## Managing Director’s Statement on Strengthening Surveillance

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**Canonical URL:** [Managing Director’s Statement on Strengthening Surveillance](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_102711.pdf)

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### Interconnectedness
- Issue: Crisis propagation underlined need for bilateral and multilateral surveillance to analyze linkages and spillovers across sectors (real, financial, fiscal) and countries, and to account for interplay of global, regional, and country developments.
- Actions:
  - Upcoming WEOs will cast the chapter on regional developments around policy spillovers and interactions across countries in different regions.
  - Spillover reports will be continued next year, with the agreement of the relevant members, for the systemic five economies (China, the Euro Area, Japan, the United Kingdom and the United States) with their Article IVs; reports will be tailored to key issues for each country. After the second round of the pilot, staff will take stock and decide on future modalities.
  - Staff will engage authorities in key financial centers to deepen understanding of financial interconnections, propagation of shocks, and policy implications.
  - Spillovers and cross-country experiences will receive more coverage, as appropriate, in Article IVs (with support of the review process) and in REOs, with emphasis on intra-regional spillovers; goal is to mainstream spillover analysis in relevant Article IVs.
  - Work will continue on capital flows and global liquidity and their implications.
  - Aim to have Article IV consultations for interconnected countries (for example with strong financial links) discussed by the Board in clusters.

### Risk assessments
- Issue: Need to improve processes to focus on risks, identify vulnerabilities, and transmission channels; ensure policy discussions weigh insurance against potential risks and mitigation policies.
- Actions:
  - Starting with the next issue, WEOs will pay greater attention to risks around the baseline.
  - Relevant analyses and findings from vulnerabilities and early warning exercises, the WEO and GFSR must be taken up in policy discussions with country authorities; tools underlying multilateral surveillance will be disseminated to area departments.
  - The upcoming revised surveillance guidance note will stress the need for an explicit discussion of risks in Article IV consultations; this could be supported by risk assessment matrices in Article IV reports akin to those used in financial sector stability assessments.

### Financial stability
- Issue: Financial sector developments can ignite and propagate crises rapidly; need systematic integration of financial stability analysis into surveillance.
- Actions:
  - Staff will prepare for the Executive Board and IMFC a strategic plan for financial sector surveillance covering objectives, identifying vulnerabilities and risks, transmission channels such as macro-financial linkages, and policy responses including macro-prudential policies.
  - In absence of sufficient support for increasing frequency of mandatory FSAPs for systemic economies, a financial expert will be assigned to each Article IV team involving systemically important financial sectors; additional resources will be mobilized for these countries and others as needed (e.g., in case of mounting financial vulnerabilities).
  - Coverage of financial issues in Article IVs will be strengthened by (i) stepped-up training and dissemination of vetted tools (e.g., stress-tests) and good practices, including LIC-specific issues, so country teams can effectively use them, and (ii) cross-country thematic studies (e.g., on interconnectedness and role of financial deepening). Staff will intensify efforts to draw cross-country lessons from FSAPs.
  - Staff will continue to support the G-20 data gaps initiative and will bring forward to 2012 the review of data provision to the Fund for surveillance (including review of data for financial sector surveillance and COFER).

### External stability
- Issue: External stability, including exchange rate assessments, remains core to the mandate; coverage, consistency, and transparency of external stability assessments need enhancement.
- Actions:
  - Proposal to publish, with each WEO cycle, a multilaterally-consistent assessment of external balances, building inter alia on a revamped CGER; staff will brief the Board on modalities and methodological refinements and produce a pilot by the next spring meetings.
  - Assessments in this document and in Article IVs will take a broad view of external stability, encompassing balance sheets and including coverage of exchange rates, capital flows, and reserve policies.

### Legal framework
- Issue: Effective surveillance in an interconnected world requires modernizing the Fund’s legal framework to recognize interconnections and set clear expectations for evenhanded operations.
- Actions:
  - A follow-up paper on the legal framework will be taken up early next year; it will lay out concrete suggestions for a new decision aiming for better integration of bilateral and multilateral surveillance and a broader approach to global stability. Exchange rate issues will remain central to Article IV discussions, whose scope should also encompass other issues relevant to stability of a member and of the global economy.

### Traction
- Issue: Improved surveillance quality must be matched by candid, evenhanded, clearly communicated, and appropriately tailored advice; continued engagement with other fora is necessary.
- Actions:
  - Continue practice of preparing a Consolidated Multilateral Surveillance Report for discussion at the IMFC to foster ministerial engagement.
  - Revised surveillance guidance note will urge better coverage of unemployment, inequality and inclusive growth where macro-critical, leveraging expertise in other organizations.
  - Country teams will exchange views with authorities on key issues for discussion prior to Article IV missions, without compromising capacity to raise relevant and sometimes difficult issues.
  - Review process will ensure country papers report on implementation of past advice given in Article IVs and key FSAP recommendations to enhance accountability.

### Resource requirements
- Assessment:
  - Resource implications can be contained; some actions entail shifts in emphasis (e.g., toward risk analysis and away from issues of lesser relevance) without measurable costs.
  - Initiatives such as spillover reports, publishing multilaterally-consistent external balance assessments, the CMSR and increased financial expert involvement will entail additional cost.
  - Preliminary estimate of the net additional resources needed for future years (above what is already factored in the current medium-term budget) is $2.6 million.
  - The gross cost of the biggest ticket items in the TSR is just over $5million (part of the cost of the spillover reports was met through reallocations and overtime in FY 2011).
  - Confidence expressed that the 2013 budget discussion will be able to identify savings to cover additional resource implications.

### Conclusion and follow-up
- Commitment to move from diagnosis to action and to improve surveillance in near term while recognizing long-term nature of making surveillance interconnected with the world economy.
- Staff will prepare a short update on progress on the agenda a year from now; cannot wait until the next triennial review in 2014 to assess performance.
- Management actions to promote efficient and effective Fund: lead by example on candor and evenhandedness; measures to progress cross-departmental collaboration, promote diversity of views and staff, address mobility issues; forthcoming work program will reflect imperative to focus on critical policy areas.

_Managing Director’s Statement on Strengthening Surveillance — 2011 Triennial Surveillance Review_

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_102711.pdf_