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The Focus of Surveillance

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9. Notwithstanding the satisfactory overall record with respect to the balance achieved generally between coverage and focus, Directors considered that there remains some further scope for enhancing selectivity in individual cases and areas. Trade policy, including domestic trade-distorting subsidies and non-tariff barriers, is one such area. Coverage of trade policies is critical in countries where serious trade distortions hamper macroeconomic prospects, as well as in countries whose trade policies have global or regional implications-for example, where trade policies in the major industrial countries affect market access for developing countries, or where trade policies have a significant impact on countries in that region. Such concentration would simultaneously strengthen the coverage of trade issues and make surveillance more focused.

The Depth of Surveillance

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14. Directors observed that structural issues outside the Fund's traditional areas of expertise may, in some instances, be key to a country's economic situation and, thus, priority issues for Fund surveillance. In those cases, most Directors reiterated the importance of drawing on the expertise of the appropriate outside institutions and, in particular, of making effective use of input from the World Bank.

Multilateral Surveillance

15. Directors expressed support for the current modalities of multilateral surveillance. They noted that the semi-annual discussions on the World Economic Outlook, the more frequent World Economic Market Development sessions, and the quarterly discussions on Global Financial Stability provide appropriate and flexible tools to review the rapidly evolving conditions of the world economy and global financial markets. Directors particularly welcomed the enhancements to the multilateral surveillance of capital markets, which have been made possible by the creation of the International Capital Markets Department. ...

Surveillance in Program Countries

16. Directors agreed that surveillance and Fund-supported programs share the same broad objective, namely promotion or restoration of macroeconomic stability, external viability, and sustainable growth. Nevertheless, in countries with Fund-supported programs, as in other countries, there is a need for periodic reassessment of economic conditions and policies. This requires a stepping back from the program framework. ...

17. There was broad agreement that a radical separation of surveillance and program activities, for instance through separate mission teams, is not operationally feasible. Most Directors noted that such an approach would entail significant resource costs, would complicate communication with the authorities, and could give rise to inconsistent policy advice. At the same time, most Directors felt that clear guidance on the role and nature of surveillance in program countries could help strengthen surveillance in these countries. ...

18. Directors agreed that better timing of Article IV consultations in program countries would be one way of enhancing their effectiveness, as a comprehensive assessment of economic developments, prospects, and policies is more useful at some points in the program cycle than at others. For example, consultations are most valuable before a program is negotiated, when a program has moved off-track, or when a major change in the program strategy is envisaged between programs. ...

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Staff-Monitored Programs

21. Directors generally agreed that staff-monitored programs (SMPs) constitute a useful vehicle for closer monitoring of countries' policies outside a Fund arrangement. They welcomed the improvements in the design and documentation of SMPs since the 1998 discussion of the draft guidelines. Directors noted, however, that less progress has been made in the reporting of performance under SMPs.

22. Most Directors felt that inadequate reporting on performance is of particular concern in cases where the SMP is intended to provide signals to private and/or official creditors. Therefore, they considered that, since SMPs do not require upper credit tranche conditionality and do not entail Fund endorsement of the member's policies, transparency on performance under the SMP is essential to allow creditors and donors to assess the quality of the policy adjustment under the SMP. Many Directors supported a strengthening of the performance reporting guidelines and greater transparency. However, several other Directors expressed concern that introducing a presumption of publication in these cases may be inconsistent with the Fund's transparency policy and may, in fact, further blur the distinction between SMPs and Fund arrangements. Against this background, Directors agreed that a further discussion of signaling SMPs would be useful. Some Directors suggested that a different instrument may be appropriate in signaling cases.

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