IMF Executive Board Approves New Framework for Enhanced Engagement on Governance

[Butifldrm]

It appears the IMF is now taking a greater stance against corruption and those countries who Use Funds Resources (UFR).  Since Iraq has is under a standby arrangement with the IMF/World Bank, they will be subject to surveillance guidelines considering Corruption.

 

 

IMF Executive Board Approves New Framework for Enhanced Engagement on Governance

April 22, 2018

On April 6, 2018, the Executive Board of the International Monetary Fund (IMF) adopted the policy framework outlined in a staff paper on “Review of 1997 Guidance Note on Governance—A Proposed Framework for Enhanced Fund Engagement.” The new framework supplements the policy on governance detailed in “The Role of the IMF in Governance Issues: Guidance Note,” adopted by the Executive Board in 1997 (1997 Governance Policy). The approach taken in this paper builds on the July 21, 2017 Board discussion of the staff paper—“The Role of the Fund in Governance Issues—Review of the Guidance Note-Preliminary Considerations.”

The 1997 Governance Policy was adopted to guide the IMF’s efforts in helping its member countries to address governance and corruption issues. The July 2017 Board review of the 1997 Governance Policy found that, while considerable progress had been made in implementing the Policy, there remained several areas in which the IMF’s engagement on governance and corruption issues could be strengthened. The current paper responds to the Executive Board’s call for further work to strengthen the identified areas of engagement.

The paper articulates the principles that will continue to underpin the Fund’s engagement on governance issues in surveillance and use of Fund resources, and provides a framework for enhanced implementation (Framework for Enhanced Fund Engagement). The Framework is designed to promote more systematic, effective, candid, and evenhanded engagement with member countries regarding governance vulnerabilities, including corruption, that are judged to be macroeconomically critical.

The Framework consists of four elements:

The first element is designed to enable the Fund to assess the nature and severity of governance vulnerabilities—including corruption. This includes an assessment of those state functions that are most relevant to economic activity, namely (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) Anti-Money Laundering and Combatting the Financing of Terrorism. Given its particularly pernicious impact on a member’s ability to achieve sustainable inclusive growth, the assessment will also examine the severity of corruption.

The second element will guide the Fund’s assessment of the macroeconomic implications of governance vulnerabilities taking into account the applicable standards for surveillance and the use of Fund resources. The paper lays out empirical evidence of the negative impact of governance vulnerabilities on economic performance, which provides a strong basis to determine that these vulnerabilities should be addressed in surveillance when they are assessed as severe.

The third element provides a framework for policy advice and capacity development support to members where Fund engagement is warranted.

And, the fourth element focuses on measures designed to prevent the private actors from offering bribes or providing services that facilitate concealment of corruption proceeds.

Executive Board Assessment [1]

Executive Directors welcomed the review of the 1997 Guidance Note on the Role of the Fund in Governance Issues (the “1997 Governance Policy”). They concurred that, while the 1997 Governance Policy remains an appropriate basis for the Fund’s work in this area, further guidance from the Executive Board is needed to enhance the effectiveness of Fund engagement. To that end, they noted that today’s adoption of the Framework for Enhanced Fund Engagement will promote a more systematic, candid, and evenhanded engagement on governance issues, including on corruption. Directors underscored that, in circumstances where corruption is systemic, the failure of the Fund to address these issues in surveillance and in Fund‑supported programs gives rise to reputational risks and could also undermine the safeguarding of Fund resources.

Directors agreed that the Fund’s engagement should continue to be guided by the 1997 Governance Policy. They emphasized that the overall objective of the policy is to assist members in strengthening governance, including the tackling of corruption. Directors welcomed the systematic approach relied on in the Framework for Enhanced Fund Engagement to assess the severity of governance. They concurred that the state functions identified are appropriate given the Fund’s mandate regarding economic activity. In that context, they emphasized that the analysis of the rule of law should focus on those aspects that are critical to economic performance and, in particular, the protection of property and contractual rights. Directors also emphasized that governance vulnerabilities may manifest themselves in regulatory capture, including in the area of financial sector oversight.

Directors agreed that the Fund’s assessments of governance vulnerabilities should be holistic, relying on both quantitative and qualitative information. They also agreed that, to the extent possible and where relevant, staff would rely on information already obtained by the Fund, including from member authorities, in the context of existing Fund activities. In that regard, Directors emphasized that, whenever data gaps exist, they should be specifically acknowledged. They also stressed that the use of third‑party indicators should be consistent with the Fund’s policy in this area, and should only complement—and not displace—the analysis of Fund staff and that of other international organizations, including the World Bank and regional development banks. They noted that collaboration with these organizations, and the use of information provided by them, will be consistent with Fund policy. Directors agreed that the Fund should not publish country rankings of its assessment of corruption or other general governance vulnerabilities.

Directors also agreed that the Fund should continue to address governance issues and corruption in surveillance when the applicable standard of the Integrated Surveillance Decision has been met. Given the evidence of the negative association between weak governance and corruption, on the one hand, and inclusive growth and fiscal performance, on the other hand, Directors agreed that a determination as to whether governance and corruption vulnerabilities are relevant to surveillance will be based on an assessment of whether they are sufficiently severe to significantly affect prospective or present balance of payments and domestic stability. They supported the flexibility in the timing of the inclusion of these issues—where warranted—in Article IV consultations, in line with the approach taken for other long‑term issues. With respect to use of Fund resources (UFR), Directors emphasized that reforms to address governance and corruption vulnerabilities should be conditions for UFR when these vulnerabilities are assessed as severe and addressing them is of critical importance for achieving the goals of a member’s program. Directors also stressed the need to recognize any ongoing governance reforms in the member country since the responsibility for governance issues lies primarily with the national authorities.

Directors emphasized that Fund policy advice should be informed by the diagnosis of the vulnerabilities, and be specific and tailored to member countries’ circumstances and implementation capacity, taking into account the inherent complexity of these issues. They stressed the importance of early and close engagement with the authorities on these issues. Directors also emphasized that, in the context of surveillance, the authorities’ own views should be adequately reflected in the relevant staff report. The authorities will be informed sufficiently in advance of the intention to discuss these issues and the discussions will be open and transparent. Directors underscored the need for candid discussions in staff reports, using clear and direct language.

Directors acknowledged that there are likely to be areas where the Fund does not have a comparative advantage relative to other international institutions. They, therefore, urged the staff to continue to rely on the expertise of other institutions, especially the World Bank, in these areas. More generally, they noted that the Fund should collaborate with other institutions to minimize duplication of work. For example, with respect to AML/CFT, Directors emphasized that the Fund should continue to rely on existing division of responsibilities with other assessor bodies, particularly the FATF.

With respect to capacity development in governance and corruption, Directors agreed that the Fund’s support to member countries should be appropriately prioritized with—and well‑integrated into—surveillance and UFR. Given that entrenched weaknesses require sustained efforts, particularly in the context of fragile states, Directors emphasized that the Fund’s capacity development strategy in this area needs to be anchored within a longer‑term framework.

Directors supported the increased emphasis in the Framework on measures to prevent private actors, including those involved in organized crime, from offering bribes or providing services that facilitate concealment of corruption proceeds, thereby helping to reduce illicit financial flows. Given the importance of the transnational dimension, Directors welcomed the decision made by several jurisdictions to volunteer to have their legal and institutional frameworks assessed in the context of future Article IV consultations, and encouraged other jurisdictions to volunteer as well. The assessments will determine whether: (a) they criminalize and prosecute the bribery of foreign public officials; and (b) they have an effective AML/CFT system that is designed to prevent foreign officials from concealing the proceeds of corruption. Directors emphasized that these assessments should also take into account the effectiveness of implementation.

Directors took note of Management’s plan to adopt a centralized institutional process for the assessment of the severity and impact of governance and corruption vulnerabilities to ensure that similarly‑situated countries are treated similarly in both surveillance and UFR. The centralized process will be implemented by a standing Working Group with a key role in ensuring an evenhanded implementation of the Framework.

Directors welcomed Management’s intention to assess the resource implications of the application of the Framework in the Administrative Budget for FY 2020. They looked forward to regular updates from the staff on the implementation of the Framework and a review by the Executive Board within three years of its adoption.

http://www.imf.org/en/news/articles/2018/04/21/pr18142-imf-board-approves-new-framework-for-enhanced-engagement-on-governance

[ChuckFinley]

Great read Bitifldrm, hope they can deter the Iraqi SOP for doing business.  

[Butifldrm]

3 hours ago, ChuckFinley said:

Great read Bitifldrm, hope they can deter the Iraqi SOP for doing business.  

 

yes, this should scare the crap out of the high level officials like Maliki, since they can face prosecution due to IMF surveillance and subsequent compliance for financial assistance.  Iraq has been borrowing money form the IMF for years and really not following IMF guidelines.    Iraq agreed to AML/CFT compliance:

Iraq 3 November 2017

Since October 2013, when Iraq made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Iraq has substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing an adequate legal framework for identifying, tracing, and freezing terrorist assets; (3) establishing effective customer due diligence measures; (4) establishing a fully operational and effectively functioning Financial Intelligence Unit; (5) establishing adequate suspicious transaction reporting requirements; and (6) establishing an adequate AML/CFT supervisory and oversight programme for the financial sector. However, the FATF still needs to confirm the applicability of these reforms throughout the entire national territory and will reassess the situation in February 2018 to determine when an on-site visit should take place. http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/fatf-compliance-november-2017.html

 

It appears that Iraq has not been in complaince:

 

Iraq 23 February 2018

Since October 2013, when Iraq made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Iraq has substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing an adequate legal framework for identifying, tracing, and freezing terrorist assets; (3) establishing effective customer due diligence measures; (4) establishing a fully operational and effectively functioning Financial Intelligence Unit; (5) establishing adequate suspicious transaction reporting requirements; and (6) establishing an adequate AML/CFT supervisory and oversight programme for the financial sector. The FATF will conduct an on-site visit to confirm that the implementation of these reforms has begun and is being sustained. http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/fatf-compliance-february-2018.html

 

 

Now we see the IMF MOVING INTO ACTION!:

Given the importance of the transnational dimension, Directors welcomed the decision made by several jurisdictions to volunteer to have their legal and institutional frameworks assessed in the context of future Article IV consultations, and encouraged other jurisdictions to volunteer as well. The assessments will determine whether: (a) they criminalize and prosecute the bribery of foreign public officials; and (b) they have an effective AML/CFT system that is designed to prevent foreign officials from concealing the proceeds of corruption. Directors emphasized that these assessments should also take into account the effectiveness of implementation. http://www.imf.org/en/news/articles/2018/04/21/pr18142-imf-board-approves-new-framework-for-enhanced-engagement-on-governance

 

 

 

[Donziman]

Hey CF i have been thinking about that starting rate after all the GOI crap filters over to the CBI;

Since the hold up seems to be the concern that there is too much dinar issued and floating around

the world.why don't we start right here and each of our members just send back 10 percent of what we hold

and get this thing done. I for one would be glad to do it after 12yrs of waiting.  Lets do it.

[tennesseem]

JUST TAKE IT ALL ALREADY!!

[Butifldrm]

Corruption hurts the poor: IMF

Unveils new policy for member states

 

 

 

AFP

April 23, 2018

 

 

WASHINGTON - The International Monetary Fund will systematically address corruption and its impact on economic growth with all its member countries under new guidelines launched on Sunday.

The new policy also tackles how rich countries contribute to corruption in the developing world by failing to prevent bribery and money laundering or by allowing anonymous corporate ownership.

"We know that corruption hurts the poor, hinders economic opportunity and social mobility, undermines trust in institutions and causes social cohesion to unravel," IMF Managing Director Christine Lagarde said in a statement.

"We have now adopted a framework for enhanced engagement on governance and corruption that aims for a more systematic, evenhanded, effective and candid engagement with member countries." Corruption and poor governance sap economic growth and exacerbate inequality, according to the IMF, and the new policy framework ensures the institutions will hold all members to the same standards -- something it had not always done.

The new policy comes as Ukrainian authorities work to implement stringent new anticorruption reforms at the behest of the IMF, which has held up the latest instalment of a $17.5 billion aid package.

The revised good governance guidelines, which take effect on July 1, follows a recent review of the IMF's 20-year-old policy framework which concluded the fund had sometimes employed euphemisms when discussing corruption in member states -- leaving local officials unclear about IMF concerns.

And IMF analysis sometimes failed to apply the same standards evenly to all members. Under the new guidelines approved by the IMF board on April 6, the fund will discuss good governance concerns in all annual economic reviews of member countries.

IMF officials however say they do not expect the policy will lead to more stringent conditions on loans, which go to a minority of the fund's 189 members and which already include anti-corruption provisions.

The fund also will rely on the findings of outside transparency campaigners who have criticized the existence of tax and corporate havens in advanced economies as a conduit for illicit financial flows to and from poorer countries.

However, the IMF will not investigate specific instances of corruption.

Rather it will focus on the strength of key economic institutions: fiscal and central bank governance, market regulation, the rule of law and policies on money laundering and countering terrorism financing.

IMF analysis suggests falling 25 notches on a corruption index could shave as much as 0.5 percentage points off a country's annual growth -- amounting to tremendous economic losses over multiple years

https://nation.com.pk/23-Apr-2018/corruption-hurts-the-poor-imf

[Butifldrm]

 

Restoring Trust by Curbing Corruption

http://www.imf.org/external/POS_Meetings/SeminarDetails.aspx?SeminarId=301&intcid=OBanner-FiscalForum