IMF Surveillance—The 2007 Decision on Bilateral Surveillance
One of the IMF’s core activities is to monitor global, regional, and national economies to assess whether countries’ economic and financial policies are consistent not only with the health of their own economies, but also with the interests of the international community. This process is known as surveillance. The IMF’s work in this area is intended to help head off risks to international monetary and financial stability, alert the institution’s 186 member countries to potential risks and vulnerabilities, and advise them of needed policy adjustments. The IMF’s policy dialogue with its members is known as bilateral surveillance. It complements the IMF’s oversight of the international monetary system, commonly termed “multilateral surveillance.” The 2007 Decision on Bilateral Surveillance updated the framework for the IMF’s interactions with individual countries. |
Purpose of the 2007 Decision
Under Article IV of the IMF’s Articles of Agreement, members of the IMF undertake to collaborate with the IMF and with one another to promote the stability of the global system of exchange rates. In particular, they commit to running their economic and financial policies in keeping with this objective. For its part, the IMF is mandated to monitor these policies. The logic of IMF surveillance is that it helps foster global stability by encouraging national policies that do not disrupt or compromise external stability.
The Decision on Bilateral Surveillance over Members' Policies provides a comprehensive and integrated framework for bilateral surveillance. It was adopted by the IMF’s Executive Board in June 2007 to replace the outdated 1977 Decision on Surveillance over Exchange Rate Policies. The Decision seeks to bring clarity to what surveillance is about, thereby promoting focus, evenhandedness and accountability. It also provides guidance to members on how to conduct exchange rate policies in a way that is consistent with the objective of promoting stability and avoiding manipulation.
Conceptual Framework
The 2007 Decision puts the concept of external stability—the country-level counterpart to international stability—at the heart of bilateral surveillance. External stability refers to a balance of payments position that does not, and is not likely to, give rise to disruptive exchange rate movements. The Decision reaffirms that surveillance should be focused on promoting countries’ external stability. In this regard, the IMF will examine whether a country’s exchange rate, fiscal, monetary and financial sector policies are consistent with this objective. Other policies are subject to surveillance to the extent that they significantly influence present and prospective external stability. The Decision recognizes that the way domestic policies contribute to external stability is by promoting domestic stability.
The conceptual framework applies to all members of the IMF, including those that are part of a currency union.
Conduct of Surveillance under the 2007 Decision
The 2007 Decision gives clear guidance on how to conduct surveillance. It calls on the IMF to carry out a thorough assessment of relevant economic and financial developments, prospects, and policies for each of its members, and to provide candid policy advice based on its analysis.
The Decision also emphasizes a number of qualities that are essential for effective surveillance.
• Collaboration. Surveillance is a collaborative process, based on dialogue and persuasion.
• Candor. Effective dialogue requires candor. The IMF must be prepared to deliver clear and sometimes difficult policy messages to members, and to candidly inform the international community (as represented by the IMF’s membership).
• Evenhandedness and due regard to country circumstances. Surveillance must be evenhanded, regardless of whether countries are large or small, advanced or developing, and it must pay due regard to countries’ specific circumstances. The latter involves, in particular, taking account of the effects of recommended policy changes on the member government’s other policy objectives.
• Practicality. The IMF’s advice should be practical. It should be specific and take into account the authorities’ implementation capacity.
• Multilateral perspective. Bilateral surveillance should be embedded in a multilateral perspective. This means that the Fund will bear in mind spillovers from the global environment to a country and from a country’s policies to the stability of the international monetary system when it carries out country assessments.
• Forward looking view. The Fund will take a medium-term view in discussions with members and in reporting its surveillance findings. This includes discussions of medium-term objectives and policies, especially possible policy responses to potential economic challenges.