Background and History

The International Monetary Fund (the "IMF") is an intergovernmental organisation

that oversees the global financial system by following the policies of its member

countries, in particular those policies with an impact on exchange rates and the

balance of payments (being international monetary transactions e.g. a country's

exports and imports). Created in 1945, the IMF is governed by and accountable to

the 187 countries that make up its membership. The mandate of the IMF, in its own

words, is to "foster international monetary cooperation, secure financial stability,

facilitate international trade, promote high employment and sustainable economic

growth, and reduce poverty around the world". The IMF is headquartered in

Washington, D.C.

The Role of IMF Technical Assistance

Following a brief background section that describes the role of the IMF, this paper

outlines the importance of technical assistance in IMF activities. It then focuses on

customs administration technical assistance, including an outline of the IMF’s advice

that supports both more effective revenue collections and improved service to the

trade community.

The IMF was created to: (1) promote international monetary cooperation; (2)

facilitate the expansion and balanced growth of international trade; (3) promote

exchange rate stability; (4) assist in the establishment of a multilateral system of

payments; (5) make its resources temporarily available to its members experiencing

balance of payments difficulties; and (6) shorten the duration and lessen the degree

of disequilibrium in the international balance of payments of members. In order to

carry out its mandate, the IMF has three primary areas of activity:

Surveillance is the process by which the IMF appraises its members’ exchange rate

spolicies within the framework of a comprehensive analysis of the general economic

situation and the policy strategy of each member. Surveillance is carried out through

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annual bilateral consultations with individual countries, multilateral consultations in

the context of the preparation of the World Economic Outlook, and enhanced

surveillance for certain members.

Financial assistance includes credits and loans extended by the IMF to member

countries with balance of payments problems to support policies of adjustment and

reform. As of January 2001, the IMF had financial arrangements with 57 countries

for an approved amount of approximately US$44 billion.

Technical assistance consists of expertise and aid provided to member countries in

several broad areas: design and implementation of fiscal and monetary policy;

institution building (such as the development of central banks and treasuries); the

handling and accounting of transactions with the IMF; collection and refinement of

statistical data; training of officials at the IMF Institute and, together with other

organizations, through the Joint Vienna Institute, IMF-Singapore Regional Training

Institute, and the Joint African Institute.

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Evolution of Technical Assistance Activities

The expansion of the IMF’s membership and the adoption of market-oriented

reforms by a large number of countries worldwide fueled a rapid growth of IMF

technical assistance activity during 1990–94. Since then, the activity has leveled off

to an annual expenditure of approximately 300 years of staff and expert time, plus

some US$10 million for scholarships and training. Technical assistance represents

some 15 percent of the IMF’s total administrative expenditures.

An emerging consensus on the elements required for sustainable growth—

macroeconomic stability, market reform, a liberalized exchange regime, and

accountable government—has facilitated the development of a more productive

relationship between macroeconomic policy and technical assistance objectives.

Member countries and the IMF have become increasingly convinced that the timely

provision of technical assistance is a key ingredient in supporting a government’s

efforts to sustain policy and introduce institutional reforms.

Setting priorities

Demand for the IMF’s technical assistance exceeds its capacity. This requires

prioritization and allocation of technical assistance resources among member

countries and regions. As part of this process, the IMF’s area (regional) departments

play an important role in helping to identify and prioritize countries’ technical

assistance needs, often in consultation with other donors. For example, one of the

priorities is to provide technical assistance to countries eligible for the IMF and World

Bank Heavily Indebted Poor Countries (HIPC) initiative.

The IMF’s Executive Board has paid increasing attention to technical assistance

matters in recent years. In addition to commenting on the importance of technical

assistance in individual country cases, the Board has provided guidance on

evaluation of technical assistance, financing arrangements, and areas of priority.

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Types of technical assistance

Technical assistance is provided through a number of IMF departments.

Monetary and Exchange Affairs Department focuses its assistance on central

banking and exchange systems issues and on designing and improving monetary

policy instruments.

Fiscal Affairs Department is chiefly responsible for providing advice on tax and

customs administration, public expenditure management and budgeting, tax policy,

pension reform and social safety net design, and public expenditure reviews.

Statistics Department helps members comply with internationally accepted

standards of statistical reporting.

Legal Department provides assistance to members in drafting legislation and

educating senior government lawyers, mainly in laws of central banking, commercial

banking, foreign exchange, and fiscal affairs.

Treasurer’s Department provides technical assistance on the IMF’s financial

organization and operations, the establishment and maintenance of IMF accounts,

and accounting for IMF transactions and positions by members.

As mentioned previously, there is also a large training program that addresses all

areas of interest to the IMF, that is provided in Washington, at regional institutes,

and, from time to time, in member countries by the IMF Institute.

Delivering technical assistance

Advisory missions provide an important component of the IMF’s technical assistance

activities. They offer advice on monetary, fiscal, and statistical problems that often lie

at the heart of the macroeconomic imbalances that countries wish to address. In

addition, the IMF places experts in the field for periods ranging from six months to

two years to assist in the implementation of policy reform recommendations.

Traditionally, IMF technical assistance has had a single, well-focused objective and

a relatively short time span. However, in recent years, technical assistance projects

have grown both larger and more complex. Time horizons have lengthened, and

multiple sources of financing have been needed to underwrite costs. Large projects

now may involve more than one IMF department and more than one donor.

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External cooperation and coordination

Beginning in 1989, the IMF took formal steps to coordinate its technical assistance

policies and cooperate with other multilateral and bilateral agencies to minimize

conflicting advice and redundant activities. It also began to explore ways of

complementing its own resources through various financing arrangements with other

technical assistance providers. The cooperation has led to a more integrated

approach to the planning and implementation of technical assistance. There are now

comprehensive multiyear programs of technical assistance that are being

implemented with the United Nations Development Program (UNDP), the World

Bank, and the European Union. The Japanese government has continued to make

annual contributions to the IMF technical assistance and scholarship programs.

Membership and Quotas

The IMF is comprised of the 187 member countries of the United Nations and

Kosovo. Notably, non-members include North Korea, Andorra, Monaco,

Liechtenstein, Nauru, Cook Islands, Niue, Vatican City and other states with limited

recognition. All members participate directly and are represented by a 24 member

executive board. Upon joining, each member of the IMF is assigned a quota, which

is roughly based on its relative size in the world economy (based on factors such as

GDP, current account transactions and official reserves). These quotas sometimes

need to be altered, to reflect changing global economic realities, as happened during

the recent financial crisis. A member's quota will determine its subscription,its voting

weight, access to IMF funding, and allocation of "Special Drawing Rights" ("SDR")

(the IMF's own unit of account).

Currently the USA has the largest share of quota, equalling 16.77% of the total

votesavailable; it is thus the only country able to veto member decisions on its own

(member decisions require an 85% majority). In contrast, India (with a population

three times as large as the USA) has 2.34% of the votes; this distinction has

prompted many to argue that the quota system should be reformed.

Subscriptions generate most of the IMF's financial resources. SDR is a reserve

asset allocated to members in proportion to each member's IMF quota. The main

function of the SDR is to serve as a unit of account of the IMF and a means of

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payment to settle any IMF financial obligations. SDR is neither a foreign tradable

currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable

currencies of IMF members. Holders of SDR can obtain these currencies in

exchange for their SDR in two ways: (a) through arrangement of voluntary

exchanges between members or (b) by IMF designating members with strong

external positions to purchase SDR from members with weak external positions.

Previously the use of gold played a central role in the IMF system. However, the IMF

has now generally abolished the use of gold in transactions between the IMF and its

members save that the IMF is permitted to sell gold or accept gold as payment by its

members (it has nopower to buy gold or engage in any other gold transactions).

Access to IMF financing is based on a country's quota: a member can borrow (under

Stand-By and Extended Arrangements) up to 200% of its quota annually and 600%

cumulatively (although more may be borrowed in exceptional circumstances). The

largest borrowers (as at 25 May 2011) are Greece, Portugal and Ireland, with the

largest precautionary loans in Mexico, Poland and Colombia.

Legal and Organisational Structure

The Board of Governors is the highest decision making body at the IMF. The Board

consists of one governor and one alternate governor for each member country,

selected by each member. The governors are usually the ministers of finance of

each country. The governors meet annually to determine policy decisions of the IMF.

Whilst the governors have the ability to make decisions during the year, the Board of

Governors delegates the day-to-day organisation of the IMF to the Executive Board.

The Executive Board is structured on a constituency basis and consists of 24

Executive Directors representing various members and a channel through which the

views and concerns of the members are passed on to the Board of Governors. The

Executive Board is responsible for selecting the IMF Managing Director (now

Christine Lagarde).

Other key advisory boards are the IMF Committee ("IMFC") and the Development

Committee. The IMFC is an advisory board consisting of 24 IMF Governors who

represent the same members as the 24 members of the Executive Board. They do

not have the same decision making powers but represent their members to the

Board of Governors and meetbiannually (in Spring and Autumn).

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The Development Committee is a joint World Bank and IMF body, consisting of 24

World Bank and IMF Governors. It provides advice on issues relating to the

economic development of developing countries, the resources required and any

factors which may have critical implications for development. The Development

Committee also meets biannually.

Specialist IMF initiatives which relate to development principles and aims can be

summarized as follows:

Poverty Reduction and Growth Trust

This aims to make the IMF's financial support more flexible and tailored to the

diversity of low-income countries. It is split into three 'lending windows':

• The Extended Credit Facility (replaces the Poverty Reduction and Growth Facility):

provides sustained support over the medium to long term;

• The Standby Credit Facility (replaces the Exogenous Shocks Facility's High Access

Component): provides flexible support to low-income countries with short-term

financing and adjustment needs;

• The Rapid Credit Facility: provides rapid financial support in a single, up-front

payout, for low-income countries with urgent financial needs.

Heavily Indebted Poor Countries Initiative

A joint IMF and World Bank initiative, with the aim of ensuring that no poor country

faces a debt burden it cannot manage. It was supplemented in 2005 by the

Multilateral Debt Relief Initiative, which provided for 100% relief on eligible debt from

three multilateral institutions (IMF, International Development Association and

African Development Fund) to a group of low-income countries.

Post-Catastrophe Debt Relief Trust

Established after the Haiti Earthquake, it allows the IMF to join international debt

relief efforts for very poor countries that are hit by the most catastrophic of natural

disasters

Policy Support Instrument

This supports low-income countries that do not want or need IMF financial

assistance but seek to consolidate their economic performance with IMF monitoring

and support. It helps countries design effective economic programmes that, once

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approved by the IMF's Executive Board, deliver clear signals to donors, multilateral

development banks, and markets of the Fund's endorsement of the strength of a

member's policies. Developmental Aims and Processes

The IMF has three main functions, summarised as follows:

Surveillance

There are two main aspects to the IMF's surveillance work: bilateral surveillance

(appraisal of and advice on the policies of each member country) and multilateral

surveillance (oversight of the world economy). The IMF's annual in-depth appraisal

of the economic situation of each of its member

countries and subsequent report is an example of the bilateral surveillance reports

(the member state has the option as to whether to make this report publicly

available).

Examples of multilateral surveillance are the World Economic Outlook and Global

Financial Stability Report (published biannually) and Regional Economic Outlook

reports.

Financial assistance

The IMF provides temporary financing to members in financial difficulties. Such

assistance is provided when members are unable to meet foreign exchange

requirements because their international payments exceed their earnings and

holdings. Financial support is conditional upon the member states' effective

implementation of a policy programme to ensure that the member country

undertakes certain actions to ensure the borrowed funds are primarily used to

resolve balance of payments problems ("conditionality").

Technical assistance

The IMF offers technical assistance and training (generally free) to assist its

members in building expertise and institutions required for economic growth and

stability. Assistance is offered in the areas of:

• fiscal policy and management;

• monetary and exchange rate policies;

• banking and financial supervision and regulation; and

• compilation, management, dissemination and improvement of statistical data.

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The IMF contributes to the achievement of the Millennium Development Goals

("MDGs") through the above functions and also through mobilising donor support;

together with the World Bank, it assesses progress toward the MDGs through an

annual Global Monitoring Report (being an annual report produced together with the

World Bank to monitor the progress made towards the 2015 Millennium

Development Goals).

In recent times, countries that have traditionally been recipients of the IMF support

have begun to seek alternative avenues of funding. As a result, the role of IMF as a

global lender to developing countries has decreased. In particular, Latin American

countries are no longer as dependent on funding from the IMF and have tried to

separate themselves from IMF support and guidance. The IMF is aware that it must

adjust to this changing reality by repositioning itself in the global market and has

begun to focus on the broad stability of the global financial markets rather than the

specific individual members. The IMF has also embarked on reforms to modernise

its internal governance with staff cuts and selling of financial reserves.

Leadership

Board of Governors

The Board of Governors consists of one governor and one alternate governor for

each member country. Each member country appoints its two governors. The Board

normally meets once a year and is responsible for electing or appointing executive

directors to the Executive Board. While the Board of Governors is officially

responsible for approving quota increases, Special Drawing Right allocations, the

admittance of new members, compulsory withdrawal of members, and amendments

to the Articles of Agreement and By-Laws, in practice it has delegated most of its

powers to the IMF's Executive Board.

The Board of Governors is advised by the International Monetary and Financial

Committee and the Development Committee. The International Monetary and

Financial Committee has 24 members and monitors developments in global liquidity

and the transfer of resources to developing countries. The Development Committee

has 25 members and advises on critical development issues and on financial

resources required to promote economic development in developing countries. They

also advise on trade and global environmental issues.

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Executive Board

24 Executive Directors make up Executive Board. The Executive Directors represent

all 188 member-countries in a geographically-based roster. Countries with large

economies have their own Executive Director, but most countries are grouped in

constituencies representing four or more countries.

Following the 2008 Amendment on Voice and Participation which came into effect in

March 2011, eight countries each appoint an Executive Director: the United States,

Japan, Germany, France, the United Kingdom, China, the Russian Federation, and

Saudi Arabia. The remaining 16 Directors represent constituencies consisting of 4 to

22 countries. The Executive Director representing the largest constituency of 22

countries accounts for 1.55% of the vote.This Board usually meets several times

each week.The Board membership and constituency is scheduled for periodic

review every eight years.

Managing Director

The IMF is led by a managing director, who is head of the staff and serves as

Chairman of the Executive Board. The managing director is assisted by a First

Deputy managing director and three other Deputy Managing Directors. Historically

the IMF's managing director has been European and the president of the World

Bank has been from the United States. However, this standard is increasingly being

questioned and competition for these two posts may soon open up to include other

qualified candidates from any part of the world.

In 2011 the world's largest developing countries, the BRIC nations, issued a

statement declaring that the tradition of appointing a European as managing director

undermined the legitimacy of the IMF and called for the appointment to be merit-

based.

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IMF and globalization

Globalization encompasses three institutions: global financial markets

and transnational companies, national governments linked to each other in

economic and military alliances led by the US, and rising "global governments" such

as World Trade Organization (WTO), IMF, and World Bank. Charles Derber argues

in his book People Before Profit,"These interacting institutions create a new global

power system where sovereignty is globalized, taking power and constitutional

authority away from nations and giving it to global markets and international

bodies." Titus Alexander argues that this system institutionalises global inequality

between western countries and the Majority World in a form of global apartheid, in

which the IMF is a key pillar.

The establishment of globalised economic institutions has been both a symptom of

and a stimulus for globalization. The development of the World Bank, the IMF

regional development banks such as the European Bank for Reconstruction and

Development (EBRD), and, more recently, multilateral trade institutions such as the

WTO indicates the trend away from the dominance of the state as the exclusive unit

of analysis in international affairs. Globalization has thus been transformative in

terms of a reconceptualising of state sovereignty.Following US President Bill

Clinton's administration's aggressive financial deregulation campaign in the 1990s,

globalisation leaders overturned long-standing restrictions by governments that

limited foreign ownership of their banks, deregulated currency exchange, and

eliminated restrictions on how quickly money could be withdrawn by foreign

investors.

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Fiscal Affairs Department

The Fiscal Affairs Department (FAD) provides policy and technical advice on public

finance issues to member countries both indirectly through contributions to the work

of area departments and directly through technical assistance. FAD staff also review

the fiscal content of IMF policy advice and of adjustment programs supported by IMF

resources. FAD staff, consultants, and experts on contract provide direct technical

assistance to member countries on public finance.

Tax coordination and revenue administration divisions

The primary functions and responsibilities of the Tax Coordination and Revenue

Administration Divisions are to:

(1) support area departments in the design and implementation of the tax and

customs administration component of IMF programs;

(2) provide technical assistance through staff missions and long- and short-term

advisors, to design and implement reform strategies aimed at improving the

organization of tax and customs administrations, modernizing procedures for

assessment, collection of taxes and duties, and developing effective audit and

enforcement programs;

(3) conduct policy analyses to develop guidelines for improving tax and customs

administration based on experience gained in member countries;

(4) provide training to senior officials by organizing and conducting seminars and

workshops and by lecturing at courses organized by the IMF Institute and others.

Customs administration technical assistance

Most customs administrations are responsible for revenue collection, trade policy

administration, and protection of society from illegal imports. The three objectives

are all important, however, in the majority of countries receiving technical assistance

from FAD, revenue mobilization is a critical task. Therefore, FAD’s advice related to

customs administration reform focuses primarily on the legislative and procedural

changes required to secure revenue in the most effective and efficient way possible.

While OECD countries rely less and less on revenue from import duties, for low and

middle income countries, customs duties continue to produce significant revenue

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both as a percentage of GDP and of total tax revenue. This, combined with the

significant amounts of revenue from other taxes on imports, notably the value-added

tax, makes it clear that the role of customs administrations in collecting revenue has

not diminished. It is our view that the changes recommended to support more

effective revenue collection, also support the other objectives of trade policy

administration and protection.

Table 1 sets out the IMF’s customs administration missions and expert assignment

activities by region for the years 1998 to 2000. For this period, the activities have

totaled 73 missions and 218 months of expert assignments.

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Customs Administration Priorities for Reform

From FAD’s perspective, there are three major elements that must be included in a

strategy designed to develop a modern customs administration: (1) the existence of

appropriate and transparent legislation; (2) simple, up-to-date procedures; and (3) a

revenue control strategy based on an assessment of risk and selective controls

targeted at high-risk goods and enterprises. The revenue control strategy has, as its

center piece, effective post-release control.

Table 1. International Monetary Fund

Fiscal Affairs Department: Customs Administration Technical Assistance

IMF Region 1998 1999 2000

Missions1/

Expert

Mths.2/

Missions1/ Expert

Mths.2/

Missions1/ Expert

Mths.2/

Africa 5 54 8 17 10 34

Asia Pacific 2 14 5 8 4 11

Eastern and

Central Europe

4 27 3 -- 2 1

Baltics, Russia,

and other3/

1 -- -- -- 5 6

Middle East 2 12 7 12 3 10

Western

Hemisphere

2 -- 4 12 6 --

Total 16 107 27 49 30 62

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1/ Missions have, on average three members and are typically two weeks in

duration. In some cases, joint customs and tax administration missions are

undertaken.

2/ Expert assignments may be long-term (more than six months), short-term (less

than six months), or peripatetic (more than one short-term assignment).

3/ Commonwealth of Independent States, other than Russia.

At the outset and as the basic starting point for the reform of the customs

administration, each country should make a conscious decision to align its legislation

and procedures with international standards and practices. We encourage countries

to follow the advice of both the World Trade Organization (WTO) and the World

Customs Organization (WCO). By using agreed upon international standards, the

customs system will be aligned to international practices and a country will be more

fully integrated into the world trading community.

Appropriate and transparent legislation

A country’s economic characteristics and international trade relations may make

some degree of complexity unavoidable. For example, preferential trade

arrangements or implementation of a customs union introduces a degree of

complexity in customs administration through the need to apply differential tariff

rates and to validate the origin of imports. However, most complications for customs

administration result from restrictive and protective foreign trade policies, an

irrational tariff structure, and lack of coordination between domestic indirect taxes

and the import tariff.

Many tariffs are characterized by complex rate structures and/or high tariff rates

without economic justification. High tariff rates increase the incentives to evasion

(through undervaluation, misclassification, and outright smuggling) and the pressure

for exemptions. Multiplicity of rates facilitates evasion through the incentives and

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opportunities for the importer to classify imports in the lower rate categories, and

requires extra vigilance and control by the customs administration.

As in the case of the tariff and trade laws, the customs code can contribute to the

complexity of administration. Experience shows that operational inefficiency in many

customs administrations results from the application of antiquated provisions in the

customs code. While customs legislation is among the oldest in the world, over the

years, and especially the last few decades, it has had to adapt to far-reaching

developments in technology, international trade, and the economic environment in

general. The failure to update the customs code to allow for change impedes the

reform of the customs administrative system. Problems frequently encountered in

the legislation include: (1) requirement that every single importation be physically

checked; (2) requirement for paper documentation and signatures; (3) inadequate

provisions for the reporting of goods by transportation companies; (4) lack of clear

treatment of the various customs regimes (e.g., temporary importation); (5)

inadequate valuation provisions; (6) lack of authority for customs administrations to

audit the books and records of traders; and (7) out-of-date penalty provisions.

Simple, up-to-date procedures

Procedures related to the processing of goods should be simple, transparent, and

easily understood by the trade community. Customs administrations in most

developed countries understand that the costs imposed by inefficient procedures

may be as costly as the trade taxes that they collect. According to one study, prior to

the elimination of border controls among EU member countries, the costs of these

controls were between 3 and 4 percent of total trade, at a time when no customs

duties were being collected on trade among member countries. However, there is

less appreciation of the scope and significance of these costs in customs

administrations in developing countries.

As mentioned previously, the design of the customs procedures should be based on

an assessment of risk and selective controls targeted at high-risk goods and

enterprises. Administrations that have not implemented this approach continue to

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impose high, unwarranted costs on their importers and exporters, as the findings

from two FAD technical assistance missions illustrates.

Black pepper requires four separate laboratory tests by Customs, Ministry of Health,

Ministry of Agriculture, and the Atomic Energy Commission…Each one of these

tests must be completed before the pepper can be released.

The control systems are the same for all importers regardless of their record with

Customs. A large multi-national pharmaceutical manufacturer, with approximately

2,500 declarations a year must have samples taken for laboratory analysis from

every shipment prior to release.

Physical inspection of exports by Customs caused so many delays and congestion

that signs were posted denying access to the port to newly arrived export shipments

and the ships sailed empty.

The continued application of procedures, such as those described above, reduces

the competitiveness of the industries concerned, thereby impeding the economic

growth of the country. At the same time, there is evidence to suggest that these

types of controls are much less effective than the risk-based, selective controls that

are in place in modern customs administrations.

One approach to introducing simplified procedures for imports is to target large

importers who have a good compliance record.

An analysis undertaken during one FAD mission demonstrated that 9 importers

represented 21 percent of import transactions. The impact of developing new

procedures for these importers, based on reduced levels of physical inspections and

post-release controls with audit, was self-evident—the largest contributors to the

economy would immediately benefit from reduced costs of customs intervention;

significantly fewer staff would be required for physical and documentary control; and

customs control resources could be redirected to high risk goods and traders.

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Post-release controls

In modern customs administrations, the basic approach to control has changed from

100 percent pre-clearance control to a heavy reliance on post-release review. The

change has been driven by two factors: (1) the dramatic increase in trade (as shown

in Table 2, the value of world trade was 50 times higher in 1999 than it was in 1960);

and (2) the increased complexity of world trade, both in terms of the types of goods

being traded and the terms and conditions related to import and export transactions

(e.g., related party transactions).

Table 2. Value of International Trade, 1960–99

In billions of U.S. Dollars

1960 1975 1985 1995 1999

Global 110 806 1,809 5,068 5,644

Industrial countries 77 543 1,263 3,302 3,836

Developing

countries

29 229 489 1,690 1,745

Source: IMF Direction of Trade Statistics

Many customs administrations have now designed systems and procedures that

provide for certain basic verifications to be completed when the goods are under

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customs control supplemented by audit-based controls that are undertaken after the

goods have been released.

One FAD mission found that, with a staff of only 22, one division was responsible for

generating US$70 million in assessments from post-release activities over a five-

year period. Over the same period, hundreds of staff were involved in conducting

physical inspections, prior to release, at a cost of millions of dollars to the trade

community with no significant violations detected.

Controls prior to the release of the goods, including physical inspections, do have a

certain deterrent effect. Also, they have a role to play related to verifying quantity,

ensuring that the description of goods is sufficient for tariff classification purposes,

detecting contraband, and enforcing non-revenue related laws (e.g., phytosanitary,

drugs, intellectual property rights, and control of endangered species). However,

such controls are less effective for verification of tariff classification, origin, valuation,

drawback, and exemptions.

Post-release reviews should be designed to identify and correct inconsistencies in

the application of the legislation and procedures at the time of release of goods.

Typically, a selection of declarations is made for in-depth review based on criteria

designed to identify high-risk transactions. For example, declarations that claim zero

rate may be misclassified for tariff purposes, claims for duty and tax exemptions

require special attention, and drawback claims require verification.

E. Improving Competitiveness of the Trade Community

Release times

One of the most important issues that we address when we undertake a diagnostic

mission to review a customs administration is the time taken to release goods from

customs control. There are, of course, several issues to be addressed when

reviewing release times and it is important to remember that it is not only the

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customs administration that influences the time taken. For example, for goods

arriving by sea, the efficiency of the ports in unloading, handling, and storing goods

is a very important factor relating to how fast the goods can be released into the

economy.

In addition, the customs administration is, more often than not, responsible for

administering the legislation of other government departments. For example, the

customs administration identifies goods that require certificates for health or

agricultural purposes. Often enforcement of the regulations of other government

departments is more important than the revenue that is collected from the goods.

For example, the introduction of diseased plants may do great harm to the domestic

agriculture industry, if the customs administration is not able to identify that the

goods require inspection by the appropriate department.

In one country that we have worked in recently, we found the following:

Customs declarations are now processed using computers and selectivity

techniques have been introduced to identify high-risk consignments for physical

inspection. The average processing time for customs declarations has been reduced

from six days to less than one day. More than 70 percent of the shipments are

released without physical inspection and the objective is to reach 85 percent.

Nevertheless, the average time spent in the port is still 10 days, due not to delays in

customs processing, but inefficient port procedures and the difficulties importers had

in arranging credit from local banks.

The importance of addressing the total picture when looking at release times is

emphasized again by the following situation.

Release times at both a seaport and an airport were reviewed. At the airport, the

average release time was 10 days, including 1.5 days from the time of declaration

processing to release (i.e., it took 8.5 days from time of arrival of the aircraft to

presentation of the declaration). At the seaport, the average release time was 16

days including 5 days from presentation of the declaration to release. Most

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significantly, no shipment was released with the first five days of the arrival of the

ship.

In this case, we were able to identify many of the causes of the delays. For example,

the legislation required the keeper of the warehouse (a state-owned enterprise) to

provide 13 days free storage, thereby encouraging importers to leave goods at the

airport or seaport (3 days is more normal). There was also a requirement that the

manifest be translated into the local language before the declaration could be

presented. Therefore, even if the importer was desperate to receive the goods, the

declaration could not be presented until the complete manifest had been translated,

presented, and accepted (this can take a considerable length of time for a ship with

1,000 to 1,500 bills of lading).

Other Observations

During the course of our technical assistance work, we often identify other activities

or conditions that reduce competitiveness, as the following examples illustrate.

The customs administration insisted that signatures and supporting documents were

a legal requirement related by the need for evidence, in those few instances when a

case went to court. However, at the same time, almost all payments of duties and

taxes on imports take place through electronic funds transfer (EFT) requiring neither

paper nor a signature. Effectively, the most important part of the customs transaction

was paperless. We were somewhat baffled that the balance of the transaction could

not be handled in the same way.

When computerization of export transactions was implemented on a pilot basis, the

change in procedures brought to light a small fee that exporters had to pay to the

exporters’ association before a transaction could be processed by the customs

administration. In this case, under the new procedures, the exporters would have

had to print the declaration in the customs office, travel across the city to pay the

fee, and return to the customs office to process the declaration. This was not an

attractive proposition, given the huge size of the city with its terrible traffic jams.

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Instead of the obvious answers of eliminating the fee or having it collected by the

customs administration, the exporters’ association set up an office in the customs

office to collect the fee. Hardly the solution that should be used in the additional 53

offices that were to be automated.

Successful modernization

In 1998, FAD had the opportunity to review the changes that had been introduced in

the Philippine customs administration. FAD had a role in assisting the administration

at the outset of the reform process, in 1993, but had not been back to the Philippines

for five years. From our point of view, the changes that had been implemented in the

Philippines were impressive and represented a very good example of successful

customs administration modernization.

The Philippine Customs Service invested heavily in information technology as one

means of addressing significant problems in the administration. Every significant

step in the import clearance process was now automated and the benefits

significant.

Diversion of duty and tax payments made through the banking system and customs

cashiers disappearing with the days receipts were two problems that were solved

with the implementation of an electronic “cashless” system that automatically links

payments made through the banks to the customs clearance documents. The same

system also ensures that payments collected by the banks are credited in a timely

manner to the government account.

Paper-based systems involving over ninety steps and 40 signatures have been

replaced with the electronic filing of documents and the elimination of the need for

face-to-face contact between importers agents and customs officers.

Physical inspections had been reduced from 100 percent to approximately

15 percent through the implementation of a computer-based selectivity system.

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Goods not subject to inspection were now released in hours rather than days as was

the case previously.

Security of goods under customs control had been improved as warehouse

operators receive electronic messages that the customs clearance process has

been completed and the goods can be released.

In the Philippines Customs service, there was now rigorous standardization and, if

the transactions did not meet the required standards, they were simply rejected by

the automated system. The ability of individual customs officers to exercise

discretion has been largely eliminated.

Conditionality of loans

IMF conditionality is a set of policies or conditions that the IMF requires in exchange

for financial resources. The IMF does require collateral from countries for loans but

also requires the government seeking assistance to correct its macroeconomic

imbalances in the form of policy reform. If the conditions are not met, the funds are

withheld. Conditionality is perhaps the most controversial aspect of IMF policies. The

concept of conditionality was introduced in an Executive Board decision in 1952 and

later incorporated in the Articles of Agreement.

Conditionality is associated with economic theory as well as an enforcement

mechanism for repayment. Stemming primarily from the work of Jacques Polak in

the Fund's research department, the theoretical underpinning of conditionality was

the "monetary approach to the balance of payments."

Structural adjustment

Some of the conditions for structural adjustment can include:

• Cutting expenditures, also known as austerity.

• Focusing economic output on direct export and resource extraction,

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• Devaluation of currencies,

• Trade liberalisation, or lifting import and export restrictions,

• Increasing the stability of investment (by supplementing foreign direct

investment with the opening of domestic stock markets),

• Balancing budgets and not overspending,

• Removing price controls and state subsidies,

• Privatization, or divestiture of all or part of state-owned enterprises,

• Enhancing the rights of foreign investors vis-a-vis national laws,

• Improving governance and fighting corruption.

These conditions have also been sometimes labelled as the Washington Consensus

Benefits

These loan conditions ensure that the borrowing country will be able to repay the

Fund and that the country won't attempt to solve their balance of payment problems

in a way that would negatively impact the international economy. The incentive

problem of moral hazard, which is the actions of economic agents maximising their

own utility to the detriment of others when they do not bear the full consequences of

their actions, is mitigated through conditions rather than providing collateral;

countries in need of IMF loans do not generally possess internationally valuable

collateral anyway.

Conditionality also reassures the IMF that the funds lent to them will be used for the

purposes defined by the Articles of Agreement and provides safeguards that country

will be able to rectify its macroeconomic and structural imbalances. In the judgment

of the Fund, the adoption by the member of certain corrective measures or policies

will allow it to repay the Fund, thereby ensuring that the same resources will be

available to support other members.

As of 2004, borrowing countries have had a very good track record for repaying

credit extended under the Fund's regular lending facilities with full interest over the

duration of the loan. This indicates that Fund lending does not impose a burden on

creditor countries, as lending countries receive market-rate interest on most of their

quota subscription, plus any of their own-currency subscriptions that are loaned out

by the Fund, plus all of the reserve assets that they provide the Fund.

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Impact of IMF policies

Impact on access to food

A number of civil society organisations[105] have criticised the IMF's policies for their

impact on people's access to food, particularly in developing countries. In October 2008, former US president Bill Clinton presented a speech to the United

Nations World Food Day, which criticised the World Bank and IMF for their policies on

food and agriculture:

We need the World Bank, the IMF, all the big foundations, and all the governments

to admit that, for 30 years, we all blew it, including me when I was president. We

were wrong to believe that food was like some other product in international trade,

and we all have to go back to a more responsible and sustainable form of

agriculture.

—Former U.S. president Bill Clinton, Speech at United Nations World Food Day, October

16, 2008.

Impact on public health

In 2009 a study by analysts from Cambridge and Yale universities published on the

open-access Public Library of Science concluded that strict conditions on the

international loans by the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care had to be weakened. In the 21 countries to which

the IMF had given loans, tuberculosis deaths rose by 16.6%.

In 2009, a book by Rick Rowden titled The Deadly Ideas of Neoliberalism: How the

IMF has Undermined Public Health and the Fight Against AIDS, claimed that the

IMF’s monetarist approach towards prioritising price stability (low inflation) and fiscal

restraint (low budget deficits) was unnecessarily restrictive and has prevented

developing countries from being able to scale up long-term public investment as a

percent of GDP in the underlying public health infrastructure. The book claimed the

consequences have been chronically underfunded public health systems, leading to

dilapidated health infrastructure, inadequate numbers of health personnel, and

demoralising working conditions that have fuelled the “push factors” driving the brain

drain of nurses migrating from poor countries to rich ones, all of which has

undermined public health systems and the fight against HIV/AIDS in developing

countries.

Impact on environment

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IMF policies have been repeatedly criticised for making it difficult for indebted

countries to avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal, and forest-destroying lumber and agriculture projects. Ecuador for

example had to defy IMF advice repeatedly to pursue the protection of its rain forests,

though paradoxically this need was cited in IMF argument to support that country. The IMF acknowledged this paradox in a March 2010 staff position report which

proposed the IMF Green Fund, a mechanism to issue special drawing rights directly to

pay for climate harm prevention and potentially other ecological protection as pursued generally by other environmental finance.

While the response to these moves was generally positive possibly because

ecological protection and energy and infrastructure transformation are more

politically neutral than pressures to change social policy. Some experts voiced

concern that the IMF was not representative, and that the IMF proposals to generate

only US$200 billion a year by 2020 with the SDRs as seed funds, did not go far

enough to undo the general incentive to pursue destructive projects inherent in the world commodity trading and banking systems—criticisms often levelled at the World

Trade Organization and large global banking institutions.

In the context of the May 2010 European banking crisis, some observers also noted

that Spain and California, two troubled economies within Europe and the United

States respectively, and also Germany, the primary and politically most fragile supporter of a euro currency bailout would benefit from IMF recognition of their

leadership in green technology, and directly from Green Fund–generated demand for

their exports, which might also improve their credit standing with international

bankers

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Criticisms

Overseas Development Institute (ODI) research undertaken in 1980 pointed to five

main criticisms of the IMF which support the analysis that it is a pillar of what activist Titus Alexander calls global apartheid.[86] Firstly, developed countries were seen to

have a more dominant role and control over less developed countries (LDCs) primarily

due to the Western bias towards a capitalist form of the world economy with

professional staff being Western trained and believing in the efficacy of market-

oriented policies.

Secondly, the Fund worked on the incorrect assumption that all payments disequilibria were caused domestically. The Group of 24 (G-24), on behalf

of LDC members, and the United Nations Conference on Trade and

Development (UNCTAD) complained that the Fund did not distinguish sufficiently

between disequilibria with predominantly external as opposed to internal causes. This criticism was voiced in the aftermath of the 1973 oil crisis. Then LDCs found

themselves with payments deficits due to adverse changes in their terms of trade,

with the Fund prescribing stabilisation programmes similar to those suggested for

deficits caused by government over-spending. Faced with long-term, externally

generated disequilibria, the Group of 24 argued that LDCs should be allowed more

time to adjust their economies and that the policies needed to achieve such

adjustment are different from demand-management programmes devised primarily

with internally generated disequilibria in mind.

The third criticism was that the effects of Fund policies were anti-developmental. The

deflationary effects of IMF programmes quickly led to losses of output and

employment in economies where incomes were low and unemployment was high.

Moreover, it was sometimes claimed that the burden of the deflationary effects was

borne disproportionately by the poor.

Fourthly is the accusation that harsh policy conditions were self-defeating where a

vicious circle developed when members refused loans due to harsh conditionality,

making their economy worse and eventually taking loans as a drastic medicine.

Lastly is the point that the Fund's policies lack a clear economic rationale. Its policy

foundations were theoretical and unclear due to differing opinions and departmental

rivalries whilst dealing with countries with widely varying economic circumstances.

ODI conclusions were that the Fund's very nature of promoting market-oriented

economic approach attracted unavoidable criticism, as LDC governments were likely

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to object when in a tight corner. Yet, on the other hand, the Fund could provide a

'scapegoat service' where governments could take loans as a last resort, whilst

blaming international bankers for any economic downfall. The ODI conceded that the

fund was to some extent insensitive to political aspirations of LDCs, while its policy

conditions were inflexible.

Argentina, which had been considered by the IMF to be a model country in its

compliance to policy proposals by the Bretton Woods institutions, experienced a

catastrophic economic crisis in 2001,[88] which some believe to have been caused

by IMF-induced budget restrictions—which undercut the government's ability to

sustain national infrastructure even in crucial areas such as health, education, and security—and privatisation of strategically vital national resources.[89] Others

attribute the crisis to Argentina's misdesigned fiscal federalism, which caused subnational spending to increase rapidly.[90] The crisis added to widespread hatred

of this institution in Argentina and other South American countries, with many

blaming the IMF for the region's economic problems. The current—as of early 2006

—trend toward moderate left-wing governments in the region and a growing concern

with the development of a regional economic policy largely independent of big

business pressures has been ascribed to this crisis.

In an interview, the former Romanian Prime Minister Călin Popescu-

Tăriceanu claimed that "Since 2005, IMF is constantly making mistakes when it

appreciates the country's economic

performances. Former Tanzanian President Julius Nyerere famously questioned,

"Who elected the IMF to be the ministry of finance for every country in the world?"

and therefore described it as the International Ministry of Finance.He also claimed

that many of debt-ridden African states were losing their sovereignty to the IMF and

the World Bank by agreeing to their support measures.

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Conclusions

Even though FAD’s customs administration technical assistance concentrates

primarily on revenue enhancement, we treat the issue of competitiveness very

seriously. Providing good service to the trade community is important to the

economic well-being of a country and the customs administration has an important

role to play, not only to improve service, but also to ensure that other government

departments address the costs imposed on trade through excessive regulation and

bureaucracy. In order to improve competitiveness, in our view, the modernization of

customs administration activities should be based on selective, risk-based controls

that allow the majority of shipments to enter the economy with a minimum of delay.

This should be supported by post-release controls that rely on documentary checks

and the audit of the books and records of traders. By using this approach, the

administrations will achieve the two objectives of improving revenue collections and

providing better service to the trade community.