Public Information Notice: IMF Executive Board Discusses Implementation Plan Following IEO Evaluation of the IMF's Exchange Rate Policy Advice, 1999-2005

October 2, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 07/119
October 2, 2007

On September 12, 2007, the Executive Board of the International Monetary Fund (IMF) discussed the "Implementation Plan in Response to Board-Endorsed Recommendations Arising from the IEO Report on the Fund's Exchange Rate Policy Advice, 1999-2005"


On May 9, 2007 the Executive Board discussed the Independent Evaluation Office's Evaluation of IMF Exchange Rate Policy Advice, 1999-2005. In that report, the IEO put forward a set of recommendations aimed at improving the IMF's work in the areas of exchange rate policy advice and surveillance over exchange rates.

Based on those IEO recommendations that were endorsed by the Board, staff and management have prepared an implementation plan. The Implementation Plan is part of a new framework established following an External Evaluation of the IEO, which seeks to ensure more systematic follow-up and monitoring of the implementation of Board-endorsed IEO recommendations, and which envisages i) the presentation to the Board of a forward-looking implementation plan for Board-endorsed recommendations soon after Board discussion of each IEO report, and ii) periodic monitoring of the state of implementation of actions set out in such plans.

Executive Board Assessment

Executive Directors welcomed the opportunity to provide management with feedback on its implementation plan developed in response to the Board-endorsed recommendations arising from the IEO report on the Evaluation of the IMF Exchange Rate Policy Advice, 1999-2005.

Directors agreed that the implementation plan constitutes a broadly appropriate strategy to address the Board-endorsed IEO recommendations, and is a tangible step forward in the Fund's efforts to improve its surveillance. At the same time, several Directors considered that some important aspects would benefit from greater specificity of the planned actions, and also stressed the importance of appropriate sequencing, prioritization, and monitoring of the envisaged actions, with clarity on timelines and accountabilities.

Directors noted that a centerpiece of the implementation plan relates to the recently enacted 2007 Decision on Bilateral Surveillance. They considered this appropriate, as the new Decision constitutes an important basis for improving the Fund's work on exchange rate policy, and, more generally, Fund surveillance. Given the prominent role of the 2007 Decision, Directors emphasized the importance of the forthcoming revision of the Surveillance Guidance Note for providing greater clarity to the conduct of exchange rate surveillance and responding to the IEO recommendations. Many Directors noted that a number of questions have arisen in the first months of implementation of the 2007 Decision, and stressed the need for their early resolution by developing a clearer and shared understanding of these issues. In this context, many Directors welcomed management's intention to provide an opportunity for Directors to express their views on key aspects of the Surveillance Guidance Note.

Directors noted that, ultimately, a strengthening of exchange rate related work would have to be carried out primarily in the context of Article IV consultations, and welcomed in this connection the increased emphasis that area departments are planning to accord to exchange rate issues. Many Directors agreed that the strengthening of the methodology and expansion of the work of the Consultative Group on Exchange Rate Issues (CGER) would provide important input to the Fund's exchange rate work, although a number cautioned that significant technical limitations will continue to exist in estimating equilibrium exchange rates, and saw a need to improve further CGER assessments of industrial and emerging markets before expanding the work to other countries. Many Directors also reiterated the need to exercise careful judgment in interpreting CGER estimates, given large methodological uncertainties, and called for better integrating quantitative and qualitative methods, while paying due regard to country circumstances. Directors supported, if feasible, a review of the system of exchange rates in 2009. A number of Directors considered this review crucial, especially with an eye to strengthening assessments of exchange rate regimes, and would prefer it to happen sooner than 2009.

Directors highlighted some important areas that merit further careful attention by staff and management. Several Directors saw scope for clarifying actions related to improving the effectiveness of dialogue with members and to providing incentives to staff to raise controversial issues in the conduct of surveillance. Some Directors also suggested that additional action might be warranted to better integrate spillovers into bilateral and regional surveillance, and encouraged careful monitoring of ongoing improvements. The need for deeper analysis of the link between capital flows and exchange rates was also emphasized. In that regard, Directors underscored the importance of an active role for MCM in surveillance and welcomed the initiative to increase MCM participation in Article IV missions.

Directors generally welcomed the staff's efforts to cost the implementation plan and to identify means to fund it, while recognizing that this would need to be revisited in the context of next year's budget discussions. They concurred with the assessment of the implementation plan that addressing the IEO recommendations, and more generally achieving the strengthening of exchange rate work, would imply allocating more resources to exchange rate policy work. Directors also concurred with the identified reallocations of resources from other activities within the Fund. In this connection, several Directors saw scope for efficiency gains from clearer guidance to staff as well as improved interdepartmental coordination-on exchange rates, in particular, and surveillance activities, more generally. The full resource implications will be reviewed in the context of the budget.

Directors looked forward to the periodic monitoring report and to the Triennial Surveillance Review, which will provide an opportunity to assess the implementation of Board-endorsed IEO recommendations and any early improvements in exchange rate-related work. Directors underscored the importance of monitoring progress in this area, which lies at the core of the Fund's mandate.

This has been a useful discussion. In carrying forward the Implementation Plan, staff and management will draw on the various views and suggestions offered by Directors today.


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