Technical Assistance

Surveillance is the most effective tool used by the IMF for achieving its objectives in the global economy and the reason for its effectiveness is that surveillance is universally applied to all of its membership, unlike its counterparts389.390 However, it is not free from shortcomings, the most significant of which is that it is mostly superficial and does not explore in detailed all traits of its members‘ financial sectors, other than broad macroeconomic policy and its developments.391

This is because it is not practical for the IMF to explore and study all aspects of its members‘ financial sectors. Thus, at this stage, the IMF uses its second tool under Article IV to achieve its objectives, that of technical assistance (TA).

TA is discussed under Section 2(b) of Article V.392 The IMF may provide TA to its members in its expert areas and it extends TA to its concerned members mostly through specialised advice in order to strengthen the institutional capacity of that member in the IMF‘s area of interest i.e. predominantly the financial sector. TA is not at all mandatory and not universally applied; it is

388 _{For technical assistance see generally, IEO (2005), Evaluation of the Technical Assistance Provided by the IMF,}

Volume I & II, team headed by Marcelo Selowsky, available at:

http://www.imf.org/external/np/ieo/2005/ta/eng/013105.htm; International Monetary Fund (1999), ―Review of Fund Technical Assistance: From Technical Assistance to Technical Consultation and Cooperation‖ (Washington: International Monetary Fund); International Monetary Fund (2000), ―Ensuring Alignment of Technical Assistance with the IMF‘s Policy Priorities‖ (Washington: International Monetary Fund); International Monetary Fund (2001), ―Review of the Technical Assistance by the Legal Department‖, Office of Internal Audit and Inspection (Washington: International Monetary Fund); International Monetary Fund (2002), ―Review of Technical Assistance Policy and Experience‖ (Washington: International Monetary Fund); International Monetary Fund (2003), ―IMF Technical Assistance: Transferring Knowledge and Best Practice‖ (Washington: International Monetary Fund). Available at: http://www.imf.org/External/pubs/ft/exrp/techass/techass.htm; International Monetary Fund (2008). Enhancing the Impact of Fund Technical Assistance. Prepared by the Office of Technical Assistance Management and Approved by Alfred Kammer; IEO (2007). The Governance of IMF Technical Assistance. Independent Evaluation Office of the International Monetary Fund Prepared by Mariano Cortes. Document no. BP/08/13

389

The other two are Technical Assistance and Financial Assistance.

390 _{Article IV (3) (a): ―The Fund shall oversee the international monetary system in order to ensure its effective}

operation, and shall oversee the compliance of each member with its obligations under Section 1 of this Article.‖

391

Ross Leckow, The Fund‘s Legal Instruments to Promote Financial Stability. Legal Department, International Monetary Fund (2006) para 25, available at: http://www.imf.org/external/np/seminars/eng/2006/mfl/rl.pdf

392 _{The IMF‘s authority to provide TA is set forth in Article V, Section 2(b) of the Articles of Agreement under}

which the IMF ―may‖, upon request, provide technical assistance harmonious with the objectives of the IMF. Article V, Section 2(b) reads in pertinent part: ―If requested, the Fund may decide to perform financial and technical services, including the administration of resources contributed by members, that are consistent with the purposes of the Fund.‖

149 purely up to members to ask for TA from the IMF whilst, on the other hand, it depends on the IMF whether they want to extend TA to a member.393

The IMF mostly looks for the stable and balanced growth of economy by providing TA which is mainly dedicated to the building of the institutional capacity of the member concerned in the area of their financial sector. Under the TA programs, the IMF staff mainly assist the authorities of the member countries by working closely with them to support them in strengthening their organisational structure in the area of their financial sector, the central bank and financial supervisory agencies‘ operations and the transfer of knowledge regarding these operations.394

Most commonly, member countries request assistance from the IMF in identifying and suggesting solutions to financial sector weaknesses in their systems. In this context, the IMF and World Bank have started a joint project to evaluate vulnerabilities in the financial sectors of member countries at their request. This program is called the Financial Sector Assessment Program395 which promotes international standards and codes396 for financial, fiscal, and statistical management. Moreover, it takes measures to strengthen initiatives against money

393 _{DISSEMINATION OF TECHNICAL ASSISTANCE INFORMATION, Prepared by the Office of Technical}

Assistance Management and the Legal Department of the IMF, Approved by Alfred Kammer and Sean Hagan (2008), para 8, available at: http://www.imf.org/external/np/pp/eng/2008/040308b.pdf

394 _{The IMF extends its technical services in areas of its speciality, for example; in tax policy, macroeconomic}

policy, revenue administration, monetary policy, expenditure management, financial sector sustainability, the exchange rate system, and financial and macroeconomic statistics. IMF Factsheet of Technical Assistance, 2010, Available at: http://www.imf.org/external/np/exr/facts/tech.htm For core areas of expertise visit http://www.imf.org/external/pubs/ft/psta/index.htm#annex

395 _{IMF Factsheet, The Financial Sector Assessment Program (FSAP), 2010, available at:}

http://www.imf.org/external/np/exr/facts/fsap.htm and for details about the FSAP programs visit http://www.imf.org/external/np/fsap/fsap.asp; see also, Kupiec, Paul (2005), ―The IMF–World Bank financial sector assessment program: A view from the inside,‖ in Systemic Financial Crisis: Resolving Large Bank Insolvencies, D. Evanoff and G. Kaufman (eds.), Singapore: World Scientific Publishing.

396 _{IMF Factsheet, Standards and Codes: The Role of the IMF, 2010. Available at:}

http://www.imf.org/external/np/exr/facts/sc.htm ; see also, Jordan, Cally E. andMajnoni, Giovanni (2002). Financial Regulatory Harmonization and the Globalization of Finance. World Bank Policy Research Working Paper No. 2919.

150 laundering and the funding of terrorism397. The following section will talk about the TA activities provided by the IMF, as mentioned above.

a) Financial Sector Assessment Program398

The Financial Sector Assessment Program (FSAP) is the most significant aspect of the IMF‘s TA operation. The FSAP is a combined initiative of the IMF and the World Bank and was taken on board after the Asian financial crisis in 1999.399 As is clear from its name, it is an assessment program of the financial sectors of its member countries. FSAP encourages its membership towards a deeper collective effort to monitor their own financial systems with the help of the IMF. Its basic aim is to assess in detail the financial sectors of its members and identify on behalf of the national authorities concerned the weaknesses in their financial systems. In addition to the assessment of the member countries‘ financial sectors, FSAP provides assistance to members in order to develop measures to reduce or overcome the weaknesses they have identified in their financial systems.400

397

IMF Factsheet, The IMF and the Fight Against Money Laundering and the Financing of Terrorism, 2010. Available at: http://www.imf.org/external/np/exr/facts/aml.htm ; see also, Masciandaro, D. (ed.) (2004) Global Financial Crime: Terrorism, Money Laundering andOffshore Centres. Aldershot: Ashgate; see also, Alexander, K. 2002. ―Extraterritorial U.S. Banking Regulation and International Terrorism.‖ Journal of International Banking Regulation 3, no. 4: 307–326.

398 _{IMF Factsheet, The Financial Sector Assessment Program (FSAP), 2010, available at:}

http://www.imf.org/external/np/exr/facts/fsap.htm and for details about the FSAP programs visit http://www.imf.org/external/np/fsap/fsap.asp and also see generally, Financial Sector Assessment Program— Background Paper, Prepared by the Staff of the Monetary and Financial Systems Department of IMF, Approved by Tomás J.T. Baliño, 2005. Available at: http://www.imf.org/external/np/fsap/2005/022205a.pdf; see also, Gianviti, F. (2002). 'Legal Aspects of the Financial Sector Assessment Program (FSAP), available at http://www.imf.org/external/ np/leg/sem/2002/cdmfl/eng/gianv2.pdf; see also, Singh, Dalvinder (2007). 'The Role of the IMF and World Bank in Financial Sector Reform and Compliance: An Outline,' 18 European Business Law Review.

399 _{Alexander, Kern, Dhumale, Rahul, and, Eatwell, John, (2005). ‗Global Governance of Financial Systems, The}

International Regulation of Systemic Risk.‘ Published to Oxford Scholarship Online: September 2007, p74.

400 _{IMF Factsheet, The Financial Sector Assessment Program (FSAP), 2010, available at:}

151 FSAP stresses the connectivity and interdependence between the functioning of the financial sector and the macro economy. Mostly, it studies the institutional framework of the financial sector and also assesses it in the context of a risk and vulnerability analysis through different types of indicators and stress tests.401

FSAP is quite a popular TA program of the IMF, as it has been requested and received by more than 120 member countries of the IMF. FSAP also helps the IMF with the improved operation of its other tools, such as surveillance. As it assesses the financial sector of the member country in detail, it gives the IMF an opportunity to study the information for the purposes of surveillance.402

With the same purpose of providing certainty in the framework of the global economic scenario, the IMF has initiated the practice of making and implementing international codes and standards. The next section talks about these international standards and codes.

b) International Codes and Standards

The IMF and the World Bank have also encouraged its membership to comply with international standards and codes related to the financial sector. This encouragement can be better understood with the insight of legal transplant. For harmonisation purposes, the IMF transplants standards and codes into domestic legal systems. In fact, these IEIs have taken on a number of standards

401

However, over the passage of time new features have been included in the TA activity. For example, more candid and transparent assessments; improved analytical toolkit; more flexible modular assessments, tailored to country needs; better cross-country perspectives; and better targeting of standards assessments. For details visit http://www.imf.org/external/np/exr/facts/fsap.htm

402 _{IMF Factsheet, The Financial Sector Assessment Program (FSAP), 2010, available at:}

152 and codes that denote good practice and further, advises its members to absorb these practices into their institutional frameworks for the better functioning of their financial sectors.403

The IMF only sets some of these best practices itself404; most are developed by different international bodies that hold some specialisation in their respective areas. Some of the IOs involved in the formation of standards and codes as best practice in their respective fields are;405

 Basel Committee‟s Core Principles on Banking Supervision;406

 International Organization of Securities Commission‟s Objectives for Securities Regulation;407

 International Association of Insurance Supervisors‟ Insurance Supervisory Principles;408

 Committee on Payments and Settlements Systems‟ Recommendations for Securities Settlement Systems;409

 Financial Action Task Force‟s Recommendations in the area of Anti-money Laundering and Combating the Financing of Terrorism.410

403 _{IMF Factsheet, Standards and Codes: The Role of the IMF, 2010. Available at:}

http://www.imf.org/external/np/exr/facts/sc.htm ; see also, Delonis, Robert P., (2004).International Financial Standards and Codes: Mandatory Regulation Without Representation, 36 N.Y.U. J. INT'L L. & POL. 563.

404 _{Standards in the areas of data (http://dsbb.imf.org/ ), fiscal transparency}

(http://www.imf.org/external/np/fad/trans/index.htm ), and monetary and financial policy transparency (http://www.imf.org/external/np/mae/mft/index.htm ) have been developed by the IMF. http://www.imf.org/external/standards/index.htm

405 _{IMF Factsheet, Standards and Codes: The Role of the IMF, 2010. Available at:}

http://www.imf.org/external/np/exr/facts/sc.htm

406

For details about Basel Committee‘s Core Principles on Banking Supervision visit: http://www.bis.org/bcbs/ ;

407

For details about International Organization of Securities Commission‘s Objectives for Securities Regulation visit: http://www.iosco.org/

408 _{For details about International Association of Insurance Supervisors‘ Insurance Supervisory Principles visit:}

http://www.iaisweb.org/index.cfm?pageID=41

409 _{For details about Committee on Payments and Settlements Systems‘ Recommendations for Securities Settlement}

153 Besides the above-mentioned standards and codes, there exists a significant degree of best practice in the areas of, for example, corporate governance, monetary and financial policy management, auditing, and accounting.411 After evaluation of a member‘s conformity with these best practices, the IMF and the World Bank releases a report, called a Report on the Observance of Standards and Codes (ROSC).412 The basic aim of this reporting procedure is to spot weaknesses in the institutional framework, wherein those weaknesses might be dealt with later by a TA program of the IMF.

In the context of the development of standards, the IMF has also developed standards such as the Special Data Dissemination Standard (SDDS) and the General Data Dissemination System (GDDS) for the purpose of reporting economic data to the markets.413 The benefit to members in adopting these standards is that they attract more investors since they more easily understand the economic statistics of the investing country. Moreover, if the economic development standards are clear and understandable to both the investor and the other market player, then the probability of them overreacting lessens, which adds considerably to the stability of the economy.

410 _{For details about Financial Action Task Force‘s Recommendations in the area of Anti-money Laundering and}

Combating the Financing of Terrorism visit: http://www.fatf-

gafi.org/pages/0,2987,en_32250379_32235720_1_1_1_1_1,00.html

411

In this context, standards have been formed by various international entities, including the World Bank. These are usually assessed by the World Bank; Corporate Governance: Organization of Economic Cooperation and Development's Principles of Corporate Governance; Accounting: International Accounting Standards Board's International Accounting Standards; Auditing: International Federation of Accountants' International Standards on Auditing; and, Insolvency and Creditor Rights: A standard based on the World Bank's Principles for Effective Insolvency and Creditor Rights Systems and the United Nations Commission on International Trade Law Legislative Guide on Insolvency Law is being finalized. http://www.imf.org/external/np/exr/facts/sc.htm

412 _{Reports on the Observance of Standards and Codes (ROSCs). Available at:}

http://www.imf.org/external/np/rosc/rosc.asp; also visit, http://www.worldbank.org/ifa/rosc_aa.html; International Monetary Fund (2000). Experimental Reports on Observance of Standards and Codes (ROSCs). Washington, DC: IMF.

413

Visit Dissemination Standards Bulletin Board at: http://dsbb.imf.org/ ; see generally, Cady, John (2004), Does SDDS Subscription Reduce Borrowing Costs for Emerging Market Economies? IMF Working Paper, Vol. , pp. 1- 14.

154 The next IMF tool for achieving the purpose of its creation is financial assistance which the ensuing part of this chapter highlights.