, in formulating and implementing their reform programme, iran has maintained a constructive engagement with the ifis. i am particularly pleased that the bank of england will be involved with an imf - world bank led technical assistance team on financial sector restructuring and supervisory and regulatory frameworks for banks in iran during the coming year. another key element of efforts to strengthen the international financial architecture has been the development and implementation of a range of international standards or codes of good practice. these codes are not meant to lay down strict or inflexible rules. they are designed, however, to promote best practices, while recognising that financial systems are likely to differ across countries and across time. the imf and the world bank, working together with the relevant standard - setting bodies, have been helping economies undertake assessments of their observance of some of these standards. iran is currently working towards the adoption of internationally accepted best practice standards in a number of areas. the central bank is developing a new bank accounting framework, which represents a move towards international accounting standards, while taking account of the special features of islamic finance. the authorities are also developing an action plan for implementing supervision reforms. these developments ought to be good news for prospective investors in iran. they also help illustrate that international best practice standards can be flexible enough to accommodate individual country circumstances. the move to a more market - oriented environment brings with it new challenges. for example, liberalising exchange controls and freeing the exchange rate to market forces brings risks as well as opportunities. a sequenced approach to capital account liberalisation helps mitigate these risks and that is the route iran has pursued. but that is not to say reform has stalled. since mid - 1999, the central bank has taken important steps to improve and simplify the foreign exchange market, including allowing the exchange rate to depreciate to market clearing levels. in march 2000, requirements to surrender non - oil export receipts to the central bank were abolished. the intention now is to introduce a direct, interbank foreign exchange market, and to eliminate an advance import deposit requirement by march 2001. these will be important further steps in increasing iran ’ s exposure to international competition which in turn can contribute to its productive efficiency. exchange rate unification and the partial liberalisation of trade and exchange controls will make greater demands on the effectiveness of monetary policy. for example, monetary expansion may arise from the phased reduction in banks ’ reserve requirements. it will be important for the central bank to develop effective monetary instruments to

largest producer and has the second largest reserves of gas in the world. it has benefited from the recent rise in oil prices and is playing a positive role in promoting the stability of the oil market. president khatami recently noted that opec may need to raise output in proportion to the increase in global oil demand to stabilise prices. the government has taken positive steps to encourage foreign investment in the petroleum sector. for example, they have facilitated foreign participation in contracts to redevelop oil fields, and they have also signed an agreement with a consortium of nine leading international oil and gas companies to study iran ’ s potential as an exporter of gas. the government is, moreover, actively seeking to cushion the economy from future fluctuations in the oil price. establishing an oil stabilisation fund, which ensures that the government balance sheet is strengthened when oil price movements are favourable, should help insure against the type of debt servicing problems faced by many emerging market economies during the difficult international environment of 1997 - 98. iran was able to maintain an excellent debt service record through this period, and prudent debt management policies should help preserve this record going forward. total external debt is expected to decline to around 10 % of gdp this year, and short - term debt to only about 40 % of reserves, having fallen from around 65 % in 1999 / 2000. the strong external position has encouraged the world bank to approve loans of some $ 230 million this year. importantly, it should hold iran in good stead in attracting inflows of private capital, which are so crucial to a country ’ s long - term growth prospects. the international financial crises of 1997 - 98 stemmed largely from vulnerabilities within countries ’ financial systems. in the aftermath of the crises, the official community has been assisting the financial sectors in emerging market economies through technical assistance and improved surveillance. this has been an area of notable success in the redesign of the international financial architecture. a key step in this regard has been the joint imf - world bank initiative of financial sector assessment programs, or fsaps. the fsap process is designed to identify and assess strengths and weaknesses in financial systems from a best practice standpoint including : assessing financial institutions ’ structure and soundness ; reviewing systemic risks in payment systems ; examining the legal framework and the system of official oversight and prudential regulation and supervision ; and assessing institutional arrangements for crisis management, including financial safety nets. iran is addressing these aspects of the financial infrastructure and