagement might indicate

inadequate progress in dealing with members’ economic

problems and a lack o eectiveness o IMF-supported programs.

There were also concerns that longer-term program engagement

might hinder the development o domestic institutions,

undermine the Fund’s credibility, and decrease the resources

available to other members in need o support.

In their May 2006 discussion, Executive Directors reviewed the

ndings o 32 EPA reports completed by end-August 2005.52

In most cases, EPAs ound that the design o policies in IMF-

supported programs had been consistent with the multiple

macroeconomic and structural challenges aced by members

with longer-term program engagement, and that IMF

involvement had not undermined members’ institutional

development. The Board noted, however, that several EPAs had

been critical o the design o structural reorms, in terms o

both the scope and the number o structural conditions, and

that eorts to streamline conditionality should continue.

The Board considered that, by and large, EPAs have served their

purpose and remain an important institutional mechanism or

distilling lessons and enhancing the learning culture o the IMF.

However, their value could be enhanced by greater selectivity and

ocus on a ew critical issues. Executive Directors suggested that

systematic discussions in EPAs o the reasons or program success

or ailure and o potential exit strategies would provide urther

useul lessons and generally agreed that, the IMF’s budget

situation permitting, the sta should expand eorts to reach outand consult with donors, outside experts, and country authori-

ties, while saeguarding the condentiality o inormation.

Precautionary arrangements

Also in May 2006, the Board discussed a study by IMF sta

comparing precautionary programs with lending programs on

which borrowing countries intend to draw. The study was

undertaken at the Board’s request to determine whether there were

systematic dierences in terms o program policies, conditionality,

or macroeconomic outcomes, and, i so, whether such dierences

were attributable to the nature o the program or to the circum-

stances that had led the member to seek the IMF’s support.Executive Directors concurred that drawing programs were more

likely to be requested by members with weaker macroeconomic

perormances, whereas precautionary programs tended to be

requested by members that had stronger macroeconomic

undamentals but aced uncertainties.53 It was also recognized that

members used precautionary programs to signal policies to

markets. The Board noted that, in the rst program year, output

growth was signicantly higher, and infation signicantly lower,

in members with precautionary programs than in those with

drawing programs. However, these dierences could be explained

largely by the dierences in initial conditions. Executive Directors

welcomed the analysis o market reactions, as refected in interestrate spreads, to IMF-supported programs. Spreads did not widen

when members sought precautionary programs, suggesting that

markets did not attach a stigma to such programs.

Executive Directors expressed a variety o views on the role o

precautionary arrangements in supporting a successul exit or

members rom IMF-supported programs. They considered that all

IMF-supported programs should aim to achieve an exit rom IMF

nancing. Overall, Executive Directors agreed that precautionary

programs are a most useul instrument in the IMF’s toolkit,

lending the IMF’s credibility in support o the authorities’ policies

and enhancing policy discipline. Many Executive Directors also

considered that these programs send a well-calibrated signal to

markets o the authorities’ commitment. Comparisons o policy

objectives and conditionality between precautionary and non-

precautionary programs suggested to most Executive Directors

that IMF policies are being applied consistently.

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Capaci bii: cica assisac a raii | 4

Chapter 4



46

IMF Aa Rpr | 2007

The technical assistance and training oered by the IMF at the request o member countries are

intended to help them ulll the commitments they make when they join the IMF—to pursue

policies that oster nancial and macroeconomic stability, sustainable economic growth, and

orderly exchange rate arrangements, and to provide the IMF with timely, accurate, and high-

quality data about their economies. Equally important, technical assistance and training are also

vehicles or helping member countries implement the recommendations that come out o the

IMF’s Article IV consultations (see Chapter 2). Hence, aligning and integrating capacity building

with surveillance and program work have become key objectives o the IMF’s Executive Board,

which regularly reviews Fund technical assistance and training.

The IMF oers technical assistance and training mainly in its core areas o expertise, including

macroeconomic policy, tax and revenue administration, public expenditure management, mone-

tary policy, exchange systems, nancial sector reorms, and macroeconomic and nancial statistics.

In recent years, member countries have also increasingly requested assistance in addressing issues

related to monitoring oshore nancial centers, preventing money laundering and the nancing

o terrorism, strengthening public investment, managing scal risks rom public-private partner-

ships, adopting international standards and codes or data and nancial and scal management,

correcting weaknesses identied under the joint IMF–World Bank Financial Sector Assessment

Program, and carrying out debt sustainability analyses.

IMF Aa Rpr | 2007

46

Chapter 4 Capacity building: technical assistance and training




The amount o technical assistance and training delivered

directly to member countries by the IMF has increased

over the past ve years with the expansion o the regional

technical assistance and training centers. Taking manage-ment and administration into account, technical assistance

now represents about 24 percent o the IMF’s operating

budget. Still, demand or technical assistance and training

exceeds the IMF’s ability to supply it, especially in light o

constraints stemming rom growing pressures on the IMF’s

nances. Priority is thereore given to initiatives that

support the IMF’s core objectives.

IMF technical assistance is delivered mainly by the

Monetary and Capital Markets Department (MCM),

Fiscal Aairs Department (FAD), Statistics Department

(STA), and Legal Department (LEG). Overall institutionalpolicy on, and coordination o, technical assistance are the

responsibility o the Committee on Capacity Building,

assisted by the Oce o Technical Assistance Management

(OTM), in consultation with other IMF departments.

Following up on the IMF’s Medium-Term Strategy, the

Committee on Capacity Building is charged with ensuring

that the IMF’s initiatives in this area respond to country

needs, are coordinated with other providers, and are

guided by appropriate policies, while OTM is responsible

or raising and managing external nancing or technical

assistance activities and policy support. Training activities

are handled primarily by the IMF Institute, whichconducts seminars, workshops, and other training events

or country ocials, oten in collaboration with other

IMF departments.

Recognizing the critical capacity-building needs o develop-

ing countries, the IMF in FY2007 opened a regional

technical assistance center (RTAC) in Gabon to support

countries in Central Arica—the third such center in Arica

and the sixth worldwide (Box 4.1)—as well as a seventh

Regional Training Center (RTC) program, in India.

Technical Assistance

While the IMF may help identiy areas o need, it is the

member country that decides to request technical assistance.

Most technical assistance is provided ree o charge. Whethertechnical assistance is delivered through missions rom

headquarters, short-term expert assignments, long-term

resident advisors, or regional centers, the recipient country is

always ully involved in selecting, implementing, monitoring,

and evaluating the assistance it receives. This collaborative

approach strengthens country ownership o reorms.

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48

IMF Aa Rpr | 2007

Box 4.1 Regional Technical Assistance Centers

t RtACs ar cabraiv vrs bw IMF,

rcipi cris, a biara a miara

rs. Fiacia sppr r m cms rm

rs, a, i ma isacs, rcipi cris

msvs, as w as rm IMF. hs vrms

rq prvi i-ki cribis.

t RtACs wr riia cciv prvi

cica assisac sma isa cmis,

bcas iivia assisac prvirs, ici

IMF, wr ar prss m s cris’

rqss. t Pacic RtAC, rs, was sabis

i 1993 srv 15 isa ais. Bii is

sccss, r RtACs s w, a ar ar six RtACs wrwi.

t Caribba RtAC (CARtAC), sabis i 2003,

srvs 20 cris. t eas AFRItAC, sabis i

dar-s-Saaam, tazaia, i 2002, a Ws

AFRItAC, sabis i Bamak, Mai, i 2003,

r srv 17 cris. t w Cra

AFRItAC, wic p i librvi, gab, i

Fy2007, srvs six cris Cra Arica

ecmic a Mar Cmmi (CeMAC)—

Camr, Ca, Cra Arica Rpbic,

Rpbic C, eqaria gia, a gab—

as w as Bri a dmcraic Rpbic C. t Mi eas RtAC, sabis i 2004,

srvs 10 cris a rriris i Mi eas,

primari wi cica assisac ra rbii

ir cmis as mr rm cfic.

t rwi cs ria imsis

IMF cica assisac is i i wi xpasi

IMF’s ria srviac aciviis as ra

a acia irai—a pssibii

spivrs—icras. I aii, RtACs aciia

criai wi r cica assisac

prvirs, cra sari ria

xprics, a sr vpm ria

wrks xprs. I is rviw RtACs i

Fy2006, IMF’s exciv Bar cc a

wr a s aii F’s cica

assisac prram a a ir prsc i

a ab avaas—i paricar,

sri cris’ wrsip ir

cica assisac prrams a prvisi

rapi a fxib cica assisac.

t vm cica assisac, masr i

prs-ars, ivr r RtACs as ris

vr ar sic Fy2002, b i abs rms a

as a prpri a IMF cica assisac (s

Cd-tab 4.1, Cd-RoM). Sic sabis-m eas a Ws AFRItACs, aa

vm IMF cica assisac a raii

prvi i sb-Saara Arica as icras b

ams 30 prc.

t RtACs ar sa b ams rsi xprs,

sppm b sr-rm spciaiss, w

prvi capaci-bii assisac r

avisr srvics a raii i cr aras

IMF’s xpris, ici b maam,

acia scr pic, rv amiisrai,

pbic acia maam, a macrcmic

saisics. t Sri Cmmis a vr RtACs s crs’ sraic irci a

rviw ri wrk pas, prmi sr

cr wrsip crs msvs a

cica assisac ivr r m.

CARtAC is a ui nais dvpm Prram

prjc i wic IMF is a siar; rs

ar IMF prais r wic IMF as s

i rm rs.

dais cris srv b RtACs,

rs r ir RtACs, a s

xpris rsi avisrs ca b

Cd-RoM, i Cd-tab 4.2.








Ninety percent o IMF technical assistance is provided to

low- and lower-middle-income countries (Table 4.1), to

help them build the institutions and capacity needed to

implement growth-enhancing policies. Technical assistancedelivery trends in FY2007 are summarized in Table 4.2.

Direct nancing or technical assistance delivery, supervision,

and administrative and other costs comes rom the Fund’s

administrative budget. Bilateral and multilateral donors have

provided generous nancial assistance as well, covering about

26 percent o the direct cost. This cooperation with external

donors both leverages the internal resources available or

technical assistance and heads o duplication o eort.

Table 4.2 IMF technical assistance resources and delivery, FY2005–07(In eective person-years)1

Fy2005 Fy2006 Fy2007

IMF amiisraiv bg 283.4 337.6 325.1

exra rsrcs 97.1 87.3 113.3

ta rsrcs 380.6 424.9 438.4

Rgia ivr 301.4 288.4 308.3

Arica 86.9 82.4 90.4

Asia a Pacic 68.2 58.5 62.7

erp 34.5 37.1 34.6

Mi eas a Cra Asia 45.1 61.0 54.2

Wsr hmispr 32.7 37.5 48.2

Ria a irria 33.9 11.9 18.2

Maagm a amiisrai2 79.2 136.5 130.1

ta ivr 380.6 424.9 438.4

ta ivr b arm 380.6 424.9 438.4

Fisca Aairs dparm 99.5 100.2 116.9

Mar a Capia Marks dparm3 127.0 125.7 117.0

Saisics dparm 53.1 54.3 56.3

IMF Isi 57.0 76.4 78.4

la dparm 23.5 20.0 26.0

or parms4 20.4 48.3 43.8

Source: IMF Oce o Technical Assistance Management.

Note: Some data have been adjusted retroactively to refect new denitions.

1 An eective person-year o technical assistance is 260 days.

2 Indirect technical assistance, including technical assistance policy, management, evaluation, and other related activities.

3 In FY2005 and FY2006, technical assistance was delivered by the Monetary and Financial Systems Department, which merged with the International Capital Markets

Department to become the Monetary and Capital Markets Department in FY2007.4 Includes the Policy Development and Review Department, the Technology and General Services Department, the Oce o Technical Assistance Management, the

Finance Department, the Human Resources Department, and all area departments.

Table 4.1 Technical assistance by countryincome group, FY2007

(Field delivery in person-years)1

ta prcCr icm gr rs-ars a

lw-icm 64.2 33.4

lwr-mi-icm 114.8 59.8

uppr-mi-icm2 8.8 4.6

hi-icm2 4.2 2.2

ta 192.1 100.0

1 An eective person-year o technical assistance is 260 days.

2 Pertains mostly to regional seminars and workshops delivered in upper-middle-and high-income countries but attended by ocials rom low- and lower-middle-income countries.



50

IMF Aa Rpr | 2007

54 The Task Force’s report is available at www.im.org/external/np/pp/eng/2005/071205.htm; the summary o the Board discussion can be ound at www.im.org/external/np/sec/pn/2005/pn05114.htm.

Table 4.3 Donors to the IMF’s technical assistance program

drs

Iivia rs1 Asraia, Bim, Caaa, dmark, Frac, Ia, Japa, lxmbr,

nras, nrwa, Spai, Sw, Swizra, ui KimMir arragms

Arica tcica Assisac Crs Arica dvpm Bak, Caaa, Cia, dmark, Fia, Frac, grma,

(eas a Ws) Ia, Japa, lxmbr, nras, nrwa, Rssia, Sw, Swizra,

ui Kim

Caribba Ria tcica Caaa, Ira, ui Kim, ui Sas, erpa ui, Ir-Amrica

Assisac Cr dvpm Bak, undP, Wr Bak

Cra Arica tcica Assisac Cr Arica dvpm Bak, Bri, Camr, Cra Arica Rpbic, Ca,

dmcraic Rpbic C, Rpbic C, eqaria gia, Frac,

gab, grma

Fiacia Scr Rrm a Caaa, nras, Swizra, ui Kim, Wr Bak

Sri Iiiaiv

Iraq tcica Assisac Asraia, Caaa, Iia, Ia, Sw, ui Kim

Mi eas tcica Assisac Cr ep, erpa ui, erpa Ivsm Bak, Frac, Japa, Jra,Kwai, lba, liba, oma, Qaar, Sai Arabia, Sa, Sria Arab Rpbic,

ui Arab emiras, Rpbic ym

Pacic Fiacia tcica Assisac Cr Asia dvpm Bak, Asraia, Japa, Kra, nw Zaa

1 Some donors contribute both individually and through multidonor pooled agreements.

Following on the Board’s endorsement in FY2006 o

proposals made by the Task Force on Technical Assistance

on how to implement the recommendations in the

Independent Evaluation Oce’s FY2005 report on Fundtechnical assistance,54 the IMF has developed a strategic

medium-term approach that closely integrates and prioritizes

country needs and technical assistance resources with the

IMF’s budget process. In addition, the IMF’s technical

assistance strategy is being increasingly viewed rom a

regional perspective, in recognition o the synergies and

benets that a regional approach can bring to technical

assistance. Regional strategies also help the IMF prioritize

and shit its resources between neighboring countries, in

response to developing needs and changing circumstances.

As called or by the Executive Board, the IMF willcontinue to make improvements to its technical assistance

program in the year ahead, including urther strengthening

the monitoring and evaluation o technical assistance to

ensure its eectiveness and eciency (CD-Table 4.3).

Other aspects o technical assistance management and

governance emphasized by the Board are also being

studied, including improving cost inormation on

technical assistance activities, reinorcing relationships

with donors to the IMF’s technical assistance program

(Table 4.3), and enlisting support rom new donors.

The IMF’s Monetary and Capital Markets Department

(MCM) provides technical assistance related to the

implementation o monetary and oreign exchange policies

and other aspects o central banking, nancial sector

oversight and regulation, the development o capital and

other nancial markets, and public sector debt and asset

management. This assistance generally involves advising

central banks and nancial supervisory agencies on

strengthening institutions and policies and improving

consistency with international standards, codes, and good

practices, and is typically delivered by sta rom IMFheadquarters and short-term experts, who in many cases are

nanced with the assistance o donors. MCM’s advice is also

delivered by long-term experts located in the IMF’s regional

technical assistance centers, and may take the orm o

regional seminars and hands-on workshops. Examples o

MCM’s technical assistance activities in FY2007 include

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http://www.imf.org/external/np/pp/eng/2005/071205.htm




supporting Nigeria’s nancial sector reorm program and

helping the Philippines’ central bank strengthen its ability to

identiy the risks associated with complex domestic conglom-

erates, based on Financial Sector Assessment Programs inboth countries; and advising Costa Rica, the Dominican

Republic, El Salvador, Guatemala, Honduras, Nicaragua, and

Panama on improving public debt management and carrying

out a diagnostic study o Central American markets or

private equity, debt, and asset-backed securities.55

The Fiscal Aairs Department (FAD) provides a range o

technical assistance and training to help countries strengthen

their scal policies and institutions, enhance implementation

capacity, and support IMF surveillance. For example, during

FY2007, FAD sta provided advice on modernizing tax and

customs administration in China, Mexico, and Turkey;continued advising the Central American countries on

improving the coordination o their tax policies and tax

administration and preparing the legislative ramework or a

regional customs union; assisted a number o post-confict

countries, including Aghanistan, Lebanon, Liberia, and

Sudan, seeking to rebuild their revenue-administration

capacity; conducted, with the support o the East AFRITAC

and private sector involvement, a seminar on improving

taxpayer services and appeals as a means o increasing taxpayer

compliance; conducted tax policy reviews in several countries,

including the IMF’s newest member, Montenegro; met a

signicant increase in demand or advice on resource taxation

rom a number o resource-rich countries in Arica, Asia, and

South America; and supplied advisory services in public

nancial management, pension reorm, scal responsibility

rameworks, and expenditure rationalization. FAD both

organizes and participates in conerences, seminars, and

workshops targeting particular countries and in conjunction

with specic institutions. For example, a major regional

outreach event or European countries on strengthening

public investment and managing risks rom public-private

partnerships was held in Budapest in March 2007.

The Statistics Department’s (STA) technical assistance

program promotes internationally accepted data standards,

with an emphasis on regional projects and collaboration

with other donors and providers. During FY2007, STA

provided technical assistance and training to a wide range

o member countries to support lasting improvements in

national statistical systems. The statistical work o the

RTACs has been ully integrated into STA’s capacity-

building program, and as a result STA elded 431 technical

assistance missions during the year, o which 157 beneted

Arican countries. The department also conducted 42

training courses in macroeconomic statistics through the

IMF Institute and the IMF Regional Training Centers, in

collaboration with various organizations.

The IMF’s Legal Department maintained an active technical

assistance program during the year directed toward helping

member countries strengthen their legal rameworks,

particularly in terms o the nancial system, taxation and

budget management, and anti–money laundering and

combating the nancing o terrorism (AML/CFT). While

demand rom member countries or advice in core legal

areas (commercial banking, central banking, and taxation)

has continued to be high, new areas o ocus have also

emerged, such as insurance, deposit insurance, nonbank

nancial institutions, and Islamic banking. The consolida-tion o AML/CFT activities in the Legal Department has

made the department the largest multilateral provider o

AML/CFT technical assistance. Support in this area has

included policy advice, drating o legislation, and guidance

55 Although capacity building still constitutes a substantial part o MCM’s technical assistance, there is a growing emphasis on assistance in more complex and specialized elds, such as infation targeting, empirically based stress-testing models, and portolio management or the public sector.

Proessor Guillermo Calvo leading a seminar at the IMF Institute



52

IMF Aa Rpr | 2007

in establishing or strengthening Financial Intelligence Units

(FIUs) and other institutions and supervisory mechanisms.

Also, training has been provided to FIU sta, nancial

supervisors, and ministries o nance and justice ocials,as well as to Financial Action Task Force–style regional

bodies to improve their capacity to conduct high-level

mutual assessments. (See Chapter 2 or more inormation

on AML/CFT.)

Training by the IMF Institute

The IMF Institute, in collaboration with other IMF

departments, trains ocials rom member countries in our

core areas: macroeconomic management, nancial sector

policies, government budgeting, and the balance

o payments, including how to strengthen the statistical,legal, and administrative ramework in these areas. Over

three-ourths o the training benets low- and lower-middle-

income countries. The Institute’s programs account or

about three-ourths o training or ocials delivered

by the IMF, including training at the regional technical

assistance centers.

In FY2007, the IMF Institute delivered 288 course-weeks,

producing close to 9,400 participant-weeks o training (CD-

Table 4.4, on the CD-ROM). Relative to FY2006, the number

o course-weeks rose by about 1 percent, while the number o

participant-weeks ell slightly, refecting normal year-to-yearvariation in the average class size.

FY2007 saw the opening o the Joint India-IMF Training

Program (ITP), the seventh in the IMF Institute network o

regional training centers (CD-Table 4.5, on the CD-ROM).

The ITP is dedicated principally to training Indian ocials

but also admits ocials rom other countries in South Asia

and East Arica.

With substantial conancing rom local cosponsors and other

donors, the development o the regional training centers has

acilitated a 50 percent increase in IMF Institute training over

the past decade. These centers now account or hal o all

training under the Institute’s program. Training at the RTCs

has other advantages: courses can be better attuned to regional

needs and oster collaboration within regions.

Training at IMF headquarters continues to play an important

role, accounting or about one-third o participant-weeks in

FY2007. The headquarters program ocuses mainly on longer

courses, which are less amenable to regional delivery because o the number o IMF sta involved, but also includes some

shorter courses that the IMF Institute is unable to deliver

widely through the RTCs. The remainder o the training took

place at overseas locations outside the regional network, largely

as part o ongoing collaboration between the IMF Institute

and regional institutions, and also through distance learning.

The tight IMF budget environment has made it more

challenging to meet the training needs o member countries

and ensure an up-to-date curriculum. The IMF Institute has

responded by increasing workloads and cutting costs, and

conancing rom training partners and other donors has beenplaying an increasingly critical role.

The IMF Institute training program is reviewed regularly to

ensure that it responds to the evolving needs o member

countries and supports new IMF initiatives.









gvrac, raizai, a acs | 5

Chapter 5



54

IMF Aa Rpr | 2007

56 Not all o the paid-in capital is readily available to nance new lending because o the IMF’s previous commitments and its policy o lending only in the currencies o members considered nancially strong. See the box on the IMF’s nancing mechanism on the CD-ROM ( CD-Box 5.1 ).

The Fund’s Medium-Term Strategy (MTS) calls or a number o reorms in the governance and

management o the IMF, including adjusting members’ quotas to refect their role in the world

economy more accurately; strengthening communication and transparency; embedding MTS

priorities in an output-oriented medium-term budget ramework; taking other steps to make the

IMF a more cost-eective and ecient institution; and adopting a new income model to place the

IMF on a sound nancial ooting or the long term. Substantial progress was made on all o these

ronts during FY2007.

Quota and Voice Reorm

The unds or most o the IMF’s lending come out o its quota resources—the amounts countries

deposit when they join the IMF.56 Each member’s quota is based, in principle, on the relative size o

its economy and determines the amount it can borrow rom the IMF and its voting power. (As set

out in the IMF’s Articles o Agreement, each member is allotted 250 basic votes plus one vote per

SDR 100,000 o its quota.) Although quotas are reviewed periodically and can be increased when

deemed necessary by the Board o Governors (Box 5.1), the distribution o quotas and voting power

in the IMF has not kept pace with changes in countries’ relative weight in the global economy.

Moreover, the share o each member’s basic votes in total votes has been diluted by quota increases,

rom more than 10 percent until the mid-1970s to about 2 percent in recent years.

IMF Aa Rpr | 2007

54

Chapter 5 Governance, organization, and nances






57 The Resolution can be ound on the CD-ROM, as can Press Releases 06/189, “IMF Executive Board Recommends Quota and Related Governance Reorms,” and 06/205, “IMF Board o Governors Approves Quota and Related Governance Reorms.” Press releases 06/189 and 06/205 can also be ound at

www.im.org/external/np/sec/pr/2006/pr06189.htm and www.im.org/external/np/sec/pr/2006/pr06205.htm, respectively.

58 On May 9, 2007, shortly ater the end o the nancial year, the Executive Board agreed to increase by one Advisor the stang or the Executive Directors representing 20 or more countries (the two sub-Saharan Arican constituencies). A ew Directors underscored that urther steps were needed to strengthen the capacity o the Executive Directors’ Oces representing the largest constituencies.

Box 5.1 Initiation of the Thirteenth GeneralReview of Quotas

t IMF rma ccs ra rviws

mmbrs’ qas vr v ars assss

aqac is rsrc bas a ajs qas

iivia mmbrs rfc cas i ir

raiv psiis i wr cm. t exciv

Bar cmp tw gra Rviw

Qas Jaar 28, 2003, wi prpsi a

icras r a ajsms. t tir gra

Rviw Qas was iiia i Jaar 2007 a

wi b cmp b Jaar 28, 2008. t

IMF’s a qas w sa a SdR 217.3 bii.

votes in total voting power constant in the uture; and (5) measures

to increase the administrative resources o the chairs with the

largest constituencies.58

In its September 17, 2006, communiqué, the IMFC urged the

Executive Board to work constructively and expeditiously on all

elements o the reorm so as to garner the broadest possible

support, underlined the importance o timely implementation,

and called on the Managing Director to provide a status report

at its next meeting.

Following the 2006 Annual Meetings, the Executive Board

began to work on the second stage o reorm. In January 2007,

it had a preliminary discussion on a proposed amendment to

the Articles o Agreement regarding basic votes. Directors

ound the proposed amendment to be responsive to the Board

o Governors’ request and generally endorsed the ramework

proposed by IMF sta. They noted that the number by which

basic votes will be increased will need to be discussed and

agreed at a later stage, when work on the new quota ormula is

more advanced. A comprehensive work program involving

consultations with the membership and two inormal discus-

sions by the Executive Board beore the 2007 Spring Meetings

o the IMFC was initiated on a new quota ormula that would

guide the second round o quota increases.

In its communiqué o April 14, 2007, the IMFC welcomed the

broad consensus reached in the Executive Board on the legal

ramework or an amendment o the Articles o Agreement

In its communiqué o April 22, 2006, the International

Monetary and Financial Committee (IMFC) recognized the

need or undamental reorm o quotas and voice in the Fund.

It called upon the Managing Director to work with the IMFCand the Executive Board to develop concrete proposals by the

time o the IMF–World Bank Annual Meetings in September

2006 or improving the distribution o quotas and voting

power to refect changes in the weight and role o countries in

the world economy and to ensure that low-income countries

have a voice in the IMF’s decision-making process.

An intensive work program ollowed, involving IMF manage-

ment and sta, consultations with a broad spectrum o the

membership, and discussions in the Executive Board. On

August 31, 2006, the Executive Board reached agreement on

a comprehensive program o quota and voice reorms andrecommended that the Board o Governors adopt a Resolution

providing or a two-year plan to implement these reorms. This

proposal was transmitted to the Governors by the Managing

Director on September 14, 2006, and the Board o Governors

adopted the Resolution on September 18, 2006.57

In its report to the Board o Governors, the Executive Board

emphasized the two main goals o quota and voice reorms:

(1) to make signicant progress in realigning quota shares with

economic weight in the global economy and make quota and

voting shares in the Fund more responsive to changes in global

economic realities in the uture; and (2) to enhance the

participation and voice o low-income countries whose weight

in the global economy may be small but or which the IMF

plays an important advisory and nancing role.

The Resolution provided or an initial round o ad hoc quota

increases or our countries—China, Korea, Mexico, and Turkey—

that were clearly underrepresented, and a set o more undamental

reorms to be delivered by the 2007 Annual Meetings, i possible,

or by the 2008 Annual Meetings, at the latest. The reorms are to

include (1) agreement on a simple and transparent new quota

ormula; (2) a second round o ad hoc quota increases based on the

new ormula; (3) a commitment to ensuring that quota shares

continue to evolve in line with countries’ changing positions in the

world economy; (4) an increase in basic votes o at least 100 percent

to protect the voting share o low-income countries as a group,

together with adoption o a means to keep the proportion o basic










56

IMF Aa Rpr | 2007

regarding basic votes and the initial work on a new quota

ormula. It stressed the importance o agreeing on a new

ormula that is simple and transparent and that captures

members’ relative positions in the world economy whileenhancing the voice and participation o low-income countries.

The IMFC also called on the Executive Board to continue its

work on the reorm package as a matter o priority.

Communication and Transparency

Through its communication strategy and transparency policy,

the IMF seeks to increase its accountability to stakeholders and

build understanding o sound economic policies. With the

guidance and support o the Executive Board, which regularly

reviews the IMF’s communication strategy and transparency

policy, the IMF’s eorts in these areas have increased signi-

cantly since the mid-1990s.

Communication

While acknowledging that the IMF has made great strides in

increasing transparency and communication, the MTS calls or

an increase in outreach, emphasizing that bringing about policy

change requires active engagement not only with country

ocials but also with the broader public. During FY2007, IMF

sta intensied their eorts in this area and presented a new

drat communication strategy or ormal Board discussion in

early FY2008.

Outreach. The IMF continues to strengthen its outreach to its

ocial stakeholders, while also broadening outreach to other

groups, including civil society, legislators, and the private

sector. Outreach to these groups has been useul not only in

terms o explaining the IMF’s positions but also in receiving

eedback that can lead to improvements in operations, as has

already happened in several areas—or example, the streamlin-

ing o conditionality, and the IMF’s early support or the

Multilateral Debt Relie Initiative and participation in the

Extractive Industries Transparency Initiative.

As part o its outreach eorts with civil society and legislators,

in recent years the IMF launched a newsletter on its Web site

or civil society, and in FY2007 it launched a Web page or

legislators that invites the latter to send in their comments and

questions.59 In December 2006, IMF and World Bank ocials

had a two-day meeting with 55 labor union leaders rom

around the world on managing globalization and enhancing jobopportunities. Outreach events or parliamentarians included a

macroeconomic policy seminar or parliamentarians in the

Kyrgyz Republic in May 2006, and participation in two

conerences in March 2007—a two-day conerence in

Washington, D.C., or Caribbean parliamentarians and ocials

o the Inter-American Development Bank (IDB) and the IMF;

and the Annual Conerence o the Parliamentary Network on

the World Bank, which was held in Cape Town, South Arica.60

Continuing eorts were made in FY2007 to reach out to the

private sector. In February 2007, the Managing Director

delivered a speech at the Latin American Business AssociationConerence, held at Columbia University in New York, and

participated in a high-level conerence on investment in Central

America attended by senior policymakers, major international

investors, and business association leaders rom Central America

and the Dominican Republic.61 The IMF and the World Bank

helped organize the conerence, which was held in Costa Rica.

The IMF has been making greater use o seminars and coner-

ences to bring ocials and other stakeholders rom countries in

the same region together to discuss key regional economic policy

issues. For example, in December 2006 the IMF and the Arab

Monetary Fund jointly sponsored a high-level seminar in Abu

Dhabi, United Arab Emirates, on institutions and economic

growth in the Arab countries. The IMF also participated in the

Fith Annual Regional Conerence on Central America, Panama,

and the Dominican Republic, which was hosted by the Central

Bank o the Dominican Republic in Punta Cana, in June 2006. 62

The IMF and the Monetary Authority o Singapore co-hosted

their second seminar on regional nancial integration, in May

2006 (the rst seminar took place in September 2005), and the

IMF and the government o Singapore jointly organized a high-

level seminar or policymakers and economists around the world

on crisis prevention in emerging market countries in July 2006 as

a run-up to the 2006 Annual Meetings.63 The Japan Bank or

International Cooperation and the IMF cosponsored a conerence

59 The civil society newsletter is posted at www.im.org/external/np/exr/cs/eng/index.asp, and the legislators Web page is at www.im.org/external/np/legislators/index.htm.

60 For more inormation on these events, see Press Release 06/108, “IMF Macroeconomic Policy Seminar or Parliamentarians rom the Kyrgyz Republic,” at www.im.org/external/np/sec/pr/2006/pr06108.htm; a speech delivered at the Cape Town conerence by the Director o the IMF’s Arican Department, Abdoulaye Bio-Tchané, at www.im.org/external/np/speeches/2007/031707.htm; and Press Release 07/44, “Caribbean Parliamentarians Meet with the IDB, IMF, and World Bank or the rst time in Washington, D.C.” at www.im.org/external/np/sec/pr/2007/pr0744.htm.

61 The communiqué o the conerence is available at www.im.org/external/np/cm/2007/020207.htm. 62 For more inormation on the seminars on institutions and growth in Arab countries, and the th annual conerence on Central America, Panama, and the

Dominican Republic, see www.im.org/external/np/seminars/eng/2006/arabco/index.htm an d www.im.org/external/np/seminars/eng/2006/centram/index.htm, respectively.

63 See www.im.org/external/np/seminars/eng/2006/cpem/index.htm.

http://www.imf.org/external/np/exr/cs/eng/index.asp

http://www.imf.org/external/np/legislators/index.htm



http://www.imf.org/external/np/speeches/2007/031707.htm


http://www.imf.org/external/np/cm/2007/020207.htm

http://www.imf.org/external/np/seminars/eng/2006/arabco/index.htm


http://www.imf.org/external/np/seminars/eng/2006/centram/index.htm

http://www.imf.org/external/np/seminars/eng/2006/cpem/index.htm

http://www.imf.org/external/np/seminars/eng/2006/cpem/index.htm

http://www.imf.org/external/np/seminars/eng/2006/centram/index.htm


http://www.imf.org/external/np/cm/2007/020207.htm


http://www.imf.org/external/np/speeches/2007/031707.htm


http://www.imf.org/external/np/legislators/index.htm

http://www.imf.org/external/np/exr/cs/eng/index.asp




in Tokyo in April 2007 on policy options and challenges or

developing Asia; speakers and participants included government

ocials and academics rom low-income countries in Asia. And

the IMF and Bruegel, a Brussels-based think tank, organized a

joint two-day conerence, “Putting Europe’s Money to Work:

Financial Integration, Financial Development, and Growth in the

European Union,” in March 2007 or researchers, policymakers,

and practitioners rom Europe and around the world.

Other examples o outreach activities can be ound in

Chapters 2 and 4.

Languages other than English. Building on the Report o a Task

Force on Publication o Fund Documents and Inormation in

Languages Other than English, which recommended transla-

tion o documents or which demand is high into languages

heavily used in the IMF’s work, a working group o IMF sta

was set up to urther consider this issue and make concrete

proposals. The ndings o the Working Group on Publication

o Fund Materials in Languages Other than English were

presented to the Executive Board in an inormal brieng in

April 2007, and the IMF has begun translating selected

documents—including press releases and WEO summaries—

more systematically into relevant languages and posting them

on its Web site. The Executive Board also approved the

translation o the 2007 Annual Report into a greater number

o languages than in the past, using savings on production

costs to achieve this goal.

Publications and the IMF’s Web site. An interdepartmental

working group reviewed the eectiveness o the IMF’s publica-

tions program during FY2007.64 While the review ound that

the undamental goals o the program remain valid—sharing

IMF research and knowledge in a cost-eective manner—it also

ound scope or improvement, notably by proposing a more

strategic approach to selecting what to publish and how best to

deliver it (in print or online or both); increasing marketing

eorts (including by entering into partnerships with commercial

publishers when appropriate); enhancing the online visibility o

the Fund’s research publications; establishing an e-commerce

site; making greater use o technologies such as print-on-

demand; and introducing a dierential pricing policy or

publications, which will give readers in developing countries

greater access to Fund publications.

64 See CD-Box 5.2 , “Disseminating inormation: The IMF’s publishing operations and Web site,” on the CD-ROM.

Rodrigo de Rato, IMF Managing Director, speaking to the media at the 2006 Annual Meetings, Singapore





58

IMF Aa Rpr | 2007

Box 5.2 Liaison with intergovernmental, international, and regional organizations

t IMF as a isry cabrai wi

mrs iraia a ria raizais.

t IMF’s cabrai wi Wr Bak is

spciay cs. Aras i wic IMF a Wr

Bak cabra ic Fiacia Scr

Assssm Prram, vpm saars a

cs, Pvry Rci Sray Papr prcss,

hIPC a Miara db Ri Iiiaivs, a

b ssaiabiiy aaysis. I Marc 2006, IMF’s

Maai dircr a Wr Bak’s Prsi

cra exra Rviw Cmmi Bak-F

Cabrai. t Cmmi sici viws rm

mmbr cris ar a pracic Bak-

F cabrai, wic as b i sic

1989 by a rma Ccra. t Cmmi ras

is rpr i Fbrary 2007.1

t IMF as cabras wi ria mia-

ra baks— Arica dvpm Bak, Asia

dvpm Bak, Ir-Amrica dvpm

Bak, a erpa Bak r Rcsrci a

dvpm—ici i-cry missi wrk a

prvisi cica assisac, a as

mis as ria miara

baks. t Ir-Amrica dvpm Bak a

Arica dvpm F paricipa i

Miara db Ri Iiiaiv.

t IMF is a mmbr Fiacia Sabiiy Frm,

wic bris r vrm fcias rsp-

sib r facia sabiiy i majr iraia

facia crs, iraia rary a

sprvisry bis, a cmmis cra bak

xprs. I as wrks wi saar-si bis

sc as Bas Cmmi Baki Sprvisi

a Iraia Assciai Israc

Sprvisrs. I 2000, hrs Kör, IMF

Maai dircr, sabis Capia Marks

Csaiv grp prvi a rm r irma

ia bw paricipas i iraia capia

marks a IMF; grp is cair by

IMF’s Maai dircr.

t IMF, r is Spcia Rprsaiv

ui nais, cmmicas a cpras wi

ui nais a a mbr un acis.

ovr pas yar, paricar mpasis as b

pac sppri wrk ui nais’

w Pacbii Cmmissi wi IMF

cis b a i Fiaci r

dvpm prcss a paricipa i

aciviis un ecmic a Scia Cci

(eCoSoC). Cabrai bw IMF a

Wto aks pac rmay as w as irmay, as

i i ir Cprai Arm 1996.

t IMF as bsrvr sas a Wto mis, a

IMF sa crib Wto Wrki grp

tra, db, a Fiac, a Cmmi

Baac Payms Rsricis. IMF sa paricipa

i Ira Framwrk r tra-Ra

tcica Assisac a Ai r tra task Frc

(s Bx 3.3).

IMF sa as iais wi oraizai r

ecmic Cprai a dvpm (oeCd),

Bak r Iraia Sms (BIS),

erpa Cmmissi, Asia-Pacifc ecmic

Cprai (APeC), a svra ria rps i

Asia, ici Assciai Sas Asia

nais (ASeAn). t ASeAn Scraria, IMF,

a Rya gvrm Cambia c-s a

i-v smiar i J 2006 w riairai c accra vpm

Cambia, la Pp’s dmcraic Rpbic,

a Viam.2

t IMF is a aciv paricipa i mis a

aciviis majr irvrma rps,

ici grp Sv (g-7), grp ei

(g-8), grp t (g-10), grp twy (g-20),

a grp twy-Fr (g-24). t g-10 cris

paricipa i IMF’s gra Arrams

Brrw, a arram sabis i 1962 a ca

b ivk i IMF’s rsrcs ar sima b

isfci m mmbrs’ s.

1 See Press Release 07/32, “IMF Managing Director and World Bank President Paul Wolowitz Welcome Report on Enhancing IMF–World Bank Cooperation,” and the Report itsel. Both are on the CD-ROM and al so on the IMF’s Web site, at www.im.r/xra/p/sc/pr/2007/pr0732.m.

2 See Press Release 06/145, at www.im.r/xra/p/sc/pr/2006/pr06145.m.








The IMF’s Web site is the public’s primary source o inorma-

tion about the IMF. During FY2007, the site was redesigned to

make it a more eective communication tool, the IMF Survey

increasingly became a Web-based product, and there was a shit

to greater reliance on the Web or dissemination o inormation

and messages to enable aster, more requent, and more fexible

communication between the IMF and its stakeholders.

Engagement with media. A biweekly media brieng by the

External Relations Department, instituted in late 1999 and initially

intended or media based in Washington, D.C., has since

developed into a webcast or journalists around the world. The

Online Media Brieng Center, a password-protected multimedia

site set up in FY2004, allows journalists to access documents under

embargo, participate in press briengs, and receive inormation

and data tailored to their needs. The IMF’s operational sta have

also increased their contacts with the media.

Transparency policy

The IMF’s transparency policy stems rom an Executive Board

decision in January 2001 establishing the presumption that

country documents and policy papers and associated Public

Inormation Notices (PINs) would systematically be published,

although publication remains voluntary. The decision ollowed

steps that had been taken since 1994 to enhance the transparency

o the IMF and to increase the availability o inormation about

its members’ policies, while including saeguards to maintain

the rankness o the IMF’s policy discussions with members by

Box 5.3 Activities of the IEO in FY2007

t Ip evaai oc (Ieo) was

sabis i 2001 cc ip a

bjciv vaais IMF picis a aciviis

wi a viw icrasi IMF’s rasparc a

accabii a sri is ari cr.

ur is trms Rrc, Ieo is

ip IMF maam a pras a

arm’s rm IMF’s exciv Bar, wic

i rprs is is. I Jaar 2007, Bar

ar a mr ssmaic apprac , a

srr miri , impmai Bar-

rs Ieo rcmmais.

dri Fy2007, Ieo cs is rs

cmpi w vaais: “t IMF a Ai Sb-Saara Arica,” a “t IMF’s Avic

exca Ra Pic.” t exciv Bar

iscss rmr i Marc 2007 (s Capr

3). Fwi Bar iscssi, Ieo

prs rpr’s is a svra ira-

ia rac vs, sari wi a smiar a

Arica dvpm Bak i a Marc. t

rpr as b rasa i Frc a

Prs. t vaai IMF’s avic

xca ra pic was s exciv

Bar i Marc 2007 a was sc r

iscssi i ar Fy2008. t vaai xprs

wr r IMF i xca ra pic

avic is car a rs, asssss

qai a avic, a xamis qai

ia wi cr ariis. Wi

ackwi a qai IMF’s avic

is mmbr cris as imprv, Ieo

iis a rvaia ama

prps IMF xca ra srviac, rb

carii xpc rs IMF a

mmbr cris, a rs ai rcmm-

ais r imprvi maam a

cc IMF’s xca ra pic avic

a iracis wi mmbr cris (s

Capr 2).Wrk a ir vaai, “Srcra Ciiai

i IMF-Sppr Prrams,” ci ri

Fy2007. t rpr is xpc b aiz a

s exciv Bar br Aa

Mis i ocbr 2007.

Fr pics wr a Ieo’s wrk prram r

vaai vr x w ars: (1) aspcs IMF

crpra vrac—ici r

Bar; (2) IMF’s iracis wi is mmbr

cris; (3) IMF’s rsarc aa; a (4)

IMF’s apprac iraia ra isss.



60

IMF Aa Rpr | 2007

striking the right balance between transparency and condenti-

ality. Members may request deletion o inormation not yet in

the public domain that constitutes either highly market-

sensitive material or premature disclosure o policy intentions.

Following their discussion in FY2006 o an IMF sta review o

the transparency policy, Executive Directors called on the sta to

produce annual updates on the policy’s implementation or

posting on the IMF’s Web site. The second annual report on the

implementation o the transparency policy, published in February

2007, presents inormation on documents considered by the

Board between November 1, 2005, and October 31, 2006, and

published by December 31, 2006, including publication rates or

each type o document, lags between Executive Board discussions

o documents and publication, deletion o material rom

documents, and the publication behavior o member countries.65

In FY2007, publication o reports on Article IV consultations and

use o Fund resources rose or the third year in a row, increasing

rom 82 percent o total reports in 2005 to 85 percent in 2006.

The number o member countries that published all reports on

their Article IV consultations and use o IMF resources increased

rom 136 in 2005 to 142 in 2006. The share o Financial SystemStability Assessments (reports produced under the Financial Sector

Assessment Program) released climbed to 82 percent, and the

publication rates both o documents announcing the policy

intentions o countries entering into arrangements with the IMF

and o PINs increased to 94 percent.66

65 The report, “Key Trends in Implementation o the Fund’s Transparency Policy,” can be ound at www.im.org/external/pp/longres.aspx?id=4040. 66 The increased transparency o the IMF is widely recognized. In its 2006 Global Accountability Report, One World Trust ranked the IMF third out o 10

intergovernmental organizations and ourth out o 30 intergovernmental and private transnational companies in terms o transparency. The report can be read at www.oneworldtrust.org/?display=index_2006.

67 The Executive Board’s calendar or FY2007 and a description o its main activities can be ound on the CD-ROM. General inormation on the governance o the IMF can also be ound on the CD-ROM, in the IMF Handbook. The list o Executive Directors and their Alternates on April 30, 2007, is on pages 68–69. The voting power o each member is shown in Appendix IV, on the CD-ROM.

Management and Organization

During FY2007, the IMF reassessed its risk-management rame-

work, curbed its administrative expenditures, and streamlined

its procedures by consolidating or shortening reports, modiy-

ing misreporting procedures, and lengthening the intervals

between policy reviews. It also sought to enhance its eective-

ness through improved collaboration in a range o areas with

other international and regional bodies (Box 5.2) and by taking

account o the recommendations made by the Independent

Evaluation Oce (IEO) on Fund policies (Box 5.3).

How the IMF is run

The highest decision-making body o the IMF is the Board o

Governors, which is appointed by the IMF’s member countries.

As set out in the Fund’s Articles o Agreement, the Executive

Board is responsible or conducting the business o the Fund,

and or this purpose exercises all the powers delegated to it by

the Board o Governors. The Executive Board is composed o

24 Executive Directors and their Alternates appointed or

elected by member countries and has responsibility or the day-

to-day oversight o the IMF’s work at Fund headquarters,

located in Washington, D.C.67 The Managing Director o theIMF serves as the Chair o the Executive Board.

The Board o Governors consists o one Governor and one

Alternate Governor rom each o the IMF’s 185 member

countries. The governor is usually the member country’s minister

Meeting o the IMFC at the 2006 Annual Meetings, Singapore


http://www.oneworldtrust.org/?display=index_2006







http://www.oneworldtrust.org/?display=index_2006





68 On July, 12, 2007, the Executive Board adopted a decision setting out procedures or the nomination and selection o the Managing Director; see www.im.org/external/np/sec/pr/2007/pr07159.htm.

o nance or the head o its central bank. All governors meet

once a year at the IMF–World Bank Annual Meetings. There are

two committees o Governors that represent the whole member-

ship. The International Monetary and Financial Committee(IMFC) is an advisory body o 24 IMF Governors (or their

Alternates) representing the same countries or constituencies

(groups o countries) as the 24 Executive Directors.

The IMFC advises, and reports to, the Board o Governors on

matters relating to the latter’s unctions in supervising the

management and adaptation o the international monetary

and nancial system, and in this connection reviewing

developments in global liquidity and the transer o resources

to developing countries; considering proposals by the

Executive Board to amend the Articles o Agreement; and

dealing with disturbances that might threaten the system. It

has no decision-making powers. The IMFC normally meets

twice a year, in March or April and in September or October,

at the time o the Spring and Annual Meetings.

The Development Committee (ormally, the joint Ministerial

Committee o the Boards o Governors o the Bank and the

Fund on the Transer o Real Resources to Developing

Countries) is a joint World Bank–IMF body composed o 24

World Bank or IMF Governors or their Alternates; it advises

the Boards o Governors o the IMF and World Bank on

critical development issues and on the nancial resources

required to promote economic development in developing

countries. Like the IMFC, it also normally meets twice a year.

Under the Articles o Agreement, the IMF’s Executive Board

is responsible or the selection o the Managing Director o

the Fund. Any Executive Director may submit a nomination,

regardless o nationality, or the position.68 The Managing

Director is appointed or a ve-year, renewable term. He/she, in

turn, with the concurrence o the Executive Board, appoints a

First Deputy Managing Director and two Deputy Managing

Directors to provide managerial support, one o whom chairs

the Board in the Managing Director’s absence. The Managing Director is chie o the operating sta o the IMF and conducts

the ordinary business o the IMF under the direction o the

Executive Board. He/she is ultimately responsible or all aspects

o the internal management and working o the institution and

its relations and communications with the outside world. The

three Deputy Managing Directors share oversight o the IMF’s

relationship with individual member countries, chair selected

Executive Board meetings, and oversee sta work in specic areas.

The IMF’s sta is appointed by the Managing Director, and its

sole responsibility is to the IMF. At April 30, 2007, the IMF had

2,005 proessional and managerial sta and 673 sta at other

levels. Eighty-two members o the proessional and managerial

sta were resident representatives stationed in Arica, Asia and

the Pacic, Europe, the Middle East, and Latin America and the

Caribbean, covering a total o 92 member countries. Resident

representatives, through their proessional expertise and amiliarity

with local conditions, contribute to the ormulation o IMF policy

advice, monitor countries’ economic perormance, and coordinate

technical assistance; those in low-income countries take part in

discussions on poverty reduction strategies. Resident representa-tives also alert the IMF and the host country to potential policy

slippages, provide on-site program support, and play an active role

in IMF outreach, working with dierent branches o government,

civil society organizations, donors, and other stakeholders.

The ramework or human resource management in the Fund

refects evolving best practices that are consistent with the

mission o the institution and the objective o maintaining

the quality and diversity o its sta. The Articles o Agreement

state that the eciency and technical competence o Fund sta

are expected to be o the “highest standards,” and that, in

appointing the sta, the Managing Director “shall . . . pay dueregard to the importance o recruiting personnel on as wide a

geographical basis as possible.” In addition, all sta members

observe the highest standards o ethical conduct, consistent with

the values o integrity, impartiality, and discretion, as set out in

the IMF Code o Conduct and its Rules and Regulations.

Recognizing that the membership must have at its service

individuals who understand, through their proessional

experience and training, a wide range o policymaking challenges

that conront country ocials and who can oer policy advice

appropriate to the circumstances o each o the 185 member

countries, the Executive Board has long emphasized andexpressed concern about diversity, and has repeatedly called or

improvements in the diversity o the sta. The Fund thus makes

every eort to ensure that sta diversity refects the institution’s

membership, actively seeking candidates rom all over the world.

It recently established a Diversity Council to urther its diversity





62

IMF Aa Rpr | 2007

agenda, building on the creation in 1995 o the position o

Diversity Advisor. Progress is monitored and problems are

reported in a transparent manner in various ormats—including

the Diversity Annual Report— on the IMF Web site. O the IMF’s

185 member countries, 142 were represented on the sta at the

end o 2006. Tables showing the distribution o the IMF’s sta

by nationality, gender, and developing and industrial countries

are on the CD-ROM (CD-Tables 5.1, 5.2, and 5.3), as is a table

showing the sta salary structure (CD-Table 5.4).

The list o the IMF’s senior ocers and the IMF organization

chart are on pages 70 and 71, respectively, o this Report .

The organization o the IMF and the unctions o its dierent

departments are described in the IMF Handbook , which can

be ound on the CD-ROM.

Table 5.1 Administrative budgets, FY2005–081

(In millions o U.S. dollars)

Fy2005 Fy2006 Fy2007Aca Aca Fy2007 Aca Fy2008

xirs xirs Bg xirs Bg

Amiisraiv xirs

Prs

Saaris 375.2 392.6 407.5 404.1 424.6

Bs a r prs 259.5 273.9 292.7 303.4 298.5

Sba 634.7 666.5 700.2 707.5 723.1

or

trav 90.2 94.2 102.02 93.2 100.5

Biis a r 167.3 169.6 177.9 159.7 170.2

Sba 257.5 263.8 279.9 258.3 270.7

Grss xirs 892.2 930.3 980.2 965.8 993.8

Rcips (66.1) (56.0) (68.3) (68.5) (71.4)

n amiisraiv xirs 826.1 874.4 911.9 897.2 922.3

Note: Figures may not add because o rounding.

1 Administrative budgets as approved by the Board or the nancial years ending April 30, 2007, and April 30, 2008, compared with actual expenditures or the nancial years ended April 30, 2005, April 30, 2006, and April 30, 2007.

2 Includes $5.0 million as a contribution to the costs o holding the Annual Meetings in Singapore.

Box 5.4 Performance indicators

t IMF pas irc svra ps prr-

mac iicars (PIs) prrssiv, ici

wi:

n Qai iicars r a a ps, a

qai a qai iicars r sppr a

vrac aciviis, a wi qai

iicars r sc a a irmia

ps, wi b irc bii i Fy2008.

n timiss iicars a r PIs si

capr IMF’s rspsivss wi b pas

i vr a r pri.

n Frr aaica wrk wi b rak

xami asibii irci sc

cm iicars—i paricar, irmia-

cm iicars (rar as praia

mr rva a a-cm iicars)—

a r imprv cs-miri

ciqs, aciia s cs

iicars i b a bsiss-pai prcsss.

Wrk is as r wa irc sppriv

irmai c appicais a

sabis a cis rviw prcss r PIs

p sr ir ci rvac IMF’s

sra a bsiss m.

Figure 5.1 Estimated gross administrative expendi-tures by key output areas, FY2007

Cr-spcic aria miri

37.5%

gba miri14.0%

Cr prramsa acia sppr

24.3%

Capaci bii24.3%














Administrative and capital budgets

The administrative budget provides or the personnel and travel

costs and other recurrent administrative expenditures incurred by

the IMF in providing services to member countries and theinternational community. The annual budget covers the period

May 1 through April 30, the IMF’s nancial year, and is

approved by the Executive Board on a net basis (dened as gross

expenditures less receipts).69 The Executive Board also approves a

limit on gross expenditures, based on an upper range o the

estimate or receipts. The IMF’s net administrative expenditures

are unded rom operational income, which includes charges on

the use o IMF resources, and rom reserves.

The IMF’s capital budget provides unds or capital projects

starting in the orthcoming nancial year; the projects approved

orm part o the three-year capital plan that covers all new

capital projects. Capital appropriations can be accessed or three

years; unds unused at the end o the three-year period lapse.

Budgets and actual expenditures in FY2007

The IMF’s administrative budget or the nancial year that

ended April 30, 2007, authorized total net expenditures o

$911.9 million, a limit on gross expenditures o $987.1 million,

and appropriations o $48.1 million or capital projects

beginning in FY2007. The Executive Board also took note o

indicative net administrative budgets o $929.6 million and

$952.8 million or FY2008 and FY2009, respectively, and thethree-year capital plan o $141 million.

The development o the MTS, the review o the IMF’s

employment, compensation, and benets ramework, and

the IMF’s deteriorating income position have changed the

institutional and nancial environment in which the IMF

operates. Accordingly, the FY2007–09 budgets approved by

the Executive Board refected a planned reduction in the

overall size o the IMF’s real administrative resource envelope

and marked the beginning o a downward trend in planned

capital expenditures. FY2007 net expenditures were to be held

constant in real terms, while the planned FY2008 andFY2009 administrative budgets required real reductions.

Notwithstanding the proposed declining real resource

envelope, the FY2007–09 medium-term budget (MTB)

provided the resources necessary or the IMF to deliver its key

outputs—including new MTS initiatives—accommodated by

increases in the IMF’s internal administrative eciency and

reductions in support-related costs.

The outturn on the net administrative budget or FY2007 was

$897.2 million, $14.7 million (1.6 percent) less than budgeted.

Receipts were $0.2 million above the central estimate on which

the net administrative budget was based. Gross administrative

expenditures were $14.4 million (1.5 percent) below the

$980.2 million central estimate.

Actual administrative expenditures were a little below budget

because o slightly lower-than-planned use o resources in the

delivery o IMF outputs and a shortall on certain planned

outputs: a small number o projects were delayed, so that the

associated expenditures will now be incurred in the current

nancial year. The resources allocated to the delivery o theIMF’s outputs in FY2007 refected the new priorities identied

under the medium-term strategy (Figure 5.1). The new

multilateral consultation and the extension o the work o the

Consultative Group on Exchange Rate Issues (CGER) to a

larger number o countries led to an increased share o gross

administrative resources being devoted to multilateral surveil-

lance in FY2007 relative to past years.70 Relative to FY2006,

additional resources were devoted to regional and nancial

sector surveillance (both MTS priorities), while a smaller share

o resources was devoted to work on country programs and

nancial assistance. The share o resources devoted to capacity

building (technical assistance and training) was about the same

as in previous years.

In terms o inputs, the gap between budget and outturn

refected a number o actors (Table 5.1). Underlying travel

expenditures were about 4 percent ($3.8 million) under budget,

and buildings and other expenditures were almost 9 percent

($15.2 million) under budget, the latter refecting lower

69 Just over hal o the receipts consist o external donor contributions or technical assistance to, and training o ocials rom, member countries; the remainder includes proceeds rom publications.

70 Both the multilateral consultation and the CGER’s work are discussed in Chapter 2.

Figure 5.2 Estimated gross administrative expendi-tures by key output areas, FY2008

Cr-spcic aria miri

35.3%

gba miri17.3%

Cr prramsa acia sppr

23.1%

Capaci bii24.2%



64

IMF Aa Rpr | 2007

building-occupancy costs and less use o contractual services

than expected. Personnel-related expenses were about 1 percent

($7.3 million) over budget.71

Total capital spending in FY2007 was within the budget or

projects approved during FY2005–06. O the $45.6 million in

total capital expenditures, $16.1 million was or building

acilities, $5.3 million or the IMF’s Headquarters 2, and

$24.1 million or inormation technology projects.

Medium-term budget, FY2008–10

The FY2008–10 medium-term budget approved by the

Executive Board on April 25, 2007, allows or an underlying

1.7 percent increase each year, thus implying a real reduction in

the Fund’s administrative resources or the next three years.

Executive Directors agreed that, although a new income model—building on the recommendations o the Committee o Eminent

Persons (see “Financial Operations and Policies” below)—must

play the major role in putting the IMF’s nances on a sustainable

ooting, expenditure restraint is also necessary. To ensure

continued delivery o the IMF’s outputs in line with the MTS, the

additional resources allocated to meet new needs and priorities o

member countries are to be more than oset by savings generated

through the increased eciency o existing operations and by

scaling back or eliminating lower-priority activities.

For FY2008, the Executive Board approved a net administrative

budget o $922.3 million, with an upper limit on gross expendi-tures o $998.2 million, and took note o the indicative net

administrative budgets o $938.0 million and $959.4 million or

FY2009 and FY2010, respectively.72 The Board also approved

appropriations o $46.6 million or capital projects and took note

o the medium-term capital plan, totaling $138.0 million.

Continuing the budget reorms that began six years ago, in

FY2008 the IMF will begin implementing a ull medium-term

administrative budget supported by three-year business plans

or its departments and oces. In addition, as discussed in

Box 5.4, the IMF is introducing perormance indicators to

assist in monitoring the delivery o departments’ business plans.It is also taking measures to improve the accuracy o the systems

or allocating costs to specic outputs.

Departmental plans indicate that the reallocation o resources

in line with MTS objectives is set to continue under the

FY2008–10 medium-term budget. Figure 5.2 shows each

output’s share o total resources or FY2008.

Box 5.5 Safeguard assessments

t IMF’s saars assssms pic miias

risk a as ma mmbr cris wi b

miss. Saar assssms aim prvi

rasab assrac IMF a a cra bak’s

ramwrk acia rpri, ai, a crs

is aqa maa is rsrcs, ici IMF

as (s Cd-Bx 5.3 Cd-RoM). I Fy2007,

F cc assssms 12 cra baks

i mmbr cris, brii a mbr

cmp assssms as Apri 30, 2007, 136.

oi miri saars ramwrks a

cra baks cis r as as mmbrs av

cri sai wi IMF (53 cra baks a

-Apri 2007). Cra baks av rambrac is saars assssms,

a saars assssms pic as ac

IMF’s rpai a cribii as a pr

r wi pi imprv prais a

cr ssms cra baks.

71 Thi s overrun in personnel-related expenses was more than accounted or by a special one-o transaction o $19 million, approved by the Executive Board, to accelerate payments into the Sta Retirement Plan (SRP) under a program to provide retirement benets to sta who were ormerly employed on a contractual basis.

72 The nominal gures or both FY2008 and FY2009 are below the indicative gures provided last year, principally because o a reduction in infation.

In terms o inputs, the FY2008 administrative budget allows

or a 3.3 percent structural salary adjustment (the salary

structure as o May 1, 2007, can be ound in CD-Table 5.4

on the CD-ROM). Changes to travel policies and practices are

expected to hold down travel costs. Expenditures on buildings

and other items are budgeted to decline, refecting targeted

reductions in support costs.

Modernizing the risk-management ramework

During FY2007, the Advisory Committee on Risk Management

(ACRM), established in October 2006 and chaired by Fund

management, prepared the IMF’s rst annual report on risk

management based on a Fund-wide survey on operational risks.

The report, accompanied by reports on the strategic, core-

mission, and nancial risks aced by the IMF, was reviewed by

the Executive Board and discussed in March and April 2007.Executive Directors considered the report and the underlying

work to be an important step in the IMF’s eorts to integrate

and strengthen various aspects o risk management. They

stressed the oversight and critical duciary responsibility o the

Executive Board or risk management, noting that the day-to-

day operational aspects o the IMF’s risk-management processes

are the purview o Fund management.








The reports presented to the Board constituted a comprehen-

sive assessment o the main risks acing the IMF and the

measures in place to mitigate them. The ndings were that

(1) strategic risks were generally well covered with the Medium-Term Strategy in place; (2) core-mission risks were well covered

by the Fund’s nancial policies and strong oversight and review

unctions (Box 5.5); (3) nancial risks—in particular income

risk—are being addressed by shareholders; and (4) measures in

place to address the key remaining operational risks (dened as

those with a high probability o occurrence or a potentially

signicant impact) are generally adequate.

Notwithstanding the progress achieved thus ar, developing a

risk-management ramework or the IMF remains a work in

progress, to allow the Fund to learn rom experience and adapt

in a timely way to changing circumstances and any new risks

uture changes may engender. Such a dynamic approach should

help the ramework evolve in line with emerging international

best practices while continuing to give due consideration to the

special character o the IMF as a cooperative global institution

and provider o public goods.

Streamlining

In a cost-conscious environment, the MTS proposes streamlining

IMF operations and reviewing the allocation o resources to

reocus them on more strategic issues while strengthening the

quality and eectiveness o surveillance. In FY2007, the

Executive Board lengthened the cycle or most IMF policy

reviews, consolidated some reports, and eliminated others. To

enhance the timeliness o surveillance, the Board shortened the

interval between the conclusion o Article IV missions and Board

discussions. The IMF experimented with streamlined Article IV

consultations (see Chapter 2), and procedures in cases o minor

misreporting o data by member countries were modied to

make them less onerous or both the IMF and the member.73 The

IMF also reviewed certain support services to identiy opportuni-

ties or delivering outputs more eciently and at a lower cost.

Financial Operations and Policies

Income, charges, remuneration, and burden sharing

The IMF, like other nancial institutions, earns income rom

interest charges and ees levied on its loans and uses the income

to meet unding costs, pay or administrative expenses, and build

up precautionary balances. The current ramework relies heavily

on income rom lending. A priority or the IMF in the period

ahead is to establish a new model that generates steady, diversi-

ed, and reliable long-term sources o income better adapted

than the current model to the broad range o the IMF’s activities.

Under the current income model, the basic rate o charge (the

interest rate) on regular lending is determined at the beginning

o the nancial year as a margin in basis points above the SDR

interest rate (see Box 3.1). These charges are intended to cover

the cost o unds and administrative expenses and to achieve an

agreed net income target or the year. For FY2007, however, the

Board agreed to (1) keep the margin or the rate o charge

unchanged rom FY2006, at 108 basis points above the SDR

interest rate, and (2) temporarily suspend reserve accumulation.

Since November 2000, the IMF has imposed surcharges on

credit extended to discourage unduly large use o credit in thecredit tranches and under Extended Arrangements and to

preserve the revolving nature o IMF nancial resources. The

IMF also imposes surcharges on shorter-term loans under the

Supplemental Reserve Facility (SRF) that vary according to the

length o time credit is outstanding. Income derived rom

surcharges can be placed in the IMF’s reserves or used or other

purposes as decided by the Executive Board.

Table 5.2 Arrears to the IMF of countries with obligations overdue by six months or more, by type

(In millions o SDRs; as o April 30, 2007)

B

Gradarm SdR

ta (ic. SAF1) darm trs F pRGF-eSF

libria 530.8 472.1 28.1 30.6 0.0Smaia 233.4 213.0 12.4 8.0 0.0Sa 1,033.2 953.4 0.0 79.8 0.0Zimbabw 84.7 0.0 0.0 0.0 84.7

ta 1,882.1 1,638.5 40.5 118.4 84.7


1 Structural Adjustment Facility.

73 See PIN 06/95, “IMF Executive Board Modies Procedures in De Minimis Cases o Misreporting,” on the CD-ROM or at www.im.org/external/np/sec/pn/2006/pn0695.htm.





66

IMF Aa Rpr | 2007

The IMF also receives income rom borrowers in the orm o

service charges, commitment ees, and special charges. A one-time

service charge o 0.5 percent is levied on each loan disbursement

rom the General Resources Account. A reundable commitment

ee on Stand-By and Extended Arrangements, payable at the

beginning o each 12-month period under the arrangement, is

charged on the amounts that may be drawn during that period,

including amounts available under the SRF. The ee is 0.25 percent

on amounts committed up to 100 percent o quota and

0.10 percent thereater. The commitment ee is reunded when

credit is used in proportion to the drawings made. The IMF also

levies special charges on overdue principal payments and on

charges that are overdue by less than six months.

The IMF pays interest (remuneration) to member country

creditors on their reserves held by the IMF (known as reserve

tranche positions) based on the SDR interest rate. The basic rate

o remuneration is currently set at 100 percent o the SDR interest

rate (the upper limit permitted under the Articles o Agreement),

but it may be set as low as 80 percent o that rate (the lower limit).

Since 1986, the rates o charge and remuneration have been

adjusted under a burden-sharing mechanism that distributes the

cost o overdue nancial obligations between creditor and debtor

members. Loss o income rom unpaid interest charges overdue or

six months or more is recovered by increasing the rate o charge

and reducing the rate o remuneration. The amounts thus collected

are reunded when the overdue charges are settled. Additional

adjustments to the basic rates o charge and remuneration are made

to generate resources or a Special Contingent Account (SCA-1),

which was established specically to protect the IMF against the

risk o loss resulting rom arrears. Eective November 1, 2006, the

Board decided to suspend contributions to the SCA-1. In FY2007,

the adjustments or unpaid interest charges and the allocation to

the SCA-1 resulted in an increase to the basic rate o charge and a

reduction in the rate o remuneration o 23 basis points. The

adjusted rates o charge and remuneration averaged 5.28 percent

and 3.74 percent, respectively, or the nancial year.

Income in FY2007 ell SDR 111 million short o expenditures.

The net income shortall largely refects a substantial decline

in IMF credit outstanding, rom a peak o SDR 70 billion in

September 2003 to SDR 7.3 billion at the end o FY2007, owing

to low demand or new IMF credit and advance repayments by

some members in recent years. The income shortall will be oset

against the Fund’s reserves (retained earnings), which amounted

to some SDR 6 billion at end-FY2007. The IMF has taken a

number o steps to strengthen its income position. The Board’s

Box 5.6 Investment Account

t IMF’s Arics Arm prvi r sabism a Ivsm Acc (IA)

ra icm p IMF m is prai

css. As par rviw IMF’s facs a

facia srcr a ba i 2004, IMF’s

exciv Bar sppr bra

IMF’s icm bas iv ci i ma r IMF

i, i mai src icm.

t IA was sabis by a exciv Bar cisi i

Apri 2006 a i J 2006 r a rasr

crrcis qa SdR 5.9 bii rm gra

Rsrcs Acc (gRA). t Arics imi am

a may b rasrr IA qiva

F’s ra a spcia rsrvs a im

cisi mak rasr. t J 2006 rasr

was qiva F’s a rsrvs a a im.

Br i IA, rsrvs rm par

crrcy baacs kp wi crir mmbrs. t

rasr crrcis IA rr icras

rsrv rac psiis crir mmbrs. Rsrv

rac psiis ar rmra a 3-m SdRirs ra, impici rr F’s rsrvs

prir IA.

t IMF’s bjciv is r rr IA

xc rr SdR irs ra vr im

wi miimizi rqcy a x

aiv rrs a rprrmac vr a 12-

m riz. t aciv is bjciv, rai

IA pri is maiai by 3-m

isrms r ivsms i iib r-

rm vrm bs a r fx-icm

scriis. exra ass maars—ici

Wr Bak, Bak r Iraia Sms,

a priva maars—ar rs wi byi a

si iivia scriis i accrac wi IA’s

ivsm ariy, iis, a bcmark.

A - r-yar bcmark ix was ap r

IA. hisrica prrmac sss a rsi

xsi ivsm mariis by r-

m SdR ra wi ra aiia icm vr im.




establishment o the Investment Account in April 2006 and its

unding with SDR 5.9 billion in June 2006 were the rst steps

in diversiying the IMF’s sources o income (Box 5.6).

The IMFC recognized the need or more predictable and stable

sources o IMF income and called on the Managing Director to

develop proposals expeditiously. In May 2006, the Managing

Director established the Committee o Eminent Persons to Study

Sustainable Long-Term Financing o the IMF.74 The Committee

presented its recommendations to management and the

Executive Board in early 2007. At its April 2007 meeting, the

IMFC endorsed the report as a sound basis or urther work on

the development o a new income model or the IMF and looked

orward to proposals rom the Managing Director or consider-

ation by the Executive Board. Work on the development o the

new model is a priority or FY08.

Arrears to the IMF

Overdue nancial obligations to the IMF totaled SDR 1.88 bil-

lion at end-April 2007 (Table 5.2), 83 percent o which was

accounted or by Sudan and Liberia; Somalia and Zimbabwe

accounted or the balance. At end-April 2007, all arrears to the

IMF were protracted (outstanding or more than six months);

39 percent represented overdue principal, and the rest, overdue

charges and interest. More than our-ths represented arrears to

the GRA, while the remainder represented arrears to the SDR

Department Trust Fund and the PRGF-ESF Trust. Zimbabwe is

the only country with protracted arrears to the PRGF-ESF Trust.

Under the IMF’s strengthened cooperative strategy on arrears,

remedial measures have been applied against countries with

protracted arrears. As o the end o the nancial year, Liberia,

Somalia, Sudan, and Zimbabwe remained ineligible to use GRA

resources. Zimbabwe continued to be excluded rom the list o

PRGF-eligible countries and is subject to a declaration o

noncooperation. In view o Liberia’s strengthened cooperation

with the Fund, on October 2, 2006, the Executive Board decided

to initiate the de-escalation o the remedial measures that had been

applied against Liberia and lited the declaration o noncooperation.

IMF audit mechanisms

The IMF’s audit mechanisms consist o an external audit rm,

an internal audit unction, and an independent External Audit

Committee (EAC) that oversees the work o both. The EAC,

which also oversees the IMF’s accounting, nancial reporting,

internal control, and risk-management unctions, is composed

o three members selected by the Executive Board and appointed

by the Managing Director. The members serve or three-year

terms on a staggered basis and are independent o the IMF. EAC

members are nationals o dierent IMF member countries at the

time o their appointment and must possess the expertise andqualications required to carry out the oversight o the annual

audit. Typically, candidates or the EAC come rom international

public accounting rms, the public sector, or academia.

The EAC selects one o its members as chair, determines its own

procedures, and is independent o the IMF’s management in

overseeing the annual audit. However, any changes to the EAC’s

terms o reerence are subject to Board approval. The EAC typically

meets in person in early January, in late June ater the completion

o the audit, and in July to report to the Board. IMF sta and the

external auditors consult with EAC members throughout the year.

The 2007 EAC members are Dr. Len Konar (Chair), Board

Member, South Arican Reserve Bank; Mr. Satoshi Itoh, ormer

Proessor, Chuo University, Japan; and Mr. Steve Anderson, Head

o Risk Assessment and Assurance, Reserve Bank o New Zealand.

The external audit rm, which is elected by the Executive Board

in consultation with the EAC and appointed by the Managing

Director, is responsible or perorming the external audit and

expressing an opinion on the IMF’s nancial statements based on

the audit. At the conclusion o the annual audit, the EAC

transmits the report issued by the external audit rm, through

the Managing Director and the Executive Board, to the Board o

Governors and bries the Executive Board on the results o the

audit. The external audit rm is normally appointed or ve

years. Deloitte and Touche LLP is the IMF’s external auditor.

The internal audit unction is perormed by the Oce o

Internal Audit and Inspection (OIA), which provides indepen-

dent examinations o the eectiveness o controls, governance

processes, and risk management. To meet this objective, OIA

conducts about 25 audits and reviews a year. OIA reports to IMF

management and to the EAC, thus assuring its independence. In

addition, the Executive Board is brieed regularly on OIA’s work

program and the major ndings o its audits and reviews.

The IMF’s nancial statements or FY2007 orm Appendix VI o

this Annual Report and can be ound on the CD-ROM as well as on

the Fund’s Web site, at www.imf.org/external/pubs/ft/quart/index.htm.

Readers who wish to receive a print copy o the nancial

statements or FY2007 may request one rom IMF Publication

Services, 700 19th Street, N.W., Washington, DC 20431.

74 The Committee’s nal report was released in January 2007 and is available on the CD-ROM and on the IMF’s Web site, at www.im.org/external/np/oth/2007/013107.pd. The IMF’s press release announcing the release o the report can also be ound on the CD-ROM, as well as at www.im.org/external/np/sec/pr/2007/pr0718.htm.


http://www.imf.org/external/pubs/ft/quart/index.htm






http://www.imf.org/external/pubs/ft/quart/index.htm



68

IMF Aa Rpr | 2007

Ai

M lsar ui SasVacant

Si Kasiwai Japa

Michio Kitahara

Kas d. Si grma

Stephan von Stenglin

ec

Wi Kiks Asria

(Bim) Bars

Johann Prader Bim(Austria) Czc Rpbic

har

Kazaksalxmbr

Svak Rpbic

Sviatrk

Jr Krmrs Armia(nras) Bsia a hrzvia

Yuriy G. Yakusha Baria

(Ukraine) CraiaCprs

gria

IsraMacia, rmr

ysav Rpbic

Mva

nrasRmaia

ukrai

Rbr gariri Csa Rica

(Rpúbica Bivariaa e Savar

Vza) gamaaRamón Guzmán hras

(Spain) Mxic

nicaraaSpai

Vza, Rpúbica

Bivariaa

Arri Sa Abaia

(Ia) grcMiranda Xaa Ia

(Greece) Maa

PraSa Mari

timr-ls

Ricar Mrra Asraia

(Asraia) Kiribai

Wilhemina C. Mañalac Kra

(Philippines) Marsa Isas

Micrsia, Fra

Sas Mia

nw Zaa

PaaPapa nw gia

Piippis

SamaScs

Sm Isas

Vaa

ge ha Cia

(Cia)HE Jianxiong

(China)

Jaa Fri Aia a Barba

(Caaa) Baamas, tPeter Charleton Barbas

(Ireland) Biz

Caaa

dmiicagraa

Ira

JamaicaS. Kis a nvis

S. lcia

S. Vic a

grais

tmas Saarim dmark(Fia) esia

Jon Thorvardur Sigurgeirsson Fia

(Iceland) Ica

lavialiaia

nrwa

Sw

Executive Directors and Alternates on April 30, 20071

1 The voting power o each chair can be ound in Appendix IV on the CD-ROM; changes in the Executive Board during FY2007 are listed in Appendix V on the CD-ROM.

(Alternate Executive Directors are indicated in italics.)

Pirr dqs FracBertrand Dumont

tm Scar ui Kim Jens Larsen








A. Sakr Saaa Barai(ep) ep

Samir El-Khouri Iraq

(Lebanon) Jra

Kwailba

liba Arab Jamairia

Maivsoma

Qaar

Sria Arab Rpbicui Arab emiras

ym, Rpbic

Abaa S. Aazzaz Sai Arabia

(Sai Arabia)

Ahmed Al Nassar (Saudi Arabia)

hi e Pa Bri darssaam(Maasia) Cambia

Chantavam Sucharitakul Fiji

(Thailand) Isiala Pp’s dmcraic

Rpbic

MaasiaMamar

npa

Siapr

taiata

Viam

Pr gak Aa

(Ka) Bswaa

Samura Kamara Bri(Sierra Leone) erira

eipia

gambia, tKa

ls

MaawiMzambiq

namibia

niriaSirra l

S Arica

SaSwaziatazaia

uaa

Zambia

tmas Msr Azrbaija

(Swizra) Krz Rpbic Andrzej Raczko Pa

(Poland) Srbia

Swizratajikisa

trkmisa

uzbkisa

Aksi V. Mzi Rssia Frai(Rssia Frai)

Andrei Lushin(Russian Federation)

Abbas Mirakr Aaisa, Isamic

(Isamic Rpbic Ira) Rpbic

Mohammed Daïri Aria

(Morocco) gaa

Ira, Isamic Rpbic

MrccPakisa

tisia

Pa nira Baisa, Jr. Brazi

(Brazi) Cmbia

María Ines Agudelo dmiica Rpbic(Colombia) ecar

gaa

haiiPaama

Sriam

triia a tba

Aars Kisr Baas

(Iia) Ba Amal Uthum Herat Iia

(Sri Lanka) Sri laka

Javir Siva-R Aria

(Pr) Bivia

Héctor R. Torres Ci(Argentina) Paraa

Prura

lara W. Raisir Bi

(Rwaa) Brkia FasKossi Assimaidou Camr

(Togo) Cap Vr

Cra Arica RpbicCa

Cmrs

C, dmcraicRpbic

C, Rpbic

Cô ’Ivir

djibieqaria gia

gabgiagia-Bissa

Maaascar

MaiMariaia

Mariis

nirRwaa

Sã tmé a Prícip

Sa

t

ec (continued)



70

IMF Aa Rpr | 2007

Senior ocers on April 30, 2007

Jaim Caraa, Csr

Sim Js, ecmic Csr

Ara arms

Aba Bi-tcaé

dircr, Arica dparm

davi Br

dircr, Asia a Pacic dparm

Mica C. dppr

dircr, erpa dparm

Msi S. Ka

dircr, Mi eas a Cra Asia dparm

Ap Si

dircr, Wsr hmispr dparm

Fcia a scia srvics arms

Mica g. K

dircr, Fiac dparm

trsa M. tr-Miassia

dircr, Fisca Aairs dparm

lsi J. lipsciz

dircr, IMF Isi

Sa haa

gra Cs a dircr, la dparm

Jaim Caraa

dircr, Mar a Capia Marks dparm

Mark A

dircr, Pic dvpm a Rviw dparm

Sim Js

dircr, Rsarc dparm

Rbr ewars

dircr, Saisics dparm

Irmai a iais

Mas Am

dircr, exra Rais dparm

Akira Arisi

dircr, Ria oc r Asia a Pacic

Sa M. nsi

dircr, ocs i erp

Vaca1

dircr a Spcia Rprsaiv F oc

a ui nais

Sr srvics

liam P. ebri

dircr, hma Rsrcs dparm

Saira J. Ajaria

Scrar, Scrar’s dparm

Frak hariscr

dircr, tc a gra Srvics dparm

Jaa Pamr

Ci Irmai ocr, tc a gra

Srvics dparm

ofcs

Barr h. Pr2

dircr, oc B a Pai

Br Kpps

dircr, oc Ira Ai a Ispci

Vaca

dircr, oc tcica Assisac Maam

tmas Brs

dircr, Ip evaai oc

1 Barry H. Potter assumed the position o Director and Special Representative to the Fund Oce at the United Nations eective August 13, 2007.

2 Siddharth Tiwari succeeded Barry H. Potter as Director o the Oce o Budget and Planning eective August 15, 2007.




IMF organization chart as o April 30, 2007

1 Known ormally as the Joint Ministerial Committee o the Boards o Governors o the Bank and the Fund on the Transer o Real Resources toDeveloping Countries.

2 Attached to the Oce o the Managing Director.

exra Raisdarm

InFoRMAtIonAnd lIAISon

F ofcui nais2

lgadarm

Mar aCaia Marks

darm

pic dvma Rviwdarm

Rsarchdarm

Saisicsdarm

Fiacdarm

Fisca Aairsdarm

Ji AricaIsi

Ji ViaIsi

SigartraiigIsi

IMF Isi

Hma Rsrcsdarm

Scrar’sdarm

SuppoRtSeRVICeS

tchg aGra Srvics

darm

Aricadarm

Mi eas aCra Asiadarm

WsrHmishrdarm

eradarm

Asia a pacifcdarm

Rgia ofcr Asia ah pacifc

ofcs ier

AReAdepARtMentS

FunCtIonAl And SpeCIAlSeRVICeS depARtMentS

Ivsmofc—SaRirm

pa

ofc Bg

a paig

ofc IraAi aIsci

ofc tchicaAssisac

Maagm

IraiaMar a

Fiacia Cmmi

Ievaai

ofc

Bar

Gvrrs

Ji IMF–WrBak dvm

Cmmi1

exciv Bar

Maagig dircr

d Maagigdircrs



IMF Aa Rpr | 2007

Acronyms and abbreviations

Cristis Annual Report was prpar b eiria a Pbicais divisi IMF’s exra Rais dparm. t maiir was Asimia Camiis; cmpsii Appixs was b Aicia ecbar-Bri; trsa evaris d Rsariprvi assisac wi prparai.

72

AFRItAC Arica Ria tcica Assisac Cr

AMl/CFt Ai–m ari/cmbai aci rrrism

APeC Asia-Pacic ecmic Cprai

ASeAn Assciai Sas Asia nais

BIS Bak r Iraia Sms

CCe Cria Cmpiai exrcis

CCl Ci Cri lis

CeMAC Cra Arica ecmic a Mar Cmmi

CFF Cmpsar Fiaci Facii

CgeR Csaiv grp exca Ra Isss

dFId u.K. dparm r Iraia dvpm

dQAF daa Qai Assssm Framwrk

dSBB dissmiai Saars Bi Bar

dSF db ssaiabii ramwrk

eCCu easr Caribba Crrc ui

eCu erpa Crrc ui

eFF ex F FaciieMBI JPMra emri Marks B Ix

endA emrc nara disasr Assisac

ePA ex ps assssm

ePCA emrc Ps-Cfic Assisac

eSAF eac Srcra Ajsm Facii

eSF exs Scks Facii

eu erpa ui

eXR exra Rais dparm

FAd Fisca Aairs dparm

FAtF Fiacia Aci task Frc

FCC Frwar cmmim capaci

FSAP Fiacia Scr Assssm Prram

FSF Fiacia Sabii Frm

FSI Fiacia sss iicar

FSRB FAtF-s ria bFSSA Fiacia Ssm Sabii Assssm

Fy Fiacia ar

gddS gra daa dissmiai Ssm

gdP grss msic prc

gFSR gba Fiacia Sabii Rpr

gMR gba Miri Rpr

gRA gra Rsrcs Acc

hIPC havi Ib Pr Cris

IA Ivsm Acc

IdA Iraia dvpm Assciai(Wr Bak grp)

Ieo Ip evaai oc

IF Ira Framwrk r tra-Ratcica Assisac

IFRS Iraia Fiacia Rpri Saars

IFS Iraia Fiacia Saisics

IMFC Iraia Mar a Fiacia Cmmi

MCM Mar a Capia Marks dparm

Mdg Miim dvpm ga

MdRI Miara db Ri Iiiaiv

MtS Mim-trm Sra

oAP Ria oc r Asia a Pacic

oeCd oraizai r ecmic Cpraia dvpm

oFC osr acia cr

oIA oc Ira Ai a Ispci

otM oc tcica Assisac Maam

PdR Pic dvpm a Rviw dparm

PIn Pbic Irmai nicPRgF Pvr Rci a grw Facii

PRSP Pvr Rci Sra Papr

PSI Pic Sppr Isrm

PSIA Pvr a Scia Impac Aasis

QedS Qarr exra db Saisics

Reo Ria ecmic ok

RoSC Rpr obsrvac Saarsa Cs

RtAC Ria tcica Assisac Cr

RtC Ria traii Cr

SAF Srcra Ajsm Facii

SBA Sa-B Arram

SCA-1 Firs Spcia Ci Acc

SdA Spcia disbrsm Acc

SddS Spcia daa dissmiai SaarSdMX Saisica daa a Maaa exca

SdR Spcia rawi ri

SRF Sppma Rsrv Facii

StA Saisics dparm

S&P Saar a Pr’s

tIM tra Irai Mcaism

un ui nais

WAeMu Ws Arica ecmic a Mar ui

Weo Wr ecmic ok

Wto Wr tra oraizai

phgrah

Sp Ja/IMF sa p adaacra, Bra Rickrb/g Imas cvr

escCci, Cris Sabrr/g Imas cvr 2

Mica Spir/IMF sa p pa 5

Sp Ja/IMF sa ps pas 6, 31, 45, 57, a 60

Pa har/Crbis pa 7

uric Prr/nwscm pa 11

Mar Wis/ IMF sa p pa 15

A Rai/pa/Crbis pa 17

Ai gri/AgP/Crbis pa 21

Sbasia Mrira/pa/Crbis pa 25

Prcai Kiiwsak/AFP/g Imas pa 27

ReuteRS/nzim Kaa pa 41

Ramzi haiar/g Imas pa 43

gr nw r IMF pa 47

e Saazar/IMF sa p pa 51

Csrci Prap/Crbis pa 53



Cd-RoM isrcis

Isr Cd-RoM i Cd riv r cmpr. A cs pa wi appar wii r brwsr wiw.PdF s ar ic Cd-RoM a ca b p si Ab Rar.t wa a r cp Ab Rar prram, pas visi www.adobe.com.

t Cd-RoM cais IMF 2007 Annual Report caprs i r aas: eis, Frc, a Spais.A appixs, ici acia sams, ar as Cd, i eis. I aii, Cd

cais Pbic Irmai nics, prss rass, assr rprs, a abs a bxs ri mr ai aciviis scrib i Annual Report caprs.

Fr mr irmai, visi IMF’s Wb si a www.im.org.

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I n t e r n a t i o n a l M o n e t a r y F u n 2 0 0 7

d e s i g n : F i n

a n c i a l C o m m u n i c a t i o n s , I n c .

B e t h e s a ,

M d

w w w

. f c i c r e a t i v e . c o m

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IMF's Annual Report 2007

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