Road construction in Jakarta, Indonesia. The IMF’s new work program is aimed at supporting global growth and cooperation (photo: Crack Palinggi/Newscom)
WORK PROGRAM
The new work program has been developed very much with these vulnerabilities in mind. A focus for the IMF in the lead-up to the Annual Meetings of its membership in September 2011 will be a set of new “spillover” reports aimed at improving our understanding of the interconnected nature of the world economy in order to support better policy collaboration at the global level. Other priority initiatives include advancing capital flows work and enhancing support for low-income countries.
In an interview, Reza Moghadam, Director of the IMF’s Strategy, Policy and Review Department, discusses the priorities for the IMF during the next six months.
IMF Survey online: How do you see the IMF’s role in shaping the post-crisis agenda?
Moghadam: The world today bears many of the scars of the crisis itself. Countries are only now starting to address the fiscal fallout from the crisis, financial sector repair and reform are incomplete, and the pace and quality of growth are concerns across our 187 member countries. These developments require a very active agenda for us as an institution, and the new work program is precisely the type of proactive agenda called for by a fragile global environment.
The IMF is in a unique position to engage governments on domestic and global economic issues of concern, both in the context of providing policy advice and analysis, and facilitating international policy cooperation. Let me give you a few examples.
Our regular bilateral surveillance promotes constructive dialogue with country authorities on key policy matters, while our key flagship products—the World Economic Outlook, the Global Financial Stability Report, the Fiscal Monitor, along with the Early Warning Exercise—take a global perspective on economic and financial developments.
Upcoming Spillover Reports—which look at five systemically important countries or regions—will cast a new light on the nature of economic and policy linkages between countries. We will also prepare a Consolidated Multilateral Surveillance Report for the IMF’s policy steering committee, the International Monetary and Financial Committee. This report will be discussed during the 2011 Annual Meetings, directly engaging senior policymakers on the most critical messages from our surveillance products and their policy implications for countries and the Fund itself.
The IMF also continues to support the efforts of the Group of Twenty (G-20) leading advanced and emerging market economies to increase policy collaboration. In particular, the G-20’s Mutual Assessment Process, which relies on analytical input from the IMF, has been a very important vehicle for policy dialogue, with a special focus on country-specific external and domestic imbalances.
IMF Survey online: What efforts are underway to strengthen the IMF’s policy advice and analysis? And how do the new spillover reports you mentioned just now feature in this work?
Moghadam: The tremendous increase in trade and financial linkages between countries provide great opportunities for investment and growth, but they also make each country more exposed to what we call “spillovers” from developments in other countries.
With this in mind, the IMF is focusing on how an improved understanding of the interconnected nature of the global economy can support policy collaboration. This year, we are undertaking in-depth analysis of the outward spillovers from the five largest economies in the world—China, the euro area, Japan, the United Kingdom, and the United States. It is the results of this work that will be presented in a series of “spillover reports” alongside each country’s annual Article IV report, with lessons brought together in an overarching report.
By shedding light on the impact of one country or region’s polices on others, we hope to facilitate the process of finding policies that serve both the national and the global interest.
IMF Survey online: The IMF also plans a big review of its surveillance. What will be the focus of that study?
You are referring to the Triennial Surveillance Review or “TSR” which, along with a review of the legal framework for surveillance, will be completed in September 2011. The primary objective of the TSR is to support the IMF’s ability to contribute to both country-level and global stability through effective surveillance of our member countries’ policies.
In particular, the TSR will assess how well positioned the IMF is to detect and warn about risks, how candid we are in our policy advice to governments, and whether we are evenhanded in terms of how we deal with different groups of countries.
Whereas earlier reviews concentrated on bilateral surveillance, the 2011 TSR will also cover multilateral surveillance and other surveillance-related activities, and will assess how our various vehicles for providing policy advice and analysis fit together.
In addition to the assessment conducted by IMF staff, external experts will contribute their views on key issues, and an advisory group will provide an independent check on staff’s analysis and recommendations.
IMF Survey online: Should we expect further reforms to the IMF’s lending tool kit?
Moghadam: In the past couple of years, the IMF has taken significant steps to enhance its lending toolkit —you will recall that we created the Flexible Credit Line for member countries with very strong economic fundamentals and policy track records, and the Precautionary Credit Line for member countries with sound fundamentals but some modest remaining vulnerabilities.
We must continually strive to improve the toolkit to meet the needs of the membership. For example, to better understand the need for global liquidity at times of systemic stress, we are now looking more carefully at the causes of such crises and the global liquidity responses to identify any remaining gaps in our lending toolkit.
IMF Survey online: Over the past year, the IMF has done a lot of research on how to make the international monetary system less prone to crisis. How will the institution take this work forward in the coming months?
Moghadam: Helping ensure international monetary cooperation and stability is central to the IMF’s mission. The Fund has already done quite a bit of work geared toward improving the functioning of the international monetary system. This work, combined with parallel efforts in the G-20, has already advanced the debate on how to reform the international monetary system.
In the period ahead, we will evaluate prospects for global adjustment mechanisms, including in the context of the IMF’s surveillance and the TSR. We will also continue our work on capital flows by looking at issues relevant to both countries originating capital flows and countries receiving these flows in an upcoming paper titled “The Multilateral Aspects of Policies Affecting Capital Flows.”
We will continue our work to evaluate the use of macroprudential instruments and related institutional arrangements, in collaboration with other institutions. And as I just mentioned, we will take another look at the prospects for a global financial safety net and what this means for crisis prevention and response. We also plan to update the framework we use for analyzing fiscal policy and public debt sustainability.
We will also consider how the stability of the international monetary system could be enhanced by diversifying the global reserve system and the set of international currencies.
IMF Survey online: Low-income countries are being particularly hard hit by the recent rise in global food and fuel prices. What is the IMF doing to support its low-income member countries?
Moghadam: The IMF has maintained a strong focus on the needs of low-income countries during the crisis, and we plan to step up our efforts to help this part of our membership deal with challenges posed by recurring macroeconomic volatility, including the latest spike in commodity prices.
As we did in 2008, when food and fuel prices last spiked, and during the global financial crisis, the IMF can help low-income countries by quickly providing financial support to preserve macroeconomic stability and safeguard social and other priority spending.
We also continue to refine our policy and analytical toolkit. In June, the Board will discuss how our policies should be tailored to meet the unique challenges of countries in fragile situations.
On the analytical side, we will look at the unique challenges faced by low-income countries as they try to manage their economies in the context of global volatility, based on a new vulnerability exercise for low-income countries. We will also look at how the international community can facilitate the development and use of contingent financial instruments for this group of countries.
We will also look at the future of the two debt relief initiatives that we manage jointly with the World Bank and other international institutions: the Highly-Indebted Poor Countries and Multilateral Debt Relief Initiatives.
IMF Survey online: Jobless growth and a growing divide between rich and poor is a concern in many parts of the world. Will the IMF adjust its policy advice to help countries tackle the joint issues of inequality and unemployment?
There is no question that the quality of growth has an important impact on macroeconomic sustainability. Recent developments in the Middle East and North Africa, along with stubbornly high unemployment in many advanced countries coming out of the crisis, suggest we need to think about macroeconomic stability in a way that acknowledges that the quality, sources, and distribution of growth are critical for long-term stability.
While we are mindful that the IMF’s comparative advantage lies elsewhere, we are working to gain a better appreciation of the social factors that affect macroeconomic stability, drawing on outside experts in this field. These factors must play a bigger role in our analysis and in our policy advice.
The IMF’s recent conference, Macro and Growth Policies in the Wake of the Crisis, provides a good example of how the Fund is pushing the frontier to understand better these interrelated issues.
