IMF

IMF Survey: New Emphasis on IMF's Global Monitoring Role

April 17, 2011

  • Global recovery still fragile in face of continuing and new risks
  • IMFC asks Fund to step up its multilateral surveillance “to connect the dots”
  • Possible financing help for Middle East countries of $35 billion

With the worldwide recovery becoming more established but remaining fragile on a variety of fronts, the IMF will step up its global economic monitoring role to help countries anticipate looming problems and take early action to avoid future crises.

New Emphasis on IMF's Global Monitoring Role

Plenary session of International Monetary and Financial Committee during 2011 IMF-World Bank Spring Meetings in Washington (photo: Stephen Jaffe/IMF)

IMF-WORLD BANK SPRING MEETINGS

“It is connecting the dots [between risks] that is extremely important,” said Tharman Shanmugaratnam, Singapore’s Minister for Finance, who chaired a key ministerial meeting of the IMF’s policy-setting body, the International Monetary and Financial Committee (IMFC).

“If I had to give one qualification to these Spring Meetings, [it would be] that these are the meetings on strengthening Fund surveillance,” said IMF Managing Director Dominique Strauss-Kahn.

The Spring Meetings of the IMF and World Bank in Washington bring together finance ministers and central bank governors from around the world. They identified a slew of continued and emerging risks to the global economy, including higher food and fuel prices, the disaster in Japan, unrest in the Middle East, lingering unemployment in parts of the world, and the risk of overheating in some dynamic emerging markets.

IMFC Chairman Tharman Shanmugaratnam addresses news conference during IMF-World Bank Spring Meetings (photo: Michael Spilotro/IMF)

To keep track of these looming problems and other global risks, “we have to be extremely watchful,” Shanmugaratnam, the first Asian to hold the chairmanship of the IMFC, told reporters. “We also need to develop the capabilities of the Fund to address risks proactively, to anticipate possible scenarios that could turn out to be ugly, and to require that countries, including especially systemically significant countries, take actions early to prevent another major crisis.”

New kinds of analysis

Strauss-Kahn said the IMF would pull together the different strands of its work to produce a new consolidated report on multilateral surveillance, that would include analysis about the possible impact or “spillovers” of problems in one part of the world affecting others and about policy actions by one country that could affect others.

Tracking spillovers required the IMF to be adroit, said Shanmugaratnam, and to draw on a wider range of information and involving expert opinion.

“We are at Year One of the new multilateral surveillance for the Fund,” Strauss-Kahn said. To underpin the new approach, the IMF was working in three areas.

• Rethinking economic theories in the wake of the global crisis

• Rethinking policy advice, including, for example, advice on capital controls

• Trying to improve the way multilateralism and global cooperation functions

Progress at G-20

Building on their cooperative approach, finance ministers and central bank governors of the Group of Twenty (G-20) industrialized and emerging market economies separately moved a step forward by agreeing a set of guidelines to measure potentially destabilizing imbalances in the global economy.

French Finance Minister, G-20 Chair Christine Lagarde arrives for news conference during IMF-World Bank Spring Meetings (photo: Michael Spilotro/IMF)

The agreement—reached during the Spring Meetings in Washington—provides a concrete basis for G-20 countries to assess each other’s economic policies, with a view to address large imbalances and support the G-20’s growth objectives. The process will draw on independent analysis by IMF economists.

Help on the way for Middle East

Strauss-Kahn said that the IMF could provide finance for certain Middle East countries of up to $35 billion. “We stand ready to help on the technical assistance side, but also on the financing side,” he said.

At an earlier seminar on the Middle East, the IMF Managing Director said the Fund had learned lessons from unrest in the region, and realized the need to look beyond traditional macroeconomic numbers to get a truer picture of underlying trends.

Internet activist Wael Ghonim (l) addresses discussion on Middle East, North Africa during IMF-World Bank Spring Meetings (photo: Stephen Jaffe/IMF)

“We should look beyond this … to the distribution of income, youth unemployment, and how the society is doing,” all of which “matter for the sustainability of growth.”

But he said the new governments and institutions would need help. “For revolutions to succeed, it requires building democratic institutions … and providing them with macro stability. Otherwise you will have a new wave of unrest.”

Need to avoid complacency

Strauss-Kahn said that he had gone into the Spring Meetings saying the international community needed to avoid complacency in the wake of the immediate crisis “and now I am even more convinced of that.”

He pointed to the need to take more action to

• Continue repairing the financial sector where the global crisis started

• Do more to counter unemployment. “Growth is not enough. We need growth … to produce jobs.”

• Tackle debt and fiscal problems in advanced economies

• Address risks of overheating in some emerging markets. At press conferences, IMF staff in both Asia and Latin America warned of the risks of economies growing too fast and overheating

• Cope with rising commodity prices and fears of inflation. African finance ministers said their region should try to broaden their economic base to become less dependent on commodities.

Work on capital flows

Ministers also discussed the issue of volatile and potentially destabilizing global capital flows. The IMF has recently adopted a more pragmatic approach to capital controls, saying they can be used on occasion and in conjunction with other policies.

The IMFC communiqué said the Fund’s recent work on managing capital inflows “is a step that should lead toward a comprehensive and balanced approach.”

Ministers said such an approach should give “due regard to country-specific circumstances.” They urged the IMF to deepen its analysis of global liquidity, the varied experiences of member countries with capital account management, liberalization of cross-border capital flows, and development of domestic financial markets.


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