Books

November 13, 2013

How Long Does it Take to Achieve Fiscal Transparency?

Posted by Tim Irwin


In many developing and emerging economies today there are demands for more fiscal transparency, to stop the misuse of public funds. How long might it take for these demands to translate into the kind of transparency achieved in countries like France, Sweden, and the United Kingdom? (The Open Budget Survey has information on fiscal transparency in these three countries and many others.) This new working paper on the history of fiscal transparency in Western Europe (see earlier blog) doesn’t aim to answer questions about developing and emerging economies, but it may provoke some thoughts on the subject.

The evidence it presents can be read in two different ways. On the one hand, there were debates about fiscal transparency in Europe two hundred years ago, which suggests that the transition from secrecy to transparency could be a long one. To illustrate, it’s perhaps worth quoting three advocates of transparency who, for reasons of space, didn’t get discussed in the working paper.

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November 06, 2013

Book Review: The International Handbook of Public Financial Management[1]

Posted by Philip Joyce and Juan Pablo Martinez Guzman[2]

PFM handbook
Over the last two decades, public financial management (PFM) has been at the core of many government reforms around the world.  As a subject with many moving parts, the field has become distinctively broad and diverse, with a great array of topics that are strongly linked with each other. For that reason, creating a comprehensive book that covers most, if not all, of the PFM related topics, is a daunting (some might say impossible) task. Richard Allen, Richard Hemming and Barry Potter, three former staff members of the Fiscal Affairs Department of the IMF, however, have managed to accomplish such an objective with the publication of the new International Handbook of Public Financial Management.  The book’s length (more than 900 pages) is itself a testament to the breadth of the field.

In addition to the broad range of topics that make this book almost inarguably the most comprehensive PFM publication to date, it is important to describe two overarching characteristics that make it unique. First, it provides an extraordinary combination of academic knowledge and empirical evidence. Thus, every topic covered is analyzed both through the lens of how ideal PFM systems should be designed and how they are to be implemented given specific country scenarios. Each chapter of the book combines evidence from developed and developing countries; emphasizing institutional arrangements, political economy constraints, and the interrelations between systems. This makes this book an excellent guide for policymakers, practitioners, and academics. Second, this book benefits from the views of the different authors, many of whom are the leading experts on the topics covered by the many chapters. Readers will benefit greatly not just from learning about the topics, but by learning about them from these world-reckoned experts.

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October 29, 2013

History of Fiscal Transparency and Fiscal Secrecy

Posted by Tim Irwin

Working paper logo
What encourages governments to publish information about their finances? A new IMF working paper, “Revealing the Mysteries of State: The Origins of Fiscal Transparency in Western Europe” aims to shed light on this question by examining the history of European fiscal transparency. It was inspired by the Fund’s work on promoting fiscal transparency (see this policy paper and the new draft Fiscal Transparency Code).

The working paper looks back as far as Athens in the fifth-century BC and notes a few of the developments of the last two decades, but it concentrates on the fiscal secrecy of the age of absolutism, in which governments used spies to uncover the accounts of other states, and on the efforts of eighteenth- and nineteenth-century reformers to get the accounts published.

One factor encouraging transparency identified by the paper is the strength of governments’ need to raise money from skeptical lenders and taxpayers. Its influence can be seen at work on many occasions, including medieval Spain and seventeenth-century England, but it was particularly evident during the French Revolution.

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August 03, 2013

PPPs on the Balance Sheet, Please!

Posted by Tim Irwin

Public-private partnerships create a practical problem for public financial management, because their fiscal costs are deferred. Instead of paying for a project during its construction, the government starts to pay only when construction is complete, which may be four or five years after any deal is signed. That means that the main tool of public financial management—budget scrutiny—can’t be used to ensure that PPPs are affordable and a better use of public money than the alternatives. For PPPs with long construction periods, even the analysis of medium-term spending plans doesn’t help.

So what can be done to ensure that the budgetary implications of PPPs are properly considered?

The World Bank Group has just published an Operational Note on managing fiscal commitments from PPPs that helps answer this question. It looks at how these fiscal commitments can be assessed and monitored, whether they are commitments to pay for the availability of a service or to protect a PPP company from certain risks. The Note gives examples of the tasks that can be carried out by different government agencies, such as budget departments, debt-management offices, and PPP units. And it considers the kinds of rules that can be put in legislation to help ensure that the right assessment and monitoring occurs.

However, the Operational Note does not take a position on whether or not PPPs should be put on the government’s balance sheet. Budgeting and Reporting for Public-Private Partnerships by Katja Funke, Isabel Rial, and me argues that they typically should be.

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June 14, 2013

Time to Overhaul PFM in the UK?

Posted by Tom Josephs

Should the public sector aim to follow the approach to financial control used in the private sector?  In 2011 the UK government took a step in this direction by publishing the first Whole of Government Accounts (WGA) which consolidate the financial accounts of over 1,500 organizations across the public sector on a similar basis to commercial accounting.  Two recent papers[1] suggest that the UK government should build on this initiative—following the introduction of accrual-based accounting and budgeting ten years earlier—by developing better financial control structures which mirror those used in the private sector. The ideas put forward provide a useful contribution to this debate.

WGA is based on the system of accounts used internationally by the private sector, adapted where appropriate for the public sector, and uses a similar presentation to private sector accounts. It is the first time a consolidated set of accounts has been published for the UK public sector. Because it follows commercial accounting practices it should open up the public sector finances to wider external scrutiny by accounting professionals. While WGA’s contribution to increased transparency has been widely recognized it has yet to find a role in policy-making.  Partly this reflects the fact that it is a relatively new innovation. It is unfamiliar to policy-makers and there is no historical series and few international comparators against which to benchmark the current position.  There are significant differences between the key measures of the public sector deficit and net liability position found in WGA compared to the equivalent National Accounts measures produced by the UK’s national statistical agency which are currently used in fiscal policy-making.

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May 10, 2013

Latest Issue of International Journal of Governmental Financial Management Published

Posted by Andy Wynne

ICGFM1
The latest issue of the International Journal of Governmental Financial Management was recently published and is now available for free download

We begin this issue of our Journal with an examination of key public financial management (PFM) reform measures undertaken in India in the recent past and suggestions to enhance the effectiveness of the PFM systems involved involved. In recent years the role of sound PFM systems in achieving the objectives of fiscal discipline, strategic planning and improved service delivery has been receiving increased public attention in India. PFM reforms undertaken intermittently over the years have, however, not delivered the anticipated results in these areas. Studies and recommendations of government appointed committees and expert bodies have identified gaps that need attention to strengthen the institutional framework and to improve the efficiency of government spending.

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April 18, 2013

Managing Public Finances Is Vital to Economic Prosperity

As posted on IMF Survey Online

PFM_Book_Cover
Across the world many countries are now grappling with restoring sound and sustainable public finances: the way governments manage their budgets today will have profound economic effects in the years ahead. A new book by the IMF looks at reforms introduced by governments over the past two decades to improve management of public finances. These innovative ideas and reforms are changing the landscape of public finances and eventually aim to fundamentally change the way governments manage the public’s money.

The global financial and economic crisis highlighted the importance of sound public financial management in ensuring that well-designed fiscal policies are implemented effectively. Sound management of public finances means maintaining a sustainable fiscal position, allocating resources efficiently, and delivering public goods and services effectively.

The book looks at how reforms to public financial management make use of new information, processes, and rules to change the behavior of politicians and public servants to counter the ongoing challenges of managing government’s money. As identified in the book, too often the tendency for policy makers is to spend rather than save in good times; to focus on the short term; and to ignore the future costs of new policies, underlying fiscal risk, and the true state of public finances.

“The global crisis has highlighted that reforming governments’ management of public finances is no longer an option but a necessity. There is no ‘one-size-fits-all’ solution—reforms need to be tailored to countries’ individual circumstances,” said IMF Deputy Managing Director, Min Zhu, who addressed officials, journalists, and academics gathered at a special seminar to discuss the findings in the book.

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April 05, 2013

Turkey’s Successful Modernization of Treasury Operations

 Posted by Yasemin Hurcan[1]

Turkey book
In ten years that followed the 2001 economic crisis in the country, Turkey managed to halve its debt to GDP ratio. As a result, Turkey was selected as a benchmark country for debt reduction in the World Bank’s 2012 report “Golden Growth: Restoring the Lustre of the European Economic Model”. A recently published book[2] entitled “Treasury Operations in Turkey and Contemporary Sovereign Treasury Management” discusses how the Turkish Treasury managed to decrease its debt by, amongst other things, restructuring the Treasury’s operations and management. The publication is available as an e-book.

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March 22, 2013

Public Financial Management and Its Emerging Architecture

PFM_Book_Cover
Public financial management (PFM)—the fine art of budgeting, spending, and managing public monies—has seen an influx of innovations and reforms over the last two decades.

This book poses critical questions about these reforms, which include fiscal rules, fiscal responsibility legislation, medium-term budget frameworks, fiscal councils, performance budgeting, and accrual accounting. The authors evaluate what these reforms have accomplished and the issues and challenges that have been encountered, including those from the global financial and economic crisis. It draws lessons to help guide reformers in their pursuit of the next generation of PFM reforms. Public Financial Management and Its Emerging Architecture is available in print and e-book formats.

This event is open to the public, and those wishing to attend are asked to RSVP by sending an e-mail to FADM2AST@imf.org with the following details: full name, affiliation or employer name, and daytime phone number. Please RSVP by 3:00 p.m. on April 10. IMF and World Bank personnel are also welcome, and they need only their ID cards to enter.

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February 08, 2013

New FAD Technical Note and Manual: Cash Management and the Relationship Between Treasury and Central Bank

Posted by Renaud Duplay

Cash management is one of the main issues when reforming PFM systems in developing countries. Bad cash management is costly because it hampers budget execution, causes arrears and increases funding costs. For this reason the Fiscal Affairs Department (FAD) has already released two Technical Notes and Manuals (TNMs) on this subject and is now releasing further guidance material. A new TNM, prepared by Mario Pessoa and Mike Williams, expands the review of cash management issues by specifically addressing the relationship between the treasury and the central bank.  

The note was prepared at the request of the Latin American Treasurers' Forum (FOTEGAL) and addresses both institutional and technical issues and is particularly relevant to developing countries. Based on international experience, the TNM describes the modern framework of a formalized relationship between both institutions standing on two key principles:

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October 15, 2012

What Lies Beneath: Issues in Debt Statistics

Posted by Robert Dippelsman

Most key macroeconomic indicators such as GDP, the consumer price index (CPI), data on monetary aggregates, or balance of payments follow internationally accepted definitions. In contrast, public debt data can have different meanings. This problem is discussed in the recently released Staff Discussion Note What Lies Beneath: Statistical Definitions of Public Debt by Robert Dippelsman, Claudia Dziobek, and Carlos Gutiérrez Mangas of the IMF Statistics Department.  

The discussion note shows that the failure to adopt global standards can lead to important misunderstandings because of the potentially large magnitudes involved. However, international guidelines on the compilation of public sector debt are well established and set out in the recently published Public Sector Debt Statistics Guide: Guide for Compilers and Users (Debt Guide). The note identifies some key dimensions of public sector debt that need to be considered:

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September 26, 2012

New FAD Brochure Explains It All

Posted by the Fiscal Affairs Department of the IMF

The casual reader of the PFM Blog may have wondered what part of the IMF is actually responsible for the posts on this website. The website is maintained by the two PFM Divisions in the Fiscal Affairs Department (FAD), one of the functional (in contrast to geographic) departments of the IMF. For the upcoming Annual Meetings of IMF and World Bank Group in Tokyo from October 9-14 the attached brochure has been produced. It should be clear that FAD is much more than PFM alone! 

Download FAD Brochure 2012

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September 20, 2012

Government Accounting Tricks Designed to Conceal Rather Than Reveal

Posted by Tim Irwin

Working paper logo
It’s well known that governments sometimes use accounting devices to make their reported deficits smaller than, in some sense, they really are. But how do these devices work? And how can they be revealed?  A new IMF working paper by FAD’s Tim Irwin—Some Algebra of Fiscal Transparency: How Accounting Devices Work and How to Reveal Them—discusses these issues.  

One way to answer the questions is to consider future deficits. Deficit devices, unlike genuine changes in fiscal policy, reduce this year’s deficit only at the expense of future ones. And their use can therefore be revealed if governments also produce good fiscal forecasts.

This paper takes a different approach. It starts by defining the deficit as the decline in the government’s net worth and then shows how deficit devices can be analyzed as transactions involving assets and liabilities that are not recognized on the government’s balance sheet. For example, many governments do not include nonfinancial assets such as land and buildings on their balance sheets, so they can reduce their reported deficit by selling these assets, even though this doesn’t really improve their finances. It would seem, then, that accounting devices can be prevented by ensuring that all assets and liabilities are recognized on the balance sheet.

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September 18, 2012

“IPSAS Explained” – Second Edition [1]

Posted by Delphine Moretti

The recent publication of the second edition of “IPSAS Explained” is good news for readers who do not have time to plough through the two volumes and daunting 1,500 pages of the International Public Sector Accounting Standards (IPSAS) Board’s Handbook. The book is written by Thomas Mueller-Marques Berger who is himself a member of the IPSAS Board.

The main asset of the book is its very clear and concise presentation of the standards, which, as the author notes in his foreword, are “sometimes complex and inapprehensible”, especially to non-accountants. As was the case with the first edition, the new book fully succeeds in providing the reader with essential information – compressed into 5-10 pages - about each of the 32 standards. For this we are indebted to the author’s comprehensive knowledge and understanding of the field. For each standard, a brief chapter describes factually the objective of the standard, the international financial reporting standard (IFRS) on which it is based, together with an assessment of its scope and content, definitions used, relevant accounting rules and principles, and application date. The coverage of existing and recently published standards and exposure drafts includes a section on the much awaited IPSAS 32 “Service concession arrangements: grantor” together with a discussion of the exposure draft on reporting the long-term sustainability of finances of public sector entities. A third edition of the volume is to be expected as the on-going process of aligning the IPSAS with their IFRS counterparts should bring further changes to the IPSAS framework very soon, and some major additions to the framework are scheduled in the years ahead.

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July 06, 2012

Latest Issue of the International Journal of Governmental Financial Management

Posted by Andy Wynne – andywynne@lineone.net

ICGFM1
The latest issue of the International Journal of Governmental Financial Management is now available for free down load from: www.icgfm.org/journal

This issue of the Journal begins with An Overview of Accounting in the Nigerian Public Sector which is the first chapter of a recent book by two eminent Nigerian authors, Eddy O. Omolehinwa and J. K. Naiyeju. This paper reviews the differences between public sector accounting and that undertaken in the private sector. It then discusses the different types of public sector organisation and the approaches to public sector accounting which have been developed for each of these institutions. Finally the authors consider the research challenges in the area of public sector accounting. They note that the most important has been access to data, but that this has improved in recent years with the annual and even quarterly financial statements now being made available for the Nigerian public sector on the Internet.

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June 08, 2012

Accounting and the Budget Framework

Posted by Julie Cooper

For decades the debate has raged on about the applicability for government of what is often referred to as private sector accounting methodology.  Those who argue against its use in government offer up the differences in management focus between the private and public sectors to support their position. They argue that because the private sector is focused on profit generation the underlying concepts of accounting are not valid for government purposes. This argument is simplistic and fails to recognize the overarching purpose of all accounting systems.

Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s activities. Providing information about how an organization performs is an important aim of accounting. This is true for both private and public sectors. Another similarity between the two sectors is that they both focus on the efficient allocation of resources to realize their goals. The difference between these two sectors lay in how that information is reported and used not the accounting per se.

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June 04, 2012

Transición a la contabilidad en base de devengo: Notas Técnicas y Manuales del FMI

Publicada por Abdul Khan

La contabilidad en base de devengo es un tema candente en la actualidad, y muchos países han manifestado interés en adoptar este tipo de régimen contable. En una Nota Técnica de septiembre de 2009 elaborada por Abdul Khan, del Departamento de Finanzas Públicas del FMI, y por Stephen Mayes, ex funcionario de la institución, se presentan recomendaciones sobre el diseño, la planificación y la implementación de un régimen de contabilidad en base de devengo. La Nota aborda una serie de cuestiones relacionadas con la implementación de la contabilidad en base de devengo, y tiene por objeto establecer las pautas generales sobre las condiciones previas necesarias para una transición exitosa a la contabilidad en base de devengo, la secuencia adecuada de las medidas de reforma y los hitos que podrían servir como indicadores de los avances.

Las directrices de la Nota están concebidas para su aplicación principalmente en departamentos y unidades del gobierno general dentro de jurisdicciones nacionales, provinciales/estatales y locales. Se supone que las empresas estatales que participan en actividades comerciales ya preparan los presupuestos, llevan su contabilidad y presentan informes en base de devengo completo.

Haga clic aquí para descargar el texto íntegro de la nota en inglés o español

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June 01, 2012

Les budgets nationaux au service du développement et de la réduction de la pauvreté

Posté par Mohamed Moindze

Se voulant résolument pragmatique et orienté vers les nouvelles finances publiques, l’ouvrage «Les budgets nationaux au service du développement et de la réduction de la pauvreté »  édité, en janvier 2012, est centré sur la budgétisation des politiques de développement et de réduction de la pauvreté dans les pays en développement de tradition francophone.

L’ouvrage se veut également exhaustif en proposant une vision d’ensemble des questions relatives à l’élaboration des budgets nationaux basés sur les politiques publiques. Il est composé de deux parties. La première traite des stratégies globales et sectorielles dans leurs différents aspects de diagnostic, d’élaboration, de costing et de suivi en se basant sur les stratégies de croissance et  de réduction de la pauvreté développées par les pays en développant.

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National Budgets that Meet the Needs of Development and Poverty Reduction

Posted by Mohamed Moindze

With its resolutely pragmatic focus on the latest developments in public finance, Les budgets nationaux au service du développement et de la réduction de la pauvreté [National budgets that meet the needs of development and poverty reduction] (published in January 2012) addresses the budgeting of development and poverty-reduction policies in developing Francophone countries.

This publication also provides a comprehensive overview of issues relevant to preparing national budgets based on public policies. The text comes in two parts. The first part deals with the various aspects of global and sectoral strategies (diagnostic assessment, preparation, costing, and monitoring), predicated on the growth and poverty-reduction strategies formulated by developing countries.

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May 29, 2012

What Role for Sovereign Credit Ratings in Public Financial Management?

Posted by Tim Irwin

Working paper logo
Though intended for other purposes, sovereign credit ratings arguably have a role to play in public financial management. In particular, they provide an independent assessment of the strength of public finances that quickly allows citizens, journalists, members of parliament, and others to judge the financial risks being run by their government. Unlike many other sources of information on public finances, credit ratings are summarized in a grade, which makes them easy to understand. And, partly because grades allow countries to be ranked, they attract much more attention than, say, a fiscal ROSC.

They are controversial, because they not only inform investors but are deeply embedded in rules and regulations. A government’s credit rating can now determine whether its bonds can be bought by some investors, whether they are included in indices that other investors track, and whether they are accepted as collateral by central banks. It can determine how much capital banks have to set aside to cover possible losses on the government’s debt and whether investment banks will contract with the government or keep credit lines and derivative contracts open. So a downgrade can limit the government’s funding options, increase the interest rates it must pay, prevent it from hedging risks, and trigger sudden payment demands.

They are also controversial because their accuracy is sometimes questionable. At the onset of the global financial crisis, credit-rating rating agencies were rightly criticized for having underestimated the risks presented by securitized mortgages. Problems in sovereign ratings are less stark, but the Greek government had good ratings not long before it got into trouble, and the Japanese government has paid extremely low interest rates for years—suggesting that investors consider it very creditworthy—even though its ratings are not the highest.

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May 16, 2012

IMF Weighs in on Health Care Reform

Previously published on IMF Survey

Health care book

Economies the world over will be hit with rising health care costs at a time when many of them need to undertake large fiscal adjustments to reduce deficits and debt.

According to IMF analysis released earlier this week, reforming health care systems should be high on the list of priorities of governments as they continue to work on cutting deficits and debt.

Health care costs have skyrocketed over the past few decades with the introduction of new and very expensive technologies to treat patients. Aging populations are also contributing to cost increases.

Faced with uncertainty regarding longer-term recovery prospects for the global economy, governments may soon be in a difficult spot if they fail to make the necessary reforms to health care systems.

“We enjoy a higher quality of health care today, but we have to find a way to finance it,” said IMF Deputy Managing Director Min Zhu. Zhu addressed officials, journalists, and academics gathered at a special seminar to discuss the findings in a new book The Economics of Public Health Care Reform in Advanced and Emerging Economies.

“This new book brings forward a lot of the challenges we face today. Across the world, countries are seeing aging populations, rising costs of health care, or both. We have to take action today in a clear, strong, determined way on a global basis to address these issues,” said Zhu.

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April 04, 2012

La Cuenta Única de Tesorería es una herramienta esencial para la gestión de tesorería del gobierno: Nueva nota técnica del Departamento de Finanzas Públicas

Publicado por Sailendra Pattanayak

La cuenta única de tesorería (CUT) es un prerrequisito esencial para una gestión de caja eficaz y es una herramienta clave que permite al ministerio de hacienda o de finanzas establecer la supervisión y el control centralizado de los recursos  de tesorería del gobierno. También proporciona otros beneficios y, por ende, mejora la eficacia global del sistema de gestión financiera pública (GFP). En particular, la CUT facilita una mejor coordinación fiscal, de la gestión de la deuda y de la política monetaria, así como una mejor conciliación de los datos fiscales y bancarios, lo que a su vez mejora la calidad de la información fiscal. El establecimiento de la CUT reduce considerablemente los costos del servicio de la deuda pública, las necesidades de reservas líquidas, y ayuda a maximizar el rendimiento de las inversiones del excedente de efectivo.

El Departamento de Finanzas Públicas del FMI ha publicado recientemente una nueva nota técnica de la serie Notas Técnicas y Manuales  titulada La Cuenta Única de Tesorería: Una herramienta esencial para la gestión de tesorería del gobierno. Esta nota se basa en gran medida en el anterior documento de trabajo del FMI “Treasury Single Account: Concept, Design and Implementation Issues”, preparado por Israel Fainboim y por mí,[1] y publicado en el blog PFM el 12 de julio de 2010. En la nota se examinan las principales características de la CUT, posibles estructuras alternativas de la CUT y los sistemas de procesamiento de transacciones correspondientes, así como varias cuestiones relativas al diseño y a las condiciones previas que deberían abordarse para establecer un sistema de CUT. Además, se explican los principales pasos que deberían seguirse para implementar la CUT y se proporcionan directrices prácticas sobre la contabilidad y la presentación de informes en un régimen de CUT, conciliación bancaria y acuerdos con los bancos sobre los servicios para la gestión de la CUT.

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