1. Directors welcomed the opportunity to follow up on a number of outstanding issues from their discussion of the biennial surveillance review on April 4 and 5, 2002, and to consider the Draft Operational Guidance Note for Staff on Surveillance.

...

3. Regarding the effectiveness of surveillance, Directors generally agreed that the proposal to strengthen the coverage of the authorities' response to past policy advice in Article IV staff reports is a useful, first step towards enhanced assessment of the impact of the Fund's policy advice. Many Directors suggested that such reviews also include a fuller account of the authorities' views on the policy advice received from the Fund, and a discussion of the reasons for their policy actions. Directors also underscored the importance of assessing the quality of the Fund's advice, and, in that context, a few Directors suggested that an annual assessment of the impact of the Fund's advice might be considered as a framework for examining the effectiveness of Fund surveillance. ... Going forward, several Directors underscored that discussions with member country authorities should be undertaken in a spirit of consultation, based on mutual trust and confidence, and reflecting the preparedness of missions to discuss alternative policy options that could deliver similar overall macroeconomic results.

4. Most Directors saw the proposed guidance defining the role and nature of surveillance in program countries as a useful clarification, whose consistent implementation should ensure that surveillance in all program countries is conducted with an appropriately fresh perspective. Several Directors felt that greater formal separation of surveillance and program activities would be desirable. However, many Directors, while recognizing the usefulness of stepping back from a pure review of performance under the program during surveillance missions, cautioned against a radical separation, such as systematically differentiating between surveillance and UFR mission teams, noting the important synergies between surveillance and program reviews. At the same time, Directors noted that management retains the prerogative to alter the composition of Article IV consultation teams to meet the needs of particular country circumstances. The Board will consider the need for further work on surveillance in program countries, taking into account experience with the implementation of the proposals in the Guidance Note.

5. Directors supported the proposal to move countries receiving Fund financial assistance to a 24-month consultation cycle, subject to the qualifications outlined in the draft decision (SM/02/184, Supplement 1). Some Directors stressed the need for caution in this regard, noting the role that surveillance can play in identifying problems in program countries at an early stage. Several Directors underscored the need for flexibility in consultation cycles to accommodate country-specific circumstances. It was understood that thorough surveillance exercises on longer cycles, coupled with frequent contacts under the program, should strengthen surveillance in program countries.

6. Directors generally agreed with the clarification of the existing policy on the production of statistical appendices as background documentation for Article IV consultation reports, and with the proposal to retain this policy. Statistical appendices will thus continue to be produced for every consultation, except for countries where comprehensive economic data are readily and freely available from an alternative source.

...

8. The Guidance Note for staff will be finalized in light of today's discussion, and will be updated from time to time to reflect the outcome of Board discussions on matters pertaining to the conduct of effective surveillance. ...