Strengthening IMF Surveillance: What Have We Learned from Independent Evaluations?Remarks by Agustín Carstens, Deputy Managing Director International Monetary Fund
IEO Seminar—Singapore 2006 Annual Meetings
Venue: PanPacific Hotel, Room Ocean 4, Second Floor
Monday, September 18, 2006
1. I am delighted to participate in this panel on the important subject of strengthening IMF surveillance. This is the core of the Fund's activities, and making our surveillance of the international monetary system and of the global economy more effective is one of our top priorities.
2. In today's increasingly integrated world economy, the policies of any one country invariably have an impact on others. Effective surveillance can prompt policy makers to take action and can make a real difference.
3. Obviously, our member countries are not bound to follow the IMF's advice, and crises can still happen even if surveillance lives up to its full potential. But we do need to ask ourselves whether surveillance is doing all it can—whether it is correctly identifying risks and challenges and communicating them clearly and persuasively. We need to learn from our experiences, and to strive continually to improve. I must say that in this dimension we are always active. The IMF has a strong tradition as a learning institution. We have various internal review and evaluation mechanisms to ensure that we regularly take stock of what we are doing in certain areas, and that we do better where necessary. We appoint external groups to examine our handling of specific issues. We have a frank and open dialogue with civil society; we listen to participants in the financial markets; and more generally, by making our operations transparent, we have opened up channels for the public to examine and comment on our work. We come under continuous scrutiny from our member countries, through our Executive Board and through different fora that give us feedback and advice—such as the International Monetary and Financial Committee (IMFC) and other groups. And of course we have the Independent Evaluation Office (IEO), whose work is an important element of this learning tradition, and whose in-depth evaluations are very useful to us. Internal mechanisms, feedback from stakeholders, and independent evaluations, all play their part.
4. Let me illustrate. We are now at an important junction in the IMF's history. In the last couple of years, we took a very hard look at how we are fulfilling our mandate, against the background of a rapidly changing world economy. We turned to many sources for feedback, evaluation, and reflection. The result was our medium-term strategy, which we are now implementing. Effective surveillance is a key pillar of the strategy, with four key objectives. First, achieving a more global perspective (including by sharpening our analysis of exchange rates). Second, strengthening financial sector analysis. Third, improving focus and streamlining procedures. And last but not least, we intend to engage in more active outreach.
5. As you can see, our strategy encompasses the specific surveillance issues being discussed today, and it has indeed drawn on some of the lessons brought to us by the IEO's evaluations. With respect to multilateral surveillance, we were pleased that the IEO confirmed that most of our multilateral surveillance products feature high-quality analysis and are well-regarded. But we also believe that the IEO aptly identified some key challenges in this area. They are: leveraging our knowledge about our member countries and their interlinkages; better integrating these findings with bilateral surveillance; and communicating the results of our analysis clearly and concisely.
6. We are doing many things to strengthen multilateral surveillance further. First, we have introduced multilateral consultations as a new tool to address the international spillovers dimensions of our work. In this increasingly globalized economy, these consultations allow us to discuss issues of common interest with more than one country at the same time. The first of such consultations is underway, and is focusing on facilitating the resolution of the current global imbalances while maintaining robust growth. I emphasize "facilitate" here, for the IMF cannot resolve global imbalances. Only our member countries can. Second, we are building up our analytical frameworks, and working to include more analysis of financial and macroeconomic linkages in our World Economic Outlook. Third, we are making some internal changes. We have established a multilateral surveillance unit within our Research department, to support both our Board and other multilateral groupings. We are also improving the way we communicate and disseminate our findings, and strengthening our regional surveillance products.
7. In the area of financial sector surveillance, we are engaged in a continuous learning process. In the wake of the emerging market crises in the 1990s, the IMF adopted the Financial Sector Assessment Program (FSAP), a key tool for financial sector surveillance. There have been several evaluations since its adoption, including evaluations by the IEO. The challenges identified have been two-fold. First, prioritization—making sure that FSAPs are done for countries, especially systemically important ones, where strengthening our knowledge is most needed. As you know, participation in the FSAP is voluntary. Nevertheless, we are taking measures to prioritize better and to encourage key countries to participate. Since FSAPs began, over 70 percent of members have had one or have committed to have one, and this is no minor achievement.
8. The second challenge is how to integrate FSAP findings better into IMF surveillance. Integration is a challenge, both because the relevant staff are typically either macroeconomists or financial experts—not both; and because there is as yet no "unified" model integrating both the macroeconomic and financial aspects of an economy's functioning. We are working to bridge these divides. Organizationally, the two main departments specializing in financial sector issues have been merged. This is consistent with our aspiration to create a single center of excellence. In addition, on the analytical front, an internal task force is examining how the Fund can improve its analysis of financial issues, both through the FSAP and other means, and better integrate it into surveillance.
9. So indeed, better financial sector surveillance and treatment of spillover issues are among our priority objectives in surveillance. As I mentioned earlier, they are but a part of the broader agenda on surveillance through our medium-term strategy. The strategy is wide-ranging, from updating our legal foundations to streamlining our internal procedures. For instance, our Executive Board is also reviewing a 1977 Decision that constitutes, together with Article IV of our Articles of Agreement, one of the pillars of surveillance, to ensure that it remains relevant for today's international monetary system. In the process, we hope to build a better common understanding of members' commitments to each other and to the Fund, and of the role and importance of candid Fund surveillance. We are also strengthening and extending our tools for exchange rate analysis. We are improving how we set priorities and strengthening focus, and streamlining our procedures for greater efficiency. In short, we believe we are on track to revamp surveillance for a new century.
10. Before concluding, I would like to share with you that the IEO was evaluated externally earlier this year and there was broad agreement that the IEO has served the Fund well and has earned the strong support for its work across a broad range of stakeholders. The Fund continues to need an independent evaluation office to contribute to the institution's learning culture and facilitate oversight and governance by the Board.
11. Let me conclude by saying that I am proud to be part of the leadership of an institution that is committed to learning and adapting, and to taking feedback and evaluation seriously. The establishment of the IEO has provided a further boost to our learning culture. We very much appreciate its high quality work, and the IMF is stronger for its work.