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IMF boss outlines new international monetary, financial reforms

ISLAMABAD, February 6 (Internews): The International Monetary Fund chief says many changes should be effected in the coming phase of reforming the international monetary and financial system.

"The financial foundations of the new architecture must be based on five basic principles," IMF Managing Director Michel Camdessus says in an interview with IMF Survey journal in its new edition.

He named the five as transparency, sound financial systems, private sector participation, orderly liberalisation of capital flows and the modernisation of the international markets on the basis of universally accepted standards.

Saying that some of this had already been achieved, he felt there was consensus in a number of areas, particularly on transparency in policymaking and corporate affairs, on financial sector stability, and on working through standards and codes of practice towards stable, efficient, and transparent markets.

"While this work may not be complete, there is broad agreement on objectives," Camdessus said, adding that a number of issues remained on the agenda.

"First, there is the area of surveillance, which plays a central role in the work of the IMF," he said.

"It is given priority when we allocate our human and budgetary resources, since the IMF alone has this mandate; it is growing in importance, and its primary focus is on matters that are the traditional responsibility of the IMF - issues of monetary stability, balance of payments sustainability, and growth-oriented economic policies," he said.

Camdessus said since major destabilising factors can emerge anywhere and at any time, these traditional elements have now been supplemented by considerations involving the stability of banking and financial systems; governance; relations between governments, banks, and enterprises; and supportive social policies.

"There is also the question of how far the work of monitoring standards and codes of conduct should be integrated with IMF surveillance and enter into our day-to-day work," according to him.

Some of the responsible agencies report that they do not have the capacity to monitor such implementation on their own, he informed.

"This raises the question of how far the IMF, with its limited resources, might use the surveillance process for such monitoring. The Executive Board is to discuss this issue in the next few months," he said.

Second, Camdessus said, exchange rate regimes and the conduct of economic policy have to be adapted to the new economic environment.

"It has frequently been noted that the countries affected by the recent crises had operated some form of pegged arrangement or tightly managed float, and this raises the question of whether such arrangements were defective either in principle or in the way they were managed," he said.

"Are they suitable only for countries at certain stages of development and, hence, do they have only limited relevance? In the final analysis, if domestic policies are right, how much does it matter which exchange rate regime is adopted?" he said, adding that the Board was taking account of recent experience as it reconsiders these questions.

"Third, Camdessus said, there is the question of involving the private sector more fully in crisis prevention and resolution.

"This issue is still under discussion and the basic point is that all our efforts should aim at preventing crises. When difficulties occur, voluntary market-based solutions should normally be found to keep the private sector engaged," he explained.

"Yet there may be extreme situations, in which some international intervention is needed to ensure that debtors have the time to reach orderly resolution with their creditors," the IMF boss said.

One possibility, according to him, might be to devise a mechanism through which the international community could sanction a temporary stay of litigation by creditors.-Internews