## Statement by the Managing Director to the IMFC on the Fund's Lending Role and Surveillance Priorities, October 8, 2008

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### Overview
- The global economy is experiencing "a financial crisis of historic proportion" with uncertain broader effects.
- Immediate priorities: deal with fallout of the current crisis and continue assistance to low-income members affected by the food and fuel price shock.
- The Fund will draw on crisis-management experience, in-depth country knowledge, extensive analysis of the crisis and spillovers, and intensified crisis preparedness and engagement with stressed members.
- Collaboration with the Financial Stability Forum is being used to inform Fund responses.

### The IMF's Lending Role
- The Fund is prepared to move quickly to provide financial support "using to the maximum the flexibility in our existing instruments and emergency procedures."
- A review of the Fund’s lending role has been launched to ensure the lending function meets members’ needs for financing, signaling, or insurance.
- Five concurrent areas of work (road map) to be advanced:
  - (i) exploring analytical considerations for Fund lending;
  - (ii) advancing the work on a new liquidity instrument;
  - (iii) re-examining conditionality;
  - (iv) reviewing our lending role and facilities for low-income members;
  - (v) reviewing access limits and financing terms for using Fund resources.
- Timeline and decision process:
  - Preliminary discussions with the Board in all five areas by the Spring Meetings.
  - Decisions as quickly as possible where strong consensus and urgency exist (example given: liquidity instrument).
  - Aim to reach decisions before the 2009 Annual Meetings in remaining areas.

### Surveillance Priorities — Strategic Vision
- Surveillance must help members understand economic interdependence and promote collaboration and globally consistent actions.
- The Managing Director’s vision rests on four priority areas where the Fund can deliver unique value-added:
  - Early warnings: provide clear assessments of risks to baselines, extend periodic vulnerability diagnostics to advanced economies, and innovate in assessing and communicating risks while avoiding being "too coded nor too alarmist."
  - Understanding macro-financial linkages: intensify work to guide everyday macro-financial analysis and update the toolkit for financial stability analysis so that "today’s best practice becomes tomorrow’s norm."
  - Multilateral perspectives: give more prominence to cross-country financial linkages and better draw out policy implications of multilateral surveillance findings.
  - Exchange rates and external stability: cast exchange rate assessments in a broader external stability context (capital account developments and global foreign exchange markets) and integrate into assessment of the overall policy mix; propose closer engagement with members through ad hoc consultations where significant external stability concerns exist.
- The above priorities are encapsulated in the Fund’s first Statement of Surveillance Priorities recently adopted by the Executive Board.

### SURVEILLANCE PRIORITIES FOR THE INTERNATIONAL MONETARY FUND, 2008-2011 — Economic priorities
- Context: "The global economy faces a period of severe financial distress and slower growth alongside the challenges of sharp commodity price changes and global imbalances."
- Four interrelated policy objectives to restore a more conducive international environment:
  - Resolve financial market distress. "Restore stability and minimize the adverse impact of the current crisis in financial markets on the real economy;"
  - Strengthen the global financial system by upgrading domestic and cross-border regulation and supervision, "especially in major financial centers," and avoid exposing capital-importing countries, including low-income countries, to excessive risks;
  - Adjust to sharp changes in commodity prices. "React to commodity price shifts in domestically appropriate and globally consistent ways, with emphasis on keeping inflationary pressures in check in boom phases and minimizing risks that could arise when prices fall;"
  - Promote the orderly reduction of global imbalances "while minimizing adverse real and financial repercussions."
- Role of the IMF: promote common understanding of forces and linkages, draw lessons from experience, provide clear advance warnings of risks to global economic and financial stability, and advise on use of monetary, fiscal, exchange rate, and financial sector policies.

### SURVEILLANCE PRIORITIES FOR THE INTERNATIONAL MONETARY FUND, 2008-2011 — Operational priorities
- Risk assessment:
  - "Refine the tools necessary to provide clear early warnings to members."
  - Make thorough analysis of major risks to baseline projections (including, where appropriate, high-cost tail risks) and their policy implications more systematic.
- Financial sector surveillance and real-financial linkages:
  - "Improve analysis of financial stability, including diagnostic tools;"
  - Deepen understanding of linkages between markets and institutions and ensure adequate discussion in surveillance reports.
- Multilateral perspective:
  - Ensure bilateral surveillance is informed systematically by analysis of inward spillovers; outward spillovers (where relevant); and cross-country knowledge (as useful).
- Analysis of exchange rates and external stability risks:
  - Integrate clearer and more robust exchange rate analysis, underpinned by strengthened methodologies, into assessment of the overall policy mix.

### Governance, Delivery, and Reporting
- Priorities are set by the Executive Board to foster multilateral collaboration and guide IMF management and staff through a three-year horizon (2008-2011), subject to revision if circumstances warrant.
- Management and staff responsibilities:
  - Deliver on operational priorities, provide candid high-quality analysis, and ensure effective communication.
- Reporting commitments by the Managing Director:
  - (i) report regularly on actions toward priorities and "readily visible results;"
  - (ii) report at the time of the next Triennial Surveillance Review on progress in attaining these priorities; management’s and staff’s contributions; and factors that impeded progress.

*International Monetary Fund. Statement by the Managing Director to the IMFC, October 8, 2008.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2008/_100808a.pdf_