## 2011 Triennial Surveillance Review and Review of the 2007 Decision: Concept Note (Section 1)

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---

### Introduction
- Prepared by the Strategy Policy and Review Department; approved by Reza Moghadam; dated February 14, 2011.
- Context:
  - Over the past three years, the Fund assisted members in addressing repercussions of the global financial crisis and tackled gaps in its surveillance framework exposed by the crisis.
  - The TSR provides an opportunity to take stock of steps taken and to assess recent experience with surveillance.
- Key objectives:
  - Primary objective: support the Fund’s ability to contribute to both country-level and global stability through its surveillance.
  - TSR will assess detection and communication of the spectrum of risks and transmission channels, inter alia to and from the financial sector.
  - TSR will consider effectiveness and efficiency in ensuring consistency and comprehensiveness across levels of surveillance (bilateral to multilateral), and assess candor and evenhandedness of Fund surveillance.
- Scope:
  - Review period focus: from late 2008 and the escalation of the global crisis.
  - Coverage includes bilateral surveillance and multilateral surveillance (global and cross-country) and related products (e.g., Regional Economic Outlooks; Cross-Cutting Thematic Reports; analytical inputs for fora such as the G-20).
  - Preliminary assessment of consequences of the Fund’s changing relationship with the G-20, the Financial Stability Board (FSB), and other fora for surveillance with both systemic and non-systemic members.
  - Increased recourse to outside expertise through use of an external advisory group.
- Legal framework:
  - Based on TSR findings, the legal framework for surveillance (including the 2007 Decision on Bilateral Surveillance) will be reviewed to assess whether it provides an effective framework to support international monetary stability.
  - Further feedback on options for reform would be sought.

### Previous Surveillance Reviews: Findings and Recommendations
- Building from previous reviews:
  - The 2008 TSR and subsequent IMF and IEO reviews highlighted needs to:
    - improve capacity to think the unthinkable;
    - connect the dots between global and country-level risks;
    - highlight concerns forcefully.
  - The 2008 TSR identified four high-priority areas: risk assessment, integration of macroeconomic and financial sector surveillance, integration of multilateral and bilateral surveillance, and strengthened exchange rate assessment.
- Findings from 2008 TSR (as summarized in Figure 1):
  - Risk Assessment: “Too little attention paid to risks”; recommendation: “More systematic risk assessment”, “Emphasis on tail events”.
  - Macro-Financial Linkages: need “More two way analysis of transmission real /financial sector”; recommendation: “Build up macro-financial expertise”.
  - Multilateral Perspective: “Large unmet demand for spillover analysis + cross-country analysis”; recommendation: “Better leverage WEO/ GFSR”.
  - Exchange Rate Assessment: “Needs better integration in macroeconomic assessment”; recommendation: “Improve methodology”, “Greater candor +evenhandedness”.
  - Other areas: repetition among bilateral surveillance products was counterproductive; recommendation: improve brevity, timeliness, clarity, and strategic delivery of key communications messages.
- Box 1 — Recent findings and recommendations on IMF surveillance (selected):
  - Initial Lessons from the Crisis (February 6, 2009): Fund did not provide strong or focused warnings prior to the crisis; led to establishment of the Vulnerabilities Exercise for Advanced Economies (VEA) and the Early Warning Exercise (EWE).
  - IEO Report on the Run-Up to the Global Economic and Financial Crisis (January 10, 2011): Fund provided few clear warnings about buildup of vulnerabilities; identified groupthink, intellectual capture, and governance problems; proposed five general recommendations including creating an environment encouraging candor and diverse/dissenting views.
  - IEO Report on the IMF’s Interactions with Member Countries (November 30, 2009): majorities of country groups want greater Fund presence in international policy coordination and spillover analysis; outreach beyond governments had done little to improve surveillance traction.
  - The Fund’s Mandate: An Overview (January 22, 2010) and Modernizing the Surveillance Mandate and Modalities (March 29, 2010): emphasized need for a more systemic perspective and better multilateral surveillance strategy; noted silo structure limited proactive identification of collective action.
- Ongoing reforms since 2008 (selected):
  - New vehicles developed: EWE, VEA, forthcoming Vulnerabilities Exercise for Low-Income Countries, Fiscal Monitor.
  - New cross-country and spillover outputs: Cross-Cutting Thematic Reports, participation in G-20 MAP, G-20 surveillance notes, forthcoming spillover reports for the five most systemically important economies.
  - Better integration of existing products: mandatory FSAPs, WEO/GFSR foreword/MD statement.
  - Revamped interdepartmental review and collaboration processes; increased financial sector expertise and analysis; stepped-up communications and outreach; innovative Article IV report formats.
  - Review will take stock of these changes, recognizing only preliminary views will be possible for the most recent initiatives.

### 2011 TSR Approach
- Themes (four key themes to be examined):
  - Risk assessment:
    - Assess progress in how risks are treated and communicated, with focus on surveillance of systemic risks and transmission channels of shocks.
    - Consider distinction between plausible and tail risks.
    - Review contribution and integration of new tools including the EWE and vulnerabilities exercises into Article IV reports and other surveillance products.
  - Financial sector risks and their propagation:
    - Focus on strengthening understanding of financial sector risks and two-way transmission between financial risks and the real economy at country and cross-country levels.
    - Review progress in data sharing in collaboration with bodies such as the FSB and in filling data gaps identified by the G-20.
  - Integrating multilateral and bilateral surveillance (to be led by an external expert):
    - Assess how to bridge gaps across levels of surveillance (bilateral, cross-country, global) to ensure consistency and proper identification of inwards and outwards spillovers.
    - Examine how surveillance and related products fit together and whether new products address gaps or create overlaps.
    - Review recent reforms supporting greater integration between the WEO and GFSR, introduction of the Fiscal Monitor, expanded vulnerability assessments, cross-cutting thematic reports, and initial impressions of forthcoming spillover analyses.
    - Review implications of the Fund’s changing relationship with outside fora including the G-20 and FSB, and the Fund’s input into the G-20 Mutual Assessment Process.
  - Exchange rate assessments:
    - Assess candor, evenhandedness and transparency of exchange rate assessments; whether exchange rate assessment is embedded in staff analysis and whether spillovers are adequately discussed.
    - Explore interactions between staff and authorities on exchange rate assessments.
- Background Studies (four key issues; two to be prepared by external experts):
  - Euro Area (external expert): evaluate whether bilateral surveillance in the run-up to the euro area crisis covered sovereign debt risks and financial sector vulnerabilities; adequacy of consideration of intra–euro area developments and current account imbalances; candor and timeliness of policy recommendations; lessons for surveillance framework.
  - Financial sector crisis strategy and response (external expert): assess effectiveness of Fund contributions to financial sector crisis response; timeliness, clarity, analytical grounding, candor; limiting factors; lessons to reinforce Fund’s mandate on global financial stability issues.
  - Stimulus and exit policies: assess usefulness of Fund policy advice, consistency of analytical framework across countries balancing growth/employment and sustainability, consideration of risks and spillovers, and candor/evenhandedness.
  - Low-Income Countries: assess whether Fund policy advice is sufficiently tailored to LICs’ priorities and emerging needs.
- Effectiveness dimensions to be examined:
  - Candor: consider perceptions of candor and constraints (pressures from members, “star-struck” deference, internal incentives); tension between public candor and confidential advisory role.
  - Evenhandedness: assess evenhandedness and perceptions across countries/groups and whether advice is equally specific across membership.
  - Encouraging a diversity of views: consider direct external inputs into surveillance (including routine input from eminent outside experts in systemic cases) and measures to support staff diversity of views.
  - Political and social context: consider degree to which staff accounts for unemployment, inequality, and poverty in surveillance.
- Review of the legal framework:
  - TSR will inform concurrent review of the legal framework for surveillance, including the 2007 Decision on Bilateral Surveillance.
  - Review will consider effectiveness of current legal framework in supporting effective Fund surveillance and options for reform (e.g., support integration of bilateral and multilateral surveillance; clearer guidance on conduct of members’ policies relevant for IMF surveillance).

### Framework for the 2011 Review
- Methodology and tools:
  - Review of staff reports:
    - Recent Article IV reports on a 50-country sample representative of the membership will be reviewed to collect standardized qualitative information across a range of questions.
    - Multilateral surveillance and related products will also be reviewed.
  - Surveys:
    - Will gauge views of country authorities; Executive Board members (as proxy for international community); staff involved in bilateral (Article IV mission chiefs), cross-country and multilateral surveillance; financial market participants; media/think tanks; and CSOs.
  - External Experts:
    - Expected to contribute independent views on key issues and prepare reports based on structured interviews with country authorities; findings provided to the Board in full.
  - Background Studies:
    - Cross-departmental teams will assess performance on key developments in the review period, reviewing Article IV Staff Reports, multilateral and regional products, internal documents (briefing papers, policy consultation notes, back-to-office reports), outside analyses, and interviews with mission chiefs and stakeholders.
  - Interviews/Outreach:
    - Will be used to explore early findings in more depth.
  - Advisory Group:
    - Additional external input through an Advisory Group will provide an independent check on staff’s analysis and recommendations.

### Composition of the review group
- The group will have 10–12 representatives and will comprise a diverse range of independent experts with broad regional representation and policy experience.
- Their views will be shared with the Board, and published as part of the TSR.

### Issues for discussion
- Do Directors agree that the overall objective and the proposed themes provide the basis for a useful review of the effectiveness of surveillance?
- Do Directors agree with the methods that the review will employ?

*Source: INTERNATIONAL MONETARY FUND, "2011 Triennial Surveillance Review and Review of the 2007 Decision: Concept Note," Prepared by the Strategy Policy and Review Department, Approved by Reza Moghadam, February 14, 2011.*

### Section 1

### 2011 Triennial Surveillance Review and Review of the 2007 Decision: Concept Note (Section 1)

### Introduction
- Document prepared by the Strategy Policy and Review Department; approved by Reza Moghadam; dated February 14, 2011.
- Context:
  - Over the past three years, the Fund has assisted members in addressing repercussions of the global financial crisis and tackled gaps in its surveillance framework exposed by the crisis.
  - This TSR provides an opportunity to take stock of steps taken and to assess recent experience with surveillance.
- Key objectives:
  - Primary objective: support the Fund’s ability to contribute to both country-level and global stability through its surveillance.
  - TSR will assess detection and communication of the spectrum of risks and transmission channels, inter alia to and from the financial sector.
  - TSR will consider effectiveness and efficiency in ensuring consistency and comprehensiveness across levels of surveillance (bilateral to multilateral), and assess candor and evenhandedness of Fund surveillance.
- Scope:
  - Review period focus: from late 2008 and the escalation of the global crisis.
  - Coverage includes bilateral surveillance and multilateral surveillance (global and cross-country) and related products (e.g., Regional Economic Outlooks; Cross-Cutting Thematic Reports; analytical inputs for fora such as the G-20).
  - Preliminary assessment of consequences of the Fund’s changing relationship with the G-20, the Financial Stability Board (FSB), and other fora for surveillance with both systemic and non-systemic members.
  - Increased recourse to outside expertise through use of an external advisory group.
- Legal framework:
  - Based on TSR findings, the legal framework for surveillance (including the 2007 Decision on Bilateral Surveillance) will be reviewed to assess whether it provides an effective framework to support international monetary stability.
  - Further feedback on options for reform would be sought.

### Previous Surveillance Reviews: Findings and Recommendations
- Building from previous reviews:
  - The 2008 TSR and subsequent IMF and IEO reviews highlighted needs to:
    - improve capacity to think the unthinkable;
    - connect the dots between global and country-level risks;
    - highlight concerns forcefully.
  - The 2008 TSR identified four high-priority areas: risk assessment, integration of macroeconomic and financial sector surveillance, integration of multilateral and bilateral surveillance, and strengthened exchange rate assessment.
- Findings from 2008 TSR (as summarized in Figure 1):
  - Risk Assessment: “Too little attention paid to risks”; recommendation: “More systematic risk assessment”, “Emphasis on tail events”.
  - Macro-Financial Linkages: need “More two way analysis of transmission real /financial sector”; recommendation: “Build up macro-financial expertise”.
  - Multilateral Perspective: “Large unmet demand for spillover analysis + cross-country analysis”; recommendation: “Better leverage WEO/ GFSR”.
  - Exchange Rate Assessment: “Needs better integration in macroeconomic assessment”; recommendation: “Improve methodology”, “Greater candor +evenhandedness”.
  - Other areas: repetition among bilateral surveillance products was counterproductive; recommendation: improve brevity, timeliness, clarity, and strategic delivery of key communications messages.
- Box 1 — Recent findings and recommendations on IMF surveillance (selected):
  - Initial Lessons from the Crisis (February 6, 2009): Fund did not provide strong or focused warnings prior to the crisis; led to establishment of the Vulnerabilities Exercise for Advanced Economies (VEA) and the Early Warning Exercise (EWE).
  - IEO Report on the Run-Up to the Global Economic and Financial Crisis (January 10, 2011): Fund provided few clear warnings about buildup of vulnerabilities; identified groupthink, intellectual capture, and governance problems; proposed five general recommendations including creating an environment encouraging candor and diverse/dissenting views.
  - IEO Report on the IMF’s Interactions with Member Countries (November 30, 2009): majorities of country groups want greater Fund presence in international policy coordination and spillover analysis; outreach beyond governments had done little to improve surveillance traction.
  - The Fund’s Mandate: An Overview (January 22, 2010) and Modernizing the Surveillance Mandate and Modalities (March 29, 2010): emphasized need for a more systemic perspective and better multilateral surveillance strategy; noted silo structure limited proactive identification of collective action.
- Ongoing reforms since 2008 (selected):
  - New vehicles developed: EWE, VEA, forthcoming Vulnerabilities Exercise for Low-Income Countries, Fiscal Monitor.
  - New cross-country and spillover outputs: Cross-Cutting Thematic Reports, participation in G-20 MAP, G-20 surveillance notes, forthcoming spillover reports for the five most systemically important economies.
  - Better integration of existing products: mandatory FSAPs, WEO/GFSR foreword/MD statement.
  - Revamped interdepartmental review and collaboration processes; increased financial sector expertise and analysis; stepped-up communications and outreach; innovative Article IV report formats.
  - Review will take stock of these changes, recognizing only preliminary views will be possible for the most recent initiatives.

### 2011 TSR Approach
- Themes (four key themes to be examined):
  - Risk assessment:
    - Assess progress in how risks are treated and communicated, with focus on surveillance of systemic risks and transmission channels of shocks.
    - Consider distinction between plausible and tail risks.
    - Review contribution and integration of new tools including the EWE and vulnerabilities exercises into Article IV reports and other surveillance products.
  - Financial sector risks and their propagation:
    - Focus on strengthening understanding of financial sector risks and two-way transmission between financial risks and the real economy at country and cross-country levels.
    - Review progress in data sharing in collaboration with bodies such as the FSB and in filling data gaps identified by the G-20.
  - Integrating multilateral and bilateral surveillance (to be led by an external expert):
    - Assess how to bridge gaps across levels of surveillance (bilateral, cross-country, global) to ensure consistency and proper identification of inwards and outwards spillovers.
    - Examine how surveillance and related products fit together and whether new products address gaps or create overlaps.
    - Review recent reforms supporting greater integration between the WEO and GFSR, introduction of the Fiscal Monitor, expanded vulnerability assessments, cross-cutting thematic reports, and initial impressions of forthcoming spillover analyses.
    - Review implications of the Fund’s changing relationship with outside fora including the G-20 and FSB, and the Fund’s input into the G-20 Mutual Assessment Process.
  - Exchange rate assessments:
    - Assess candor, evenhandedness and transparency of exchange rate assessments; whether exchange rate assessment is embedded in staff analysis and whether spillovers are adequately discussed.
    - Explore interactions between staff and authorities on exchange rate assessments.
- Background Studies (four key issues; two to be prepared by external experts):
  - Euro Area (external expert): evaluate whether bilateral surveillance in the run-up to the euro area crisis covered sovereign debt risks and financial sector vulnerabilities; adequacy of consideration of intra–euro area developments and current account imbalances; candor and timeliness of policy recommendations; lessons for surveillance framework.
  - Financial sector crisis strategy and response (external expert): assess effectiveness of Fund contributions to financial sector crisis response; timeliness, clarity, analytical grounding, candor; limiting factors; lessons to reinforce Fund’s mandate on global financial stability issues.
  - Stimulus and exit policies: assess usefulness of Fund policy advice, consistency of analytical framework across countries balancing growth/employment and sustainability, consideration of risks and spillovers, and candor/evenhandedness.
  - Low-Income Countries: assess whether Fund policy advice is sufficiently tailored to LICs’ priorities and emerging needs.
- Effectiveness dimensions to be examined:
  - Candor: consider perceptions of candor and constraints (pressures from members, “star-struck” deference, internal incentives); tension between public candor and confidential advisory role.
  - Evenhandedness: assess evenhandedness and perceptions across countries/groups and whether advice is equally specific across membership.
  - Encouraging a diversity of views: consider direct external inputs into surveillance (including routine input from eminent outside experts in systemic cases) and measures to support staff diversity of views.
  - Political and social context: consider degree to which staff accounts for unemployment, inequality, and poverty in surveillance.
- Review of the legal framework:
  - TSR will inform concurrent review of the legal framework for surveillance, including the 2007 Decision on Bilateral Surveillance.
  - Review will consider effectiveness of current legal framework in supporting effective Fund surveillance and options for reform (e.g., support integration of bilateral and multilateral surveillance; clearer guidance on conduct of members’ policies relevant for IMF surveillance).

### Framework for the 2011 Review
- Methodology and tools:
  - Review of staff reports:
    - Recent Article IV reports on a 50-country sample representative of the membership will be reviewed to collect standardized qualitative information across a range of questions.
    - Multilateral surveillance and related products will also be reviewed.
  - Surveys:
    - Will gauge views of country authorities; Executive Board members (as proxy for international community); staff involved in bilateral (Article IV mission chiefs), cross-country and multilateral surveillance; financial market participants; media/think tanks; and CSOs.
  - External Experts:
    - Expected to contribute independent views on key issues and prepare reports based on structured interviews with country authorities; findings provided to the Board in full.
  - Background Studies:
    - Cross-departmental teams will assess performance on key developments in the review period, reviewing Article IV Staff Reports, multilateral and regional products, internal documents (briefing papers, policy consultation notes, back-to-office reports), outside analyses, and interviews with mission chiefs and stakeholders.
  - Interviews/Outreach:
    - Will be used to explore early findings in more depth.
  - Advisory Group:
    - Additional external input through an Advisory Group will provide an independent check on staff’s analysis and recommendations.

*Source: INTERNATIONAL MONETARY FUND, "2011 Triennial Surveillance Review and Review of the 2007 Decision: Concept Note," Prepared by the Strategy Policy and Review Department, Approved by Reza Moghadam, February 14, 2011.*

### Section 2

### _021411 - Section 2

### Composition of the review group
- "This group will have 10–12 representatives and will comprise of a diverse range of independent experts with broad regional representation and policy experience."
- "Their views will be shared with the Board, and published as part of the TSR."

### Issues for discussion
- "Do Directors agree that the overall objective and the proposed themes provide the basis for a useful review of the effectiveness of surveillance?"
- "Do Directors agree with the methods that the review will employ?"

*Source: _021411 - Section 2*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_021411.pdf_