6 OCTOBER 2005
IMF Modifies Disclosure Policy to Address Deletions, Delay

The International Monetary Fund has taken steps that may reduce the number of deletions made in the publicly disclosed versions of its key reports about member countries, including the significant Article IV reports.

The moves come after an internal report found that more than one-third of the published reports "incorporate substantive changes" as a result of corrections and deletions requested by the subjects of the reports. Most of the editing is done because of concerns that particular information is "highly market-sensitive," the report found. Frequently, this means removing parts of the IMF's assessments and policy recommendations from the published version of the report.

About 60 percent of the time the deletions "did entail some diminution of candor," although in only 5 percent of the cases was "a key message significantly altered," according to IMF research.

The board debate over "candor" was extensive and resulted in policy changes designed to define exactly what information can be deleted. The board approved a revised definition of "highly market-sensitive" information and added a new category to prevent release of premature information that would undermine governments' ability to implement policies.

These changes, and a few others, also are aimed at mitigating another trend the IMF report discovered: a growing lag time in the release of reports. The average delay has increased from about a month after board action to almost a month and a half.

Overall, however, the IMF staff judged the IMF disclosure policy to be "broadly satisfactory." A two-year-old policy change intended to encourage the release of more documents has shown positive results and the board agreed not to modify it. Since adopting its "voluntary but presumed" release policy in 2003, the Fund has seen the numbers of country reports disclosed increase from 67 percent to 77 percent, although the disclosure rate remains about 60 percent for developing countries.

In one small step to encourage more publication, the detailed IMF staff review of the disclosure policy for the first time names the countries whose governments continue to veto the release of the two major IMF country reports: the Article IV and Use of Funds reports. The list of 32 includes Brazil, Egypt, Malaysia, Saudi Arabia, Thailand, Uzbekistan and Venezuela. The planned release of such information on a regular basis is about the only step taken to encourage the disclosure trend.

Instead the disclosure review focused on deletions and the time lag, and the IMF board accepted most, but not all, of the staff's recommendations. The proposed recommendations were not made public prior to the board meeting, or made subject to public comment, even though such steps are becoming almost commonplace among the multilateral development banks. About 20 changes are detailed in a July 28 memo. A seven-page summary issued Aug. 4 of the Executive Board's June 20 discussion indicates the nature of the debate. As usual the identities of those speaking are not disclosed. Nor are the 20 or so written statements made by directors.

And in a further signal of satisfaction with its disclosure policy, the board decided to lengthen the time period for the next review from two years to three years.

The 56-page staff report includes numerous interesting facts, figures and insights into the IMF disclosure regime. For example, making it harder to see the unknown, the staff recommends codification of a current policy to remove systematically all references to unpublished Fund documents. An appendix reviews the research on the beneficial effects of greater transparency. And data is provided showing that public interest in the IMF reports is leaping, with readership increasing four-fold from 2003 to 2004.

Many Governments Still Veto Disclosure

The IMF staff and board did not replay previous stalemated debates over whether to require mandatory disclosure of the Article IV reports and the Use of Funds reports.

Instead, the Fund noted the "positive impact" on publication rates of past changes. Over the 19 months ending March 1, 2005, 17 countries became first-time publishers of staff reports. The number of members who published all staff reports grew from 104 to 121, while the number of countries that did not publish any fell from 42 to 33.

The report cites improvements in the disclosure rates in all regions, including the still the worst-performing region, the Middle East (47 percent), and in countries at various levels of development.

The level of report disclosure in emerging markets countries, however, remains relatively low, about 60 percent, with the staff report attributing that condition to "political sensitivities and concerns about market reactions." The report made no predictions on future trends.

The members not publishing any Article IV or UFR reports in the period from July 1, 2003, to Feb. 28, 2005, were: Bahrain, Brazil, Brunei Darussalam, Cote d'Ivoire, Dominican Republic, Egypt, El Salvador, Eritrea, Fiji, Guyana, Honduras, Lebanon, Malaysia, Maldives, Marshall Islands, Mauritius, Myanmar, Oman, Panama, Saudi Arabia, Seychelles, St. Kitts & Nevis, St. Vincent and The Grenadines, Swaziland, Syrian Arab Republic, Thailand, Togo, Tonga, Turkmenistan, Uzbekistan, Venezuela, Yemen.

There will be more periodic disclosure of countries not disclosing IMF reports.

Document Deletions, Changes Substantial

Emerging as the central issue of the 2005 review was the degree to which the Fund allows corrections and deletions to the reports.

IMF policy forbids staff preparing country reports from negotiating with governments, a policy sternly restated by the board in this context. The goal is to have candid reports authored by the IMF staff.

Once these reports are written, however, changes may be made at several points. First, after the reports are sent to the board, but before being discussed, the affected country may seek the correction of factual mistakes, usually noncontroversial. Then, after board consideration, requests are made for the deletion of market-sensitive or politically sensitive information.

The early requests for "corrections" are fairly common, but not always strictly about mistaken facts or typographical errors. In fact about one-quarter of them contain "substantive modifications" that go beyond what is permitted under existing guidelines. The requests for such corrections usually come more from advanced economies.

After the board meeting there are requests for "deletions," which tend to come more from emerging market economies. About one-third of the published reports were altered under the deletions policy, according to the staff report.

Justifications for Deletions

What are the grounds for deletions? Three-quarters of the changes were allowed because of concerns about "vulnerabilities in the financial sector" or the effect on exchange rates.

"Usually, references were considered highly market-sensitive when they related to short-term policy changes in the area of exchange rate or interest rate, to specific institutions (e.g. troubled banks), or to staff's assessments regarding near term vulnerabilities (e.g., loss of confidence, probabilities of crisis and judgments on various measures of financial sector stability, supervisory capacity or debt sustainability," recounted the staff report.

For 11 percent of the deletions, the references were deemed market sensitive "on the grounds that the premature release of information about policy intentions would undermine the authorities' ability to implement the policy or increase the cost of implementation." This rationale was not part of official policy, but such deletions are allowed under the new policy, although they are expected to be rare. Another 12 percent of the deletions were on miscellaneous grounds including "politically sensitive reference."

More that 50 percent of the time, the deletions concern the IMF's own assessments, analysis, and policy recommendations

But the IMF Policy Development and Review Department found that highly market-sensitive justification was "sometimes interpreted liberally" and that the IMF-approved deletions "reflected a tendency to be fairly receptive to authorities' views regarding market-sensitivity." This led to a recommendation for a clearer definition of what deletions should be permitted and related procedures to be followed.

Addressing the concern that the corrections and deletions would undermine the candor of the information released to the public "and, possibly, the credibility of the Fund," the staff report concluded that "the candor of the information released to the public was preserved for the most part."

Diminution of Candor

In about 60 percent of such cases the deletions "did entail some diminution of candor," according to the staff report. "Only in five percent of cases was a key message significantly altered." The report does not specify the level at which credibility is threatened, but touches on that tipping point when it reports that about 16 percent of the reports were published "with corrections that blurred or toned down staff's analysis and assessments." The staff report continues, "These changes do imply a certain loss of candor, but staff found no cases where the loss was so substantial as to put the Fund's credibility at risk."

Nevertheless, the report suggests that concerns about candor should be dismissed entirely, noting that a survey of mission chiefs found that 14 percent of the respondents said they had reason to believe that authorities withheld information. The survey also revealed that IMF mission chiefs are sensitive to the way messages are couched. More than one-quarter of them said they had "withheld information or significantly diluted messages regarding issues relevant or central to the gist of the Fund's concerns…." Views were mixed on the impact of more publication.

A diversity of views is also reflected in the seven-page Public Information Notice describing the all-morning board meeting. "Most Directors were satisfied that increased publication has not led to a significant erosion of candor, although in the view of a few other Directors the staff paper provided distinct evidence of loss of candor associated with the current publication policy." While not identifying the participants, the PIN recap indicates that there are some pro-transparency voices, historically the United States and the United Kingdom, and others more conservative, typically Egypt and Brazil.

The board agreed to clarify the standards and procedures for corrections and deletions. They endorsed a definition of high market-sensitivity, but noted that these decisions will have to be made on a case-by-case basis. They agreed to allow the deletion of references to policies that are not yet in the public domain. A variety of changes may make it more apparent to the board when corrections and deletions are made. However, the board did not accept a staff suggestion to disclose to the public the nature of the modifications made in the public version.

Publication Lag Documented, Addressed

Country reports are coming out more slowly, the IMF staff concluded, influenced in part by corrections and deletions, but also by the "strategic timing of the release by the authorities."

"Only 58 percent of published staff reports meet the expectation of publication within 30 days of the Board meeting (compared with 72 percent previously)," the staff documented. "Moreover, the share of reports that are published two or more months after the Board meeting has almost doubled, to about one-fifth of all published staff reports." The record for delayed release is held by South Africa, at 215 days, followed by Mexico, at 207 days.

The board "reaffirmed the expectation that documents subject to voluntary but presumed publication be published on a timely basis." The established policy calls for publication within 30 days. While making a few procedural changes to address lags, the board also rejected a number of stronger staff enforcement proposals.

By Toby McIntosh

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