INSTITUTE OF INTERNATIONAL FINANCE

IIF was created in 1983 by 38 banks of the leading industrialized countries as a response to the international debt crisis of the early 1980s. It is now a global association of financial institutions. Its members include most of the world's largest commercial banks and investment banks, as well as a growing number of insurance companies, export credit agencies, multinational companies, trading companies, investment management firms, and multilateral agencies. More than half of its members are European-based financial institutions, though there has been a steady rise in representation from the leading financial institutions in emerging market countries. The growth of the Institute can be seen in its present membership, numbering more than 300 and headquartered in more than 50 countries.

Modalities of crisis prevention and early warning

The Institute lists three primary goals which reflect its monitoring functions. First, it seeks to support members' risk management, asset allocation, and business development in emerging markets. To carry this out, the Institute provides its members with quality reporting, data, and analysis of economic and financial developments and prospects in emerging market economies. Second, it aims to serve as a forum for engaging the private financial community in discussions with finance ministers, central bank governors, IMF, the World Bank and other multilateral agencies. These discussions focus on preventing financial crises in emerging market economies and mitigating political risks for private sector infrastructure projects. Lastly, it endeavours to provide a vehicle for the exchange of information and views on global financial supervision issues and to advance consensus on them among important regulatory institutions.

By engaging in policy research and analysis, and maintaining databases on emerging markets, the Institute is capable of helping its members with the following:

• Assess risk and manage exposure in emerging market economies
• Identify and understand key trends in emerging markets finance
• Anticipate the effects of economic policy decisions on debt and equity markets
• Develop business opportunities

The Institute also advises clients on emerging markets.

Information gathering and analysis

The Institute engages in information gathering, including the fielding of IIF economists on missions to emerging market economies to discuss policies directly with top government officials and representatives of private financial institutions and the business community. Another part of the Institute's economic work is the analysis of emerging markets. Its research output includes the following:

• Economic Reports offer in-depth analysis of the economic conditions, policies and prospects of individual economies; developments in domestic capital markets; and access to external finance.
• Monthly Economic Reviews, issued for approximately 25 markets, provide the latest data and analysis on key financial indicators and economic developments.
• Special Economic Briefings are issued periodically on selected economies. The notes are designed for senior bankers and executives and include special sections on key issues and the economic outlook for these economies. They are issued in connection with the annual meetings of IMF, the World Bank and the regional development banks.
• Key Indicators: Selected Emerging Market Economies, published three times a year, give senior bankers and analysts a handy reference to facilitate comparison of important data across emerging markets. This publication presents over 20 economic and financial indicators on approximately 20 emerging market economies, with special analysis of six to eight especially interesting economies in each issue, including a few that are undergoing difficulties.

An important aim of the Institute has been to improve access to timely and accurate data on emerging market economies. A comprehensive database incorporating time series data on a large number of variables is maintained for each of the economies monitored by the Institute. The database includes historical data and projections of macroeconomic performance, balance of payments and external financing.

The Institute also publishes reports on regional and global economic and financial issues of current interest. Among these reports are the following:

• Near-term Prospects for Emerging Market Economies summarizes developments and key changes in financing prospects for major emerging market economies, including the composition and direction of capital flows and the role of bond, equity and debt financing. It also provides an outlook on the global economy, including interest rates, exchange rates, commodity prices and world trade growth, as a framework for assessing economic developments in emerging markets.
• Comparative Statistics for Emerging Market Economies is a compilation of economic and financial data on major developing countries for the 10 most recent years.

In assessing countries, the Institute looks at a large number of indicators with respect to both external and domestic sectors. These include short-term debt, the participation of residents in external flows, the overall structure of capital inflows with an eye on the potential for reversal, the importance of derivatives, credit and money growth, the quality of banking and financial sector regulations and supervision, real estate valuation, problem loans, and the profitability of the financial sector and its exposure to exchange rate policies and the fiscal situation. The quantitative indicators are complemented by country-specific qualitative analyses.

Data standards

To improve data quality, in September 1995 the Institute published a set of data standards for emerging market economies (Improving Standards for Data Release by Emerging Market Economies). Furthermore, in April 1996 it issued a follow-up assessment of actual country practices in meeting these standards (Data Release Standards for Emerging Market Economies: An Assessment of Country Practices) and an update of this review in April 1997. A working group reviewed these standards and recommended a number of changes, which the Institute adopted. These were published in March 1999 (Report of the Working Group on Transparency in Emerging Market Finance).

Briefings and advice

The staff of the Institute also prepare briefings and presentations for members in financial centres, provide special country briefings on principal economies during the regular meetings of IIF and provide similar briefings timed to coincide with the annual meetings of the regional and multilateral development banks, IMF and the World Bank.

The Institute is uniquely positioned to monitor and serve as a link between the private sector and the public sector, as seen by its establishment of the Steering Committee on Emerging Market Finance, a high-level committee of senior executives of the world's leading private financial institutions, to guide four working groups and a task force focusing on key issues related to preventing and resolving financial crises in emerging markets. Contact between these groups and official bodies undertaking similar work has resulted in the release of working group reports. In addition, discussions of specific issues have been organized by the Institute with finance ministers and central bank governors from major industrial and emerging market economies and with senior managers at IMF, the World Bank and the regional development banks.

Another part of the Institute's economic work involves global banking and regulatory issues. The Institute monitors and analyses how global trends in industry and the supervisory and regulatory framework affect its members.³¹ It offers financial firms both a unique venue for exchanging views on global financial issues and a voice in the public policy debate on key supervisory issues. In the early 1990s, the Institute was instrumental in forging models-based market regulatory capital rules. It also developed an approach for disclosing derivatives-related credit exposures. The Institute is currently taking a key role in shaping industry consensus on changes to be made in the current guidelines of the Basle Capital Adequacy Accord. The Institute also brings together bank executives in emerging market regions once a year to discuss important issues of current interest.

Technical aspects

Basically, the Institute's monitoring function is through the dissemination of economic reports, which come out once to three times a week. Each contains an in-depth analysis of the economic conditions and policies of the economy or region, developments in domestic capital markets, and its access to external finance. The reports are backed up by a statistical databank. The Institute also publishes a monthly review, which gives a summary of the latest data and analysis on economic developments and financial indicators for the principal emerging market economies. Each issue is introduced by an overview that focuses on the key trends and issues in emerging markets³² during the past month.

The other works of the Institute include Capital Flows to Emerging Market Economies, which comes out three times a year and contains an analysis of developments in the international capital markets and the outlook for financial flows to emerging market economies, and Survey of Debt Restructuring, which is issued twice a year, and contains a brief description of restructuring arrangements with commercial banks and official creditors, presented country by country in chronological order.

Recent initiatives in crisis prevention

Since the Mexican crisis of the early 1990s, IIF has made substantial improvements in data dissemination, but the recent financial crises have shown the continuing gaps in the availability of relevant information. Beginning in the fall of 1999, the Monthly Economic Review includes each quarter a supplementary set of economies, in addition to the core of 20-25 economies covered monthly. This initiative clearly reveals the intent of IIF to monitor more emerging markets. It has also published a number of research papers that deal with the risks of investing in emerging markets.³³

In 1998, IIF formed the Working Group on Transparency in Emerging Markets Finance. The Group's recommendations, released in a report in March 1999, fall into four main areas: standards for macroeconomic data transparency for emerging market economies; the desirability of improved disclosure by private sector suppliers of capital; the need for further improvements in disclosure by the multilateral official financial institutions, including IMF; and the need for better information on the health of the financial sector in emerging market economies.³⁴ The revised IIF data standards are grouped into three areas: national accounts, monetary accounts and fiscal accounts. Its standards are comparable with SDDS of IMF. In general, the Working Group recommends a stricter and more forceful implementation of the standards.

IIF also formed the Task Force on Risk Assessment, which released its report in March 1999; it proposed risk management practices for the private sector and policy recommendations for international financial organizations, in the light of the recent financial crises. The Task Force also sought to articulate risk management experiences among groups of leading financial institutions.³⁵

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Footnotes:

³¹ The Institute's contributions are the following:

• It provides independent research and analysis on key global financial policy and supervisory/regulatory topics, through the Banking Department Newsletter and Financial Law and Regulation Report
• Consensus-building at the meetings of the Institute's task forces and working groups
• Dissemination of reports (for example, Recommendations for Revising the Regulatory Capital Rules for Credit Risk; Year 2000 Checklist: A Guide for Financial Firms; and Report of the Task Force on Conglomerate Supervision) to the members, public authorities and the media
• Informal discussions through the Basle Committee on Banking Supervision and the Joint Forum on Financial Conglomerates

³² The economies from the ESCAP region that are included are China; Hong Kong, China; India; Indonesia; Malaysia; Philippines; Republic of Korea; and Thailand.

³³ These papers include the following: Spreads and Risk in Emerging Markets Lending, No. 97-1 (December 1997); IMF-supported Adjustment Programs in the East Asian Financial Crisis, No. 98-1 (May 1998), and Impact of the East Asian Financial Crisis on Trade of Industrial and Emerging Market Economies, No. 98-2 (June 1998), available at <http://www.iif.com/public.htm> (31 January 2000).

³⁴ IIF, Report of the Working Group on Transparency in Emerging Markets Finance (March 1999), p. 1, available at <http://www.iif.com/descriptions.htm> (21 January 2000).

³⁵ IIF, Report of the Task Force on Risk Assessment (March 1999), pp. 1-7, available at <http://www.iif.com/descriptions.htm> (21 January 2000).