The IMF and Good Governance
The IMF places great emphasis on good governance when providing policy advice, financial support, and technical assistance to its 185 member countries. The Fund's approach to combating corruption emphasizes prevention, concentrating on measures to strengthen governance and limiting the scope for corruption. The IMF also has strong measures in place to ensure the integrity of its own organization. |
Why does the IMF care about governance and corruption?
The term governance generally encompasses all aspects of the way a country is governed, including its economic policies and regulatory framework. Corruption is a narrower concept, which is often defined as the abuse of public authority or trust for private benefit. The two concepts are closely linked: an environment characterized by poor governance offers greater incentives and more scope for corruption. Many of the causes of corruption are economic in nature, and so are its consequences—poor governance clearly is detrimental to economic activity and welfare. Following encouragement by its Board of Governors, the IMF adopted in 1997 a Guidance Note entitled The Role of the IMF in Governance Issues.
Promoting good governance through IMF surveillance, lending and technical assistance
The Fund works with its members to prevent and address corruption in areas where the Fund has a mandate and expertise. These include, notably, public resource management and financial sector soundness where the emphasis is on establishing strong and transparent procedures and institutions in order to ensure accountability. The Fund also helps strengthen countries' capacity to combat corruption by advising on appropriate anti-corruption strategies, commissions, and legislation.
Through regular consultations with members known as "Article IV consultations," the IMF provides policy advice which where relevant could cover governance-related issues. Attention to these issues increased steadily since the launch of the Guidance Note on Governance in 1997 and now about 40 percent of public information notices (PIN) that summarize Article IV consultations make reference to "governance" and 20 percent to "corruption."
Good governance is also pursued in IMF-supported programs. When seeking financial support from the IMF, country authorities describe their economic policies in a letter of intent (LOI). Since 1997 some 60 percent of LOIs deals with issues of "governance" and 40 percent to with issues of "corruption." When warranted, specific anti-corruption measures may be part of the conditionality of IMF-supported programs.
The IMF also provides technical assistance to its members, much of which has a direct bearing on governance. For instance, IMF staff often provide assistance to strengthen tax and customs administration, as well as public resource management and financial sector soundness.
Other IMF programs and initiatives that promote good governance
The IMF also promotes good governance through specific initiatives which tie in with its surveillance, lending, and technical assistance.
• The IMF encourages member countries to improve accountability by enhancing transparency in policies,in line with internationally recognized standards and codes that cover government, the financial sector, and the corporate sector.
• For fiscal policy and monetary and financial policies, the IMF has developed codes that set out transparency principles. They are accompanied by manuals that describe good and best practices. The Code of Good Practices on Fiscal Transparency aims to encourage a better-informed public debate about the design and results of fiscal policy, and greater government accountability. Its Code of Good Practice on Transparency in Monetary and Financial Policies serves a similar purpose in the area of monetary and financial policies.
• To improve the transparency, quality and timeliness of data, the IMF encourages its members to subscribe to the Special Data Dissemination Standard (SDDS) or participate in the General Data Dissemination System (GDDS).
• In its work with poor countries—especially those that receive debt relief under the Initiative for Heavily Indebted Poor Countries—the IMF emphasizes adequate systems for tracking public expenditure related to poverty reduction. It partners with other IFIs and donors in the Public Expenditure and Financial Accountability (PEFA) program, which helps member countries develop essential public financial management systems including by measuring their performance.
• Finally, the IMF contributes to the international efforts to combat money laundering and the financing of terrorism by assessing its members' legal and regulatory frameworks, providing technical assistance to address shortcomings, and conducting policy-oriented research.
Ensuring the integrity of the IMF's own organization
As a means to safeguard its resources, the IMF assesses the governance and transparency frameworks within central banks of countries to which it lends money, to promote sound oversight and operation of the internal control, auditing, and public financial reporting mechanisms of these critical financial institutions.
Concerning the integrity of its own organization, the IMF has adopted a number of rules and regulations to ensure ethical conduct and prevent corruption among its staff, reflected in the Code of Conduct for Staff. These rules are bolstered by extensive financial certification and disclosure requirements, all subject to disciplinary sanctions in case of their violation. There is a separate, but similar, Code of Conduct for Members of the Executive Board who, unlike the staff, are not subject to the authority of the Managing Director, as they are appointed or elected by the IMF's member states. An Integrity Hotline offers protection to "whistleblowers."
The IMF has also established an ethics office, which is responsible for advising the IMF and its staff on ethics issues and for inquiring into alleged violations of the IMF's internal rules and regulations.