The IMF and Good Governance
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The IMF places great emphasis on good governance when providing policy advice, financial support and technical assistance to its 184 member countries. It promotes good governance by helping countries ensure the rule of law, improve the efficiency and accountability of their public sectors, and tackle corruption. The IMF also has strong measures in place to ensure the integrity of its own organization. Please refer to the guide on the IMF's approach to good governance and combating corruption for more information. |
Why does the IMF care about governance and corruption?
The term governance, as generally used, 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. Because of their economic nature, issues related to governance and corruption often fall directly within the mandate and expertise of the IMF.
The IMF was urged in 1996 by its Board of Governors to "promote good governance in all its aspects, including by ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption, as essential elements of a framework within which economies can prosper." Since then, the IMF's role in promoting good governance has expanded considerably, while still being limited to economic aspects of governance that could have a significant macroeconomic impact.
Promoting good governance in IMF surveillance, lending and technical assistance
The IMF provides policy advice to its member countries through a process known as surveillance. Where relevant, this policy advice covers issues related to governance. Following discussion of surveillance reports by the Executive Board, a public information notice is issued, summarizing the findings of the IMF. More than half of such notices issued since 2002 contain explicit references to governance or corruption, which is an indication of the attention these issues receive.
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. Governance or corruption are mentioned explicitly in over two thirds of the letters of intent published since 2002. Alongside surveillance and program lending, technical assistance is the third major activity of the IMF. Much of the technical assistance provided by the IMF has a direct bearing on governance-related issues. For instance, IMF staff often provide assistance to strengthen tax and customs administration—an area that is especially susceptible to corruption.
Other IMF programs and initiatives that promote good governance
The IMF also promotes good governance through specific initiatives, including many that are part of its work on surveillance, lending, and technical assistance.
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Through its standards and codes initiative, the IMF encourages member countries to improve the transparency and accountability of decision making by adopting internationally recognized standards and codes that cover government, the financial sector, and the corporate sector.
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The IMF also acts as a standard-setter in its own right and has developed two policy transparency codes. Its Code of Good Practices in Fiscal Transparency is designed to encourage a better-informed public debate about the design and results of fiscal policy, thereby making governments more accountable. Its Code of Good Practice on Transparency in Monetary and Financial Policies serves a similar purpose in the area of monetary and financial policy.
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To improve the transparency, quality and timeliness of data, the IMF is encouraging its members to subscribe to the Special Data Dissemination Standard (SDDS) or participate in the General Data Dissemination System (GDDS).
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As a means to safeguard its resources, the IMF has introduced minimum standards for the control, accounting, reporting and auditing systems of the central banks of countries to which it lends money.
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In its work with poor countries—especially those that receive debt relief under the Initiative for Heavily Indebted Poor Countries—the IMF is increasingly emphasizing the importance of adequate systems for tracking public expenditure related to poverty reduction.
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Finally, the IMF, in cooperation with the World Bank, is intensifying its involvement in international efforts to combat money laundering and the financing of terrorism.
Ensuring the integrity of the IMF's own organization
As it promotes good governance among its members, the IMF must also ensure the integrity of its own organization. The centerpiece of its efforts to ensure ethical conduct and prevent corruption among its staff is its Code of Conduct for Staff. The code is bolstered by extensive financial certification and disclosure requirements and by sanctions. There is a separate, but similar, Code of Conduct for Members of the Executive Board who, unlike the staff, are appointed or elected by their national authorities. The IMF has also appointed an ethics officer who is responsible for inquiring into alleged violations of the IMF's internal rules and regulations.
