Public Information Notice: Strengthening Surveillance--Further Considerations

September 10, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On August 20, 2003, the Executive Board of the International Monetary Fund (IMF) took stock of past and current initiatives to strengthen the IMF's surveillance framework and had a preliminary exchange of views on ways to carry the agenda forward.


Many initiatives to strengthen IMF surveillance have been introduced in the late 1990s and early 2000s. During the 2002 biennial review of IMF surveillance and again in March 2003, the Executive Board discussed how the framework for IMF surveillance had been shaped by these initiatives.2

Executive Board Assessment

Executive Directors welcomed the opportunity to pursue their discussions on the framework and conduct of Fund surveillance, which is central to the Fund's efforts to help member countries sustain growth, increase their resilience to shocks, and avoid crises.

Directors recalled their March 2003 discussion on enhancing the effectiveness of surveillance. On that occasion, Directors were generally of the view that the strengthened architecture of surveillance put in place in recent years continued to provide a sound framework, and that the first priority was to take full advantage of the potential of this framework by ensuring sustained progress in its implementation and adequate linkages among various surveillance goals. Directors had also identified a number of areas in which further work and reflection would be useful, including the calibration of policies to reduce vulnerabilities, analysis of political factors, attention to spillovers from the policies of systemically or regionally important countries, candor and transparency, surveillance in program countries, and assessments of the effectiveness of surveillance.

Several Directors would have welcomed a broad discussion of the framework and conduct of surveillance, stressing in particular the importance of surveillance over systemically and regionally important countries. However, this discussion focused on the role of surveillance in providing fresh assessments of economic conditions and policies in member countries, especially those which are or have been in Fund programs. Directors reviewed the challenges the Fund faces in maintaining a fresh perspective, and assessed the range of initiatives the Fund has set in motion to address these challenges. With full regard to the stock-taking nature of the present exercise in view of the 2004 biennial surveillance review, Directors had a preliminary exchange of views on avenues for strengthening these initiatives.

Directors stressed that periodic reassessments of economic conditions and policies are necessary in all members. Directors noted that for countries with Fund-supported programs, it is essential to step back from the program framework at regular intervals and reconsider the economic strategy underlying the program. For other members, in order to avoid "tunnel vision", it is equally important to augment day-to-day surveillance activities periodically with reflection on the broad thrust of the Fund's analysis and policy recommendations. This might be particularly needed in those members whose policies have a systemic or regional impact or those members which experience a build-up of vulnerabilities to shocks, face significant changes in domestic or external conditions, or show a chronic inability to realize their growth potential. Directors stressed that, in these strategic exercises, the Fund should take full advantage of its knowledge of experiences in a broad range of countries, and called for more cross-country analyses.

Directors observed that periodic Article IV consultations were the cornerstone of Fund surveillance, but also underscored that effective surveillance requires mechanisms that operate at higher frequency than Article IV consultations. In this regard, they noted that sudden changes in global or regional economic circumstances, in the domestic situation, or in international capital market conditions can have an immediate and powerful impact on economic developments in individual member countries. Directors remarked that, in practice, a number of factors may work against undertaking a thorough reassessment of strategy at regular intervals, and that it was therefore necessary to apply the procedures designed to require the taking of a step back from the press of daily activities every so often to ensure that reassessments bring a new perspective. Directors considered that the main factors that might constrain in-depth reassessments were reticence to criticize past policy advice, an inclination to give the benefit of the doubt to the policies of members with strong track records, concerns about damaging confidence in existing policies, resource constraints, and political pressures. Some Directors also noted that such forces might be more keenly felt in a program environment.

Directors also emphasized the need for country authorities' being willing to reassess the adequacy of the policy framework in the face of changing conditions and to engage in discussions of broad issues relevant for Fund surveillance that go beyond the specific details of program reviews.

Against these broad considerations, Directors generally thought that the current framework of surveillance, if consistently implemented, and enhanced by a range of recent initiatives, had the capacity to deliver fresh assessments of economic conditions and policies on a regular basis in each member country. They called for staff to monitor carefully the implementation and impact of the reforms now underway and ensure their systematic implementation across the membership. Some directors stressed that the implementation of recent initiatives should have priority over further steps to strengthen the surveillance policy framework.

Directors noted that several measures have been taken to promote reassessments of members' economic strategies in Article IV consultations:

  • Tools have been introduced into Article IV consultations to compel reassessments and boost analytical rigor. These include the strengthened framework for debt sustainability assessments; the Financial Sector Assessment Program and related instruments, which contribute to deeper analyses of financial sector strengths and vulnerabilities; and the Reports on the Observance of Standards and Codes, which provide assessments of components of member's institutional framework against internationally recognized standards. In general, these tools aim at ensuring that actual and incipient financial and balance-sheet fragilities would receive adequate attention.

  • The internal review process has been modified to enhance independent reviews of the strategy recommended by the relevant area department toward each member country. Modifications include greater use of early consultations between area and functional departments, more systematic incorporation of lessons from cross-country experiences, and greater focus on strategic issues.

  • Steps have been taken to clarify the substantive content of Article IV consultations undertaken in a program context. Rules guiding their timing were modified to allow them to take place when a reassessment of economic strategy is most useful. A few area departments have experimented with alternative models for the conduct of Article IV consultations in program countries.

Based on early feedback from Article IV consultations conducted under alternative models, Directors encouraged area departments to pursue these experiments, but stressed the need for flexibility in this area to reflect differences in members' circumstances—including in their administrative capacity—and in departments' resource constraints. Directors looked forward to a comprehensive review of these experiments, and of the conduct of surveillance in program countries more generally, in the context of the 2004 biennial review of surveillance.

Directors observed that, to complement Article IV consultations, several high-frequency multilateral surveillance procedures were now available to take stock of significant changes in world economic and financial conditions and in countries' domestic circumstances. Due consideration to integrating these high-frequency procedures with Article IV consultations would help integrate multilateral and bilateral surveillance and strengthen surveillance generally. These instruments include the World Economic and Market Development sessions, which focus on economic and financial developments in the Fund's largest members and the impact of these developments on the rest of the membership; and informal meetings on country matters, as well as ad hoc informal Board sessions on individual countries. Directors pointed also to the periodic vulnerability assessment exercise, which has been progressively refined since its introduction in May 2001. This exercise provides a platform for an independent assessment by relevant functional departments of key risks in individual countries, offers an opportunity to exchange views on analyses of vulnerability across different regions, and provides inputs for bilateral surveillance activities and program design. Several Directors saw merit in applying this exercise to advanced economies and not just emerging market economies. Other Directors pointed out that developments in advanced economies were examined at high frequencies through other mechanisms.

Directors considered that candor and transparency were essential dimensions of surveillance, and took note of efforts to improve information provided to the Executive Board and to boost publication of staff reports. Directors stressed that candor in staff presentations is crucial to enabling the Board to form an independent judgment on analysis and recommendations, and that there was a need for incentives to staff to be more candid. They indicated that transparency was critical to allowing the public to develop informed views on the Fund's activities, which could then feed back into the Fund's work. Some Directors noted, however, that there may be trade-offs between transparency and candor. Directors also saw a need for staff to consider ways to improve communication with the authorities and to present their advice better; and depending on the circumstances, to better engage civil society in each country.

Directors observed that the Fund faced a difficult task implementing the surveillance framework systematically across the membership, not least because of the framework's substantial evolution over recent years. Directors considered that implementation challenges were concentrated in the following areas: data availability, realism of baseline scenarios, analysis of alternative scenarios, integration of bilateral and multilateral surveillance, attention to systemic or regional spillovers from domestic policies, early integration of vulnerability assessments, impact of developments in international capital markets, greater focus on the evaluation of cushions against shocks, follow-through on recommendations of FSAP exercises and ROSCs, and use of outside expertise. Directors agreed that strengthening surveillance will require diligent work by the Fund in its daily operations, as well as the close and active cooperation of its members.

Directors considered that maintaining a reasonable degree of stability of the surveillance framework would help the Fund tackle the above implementation challenges and thus contribute to strengthening Fund surveillance. At the same time, Directors stressed that the framework of surveillance must continue to evolve to reflect lessons from experience and changes in the global environment, and it was felt there was scope for further steps to strengthen the current surveillance framework.

Balancing these considerations, Directors had a preliminary exchange of views on a few ways to strengthen further the surveillance policy framework:

  • Directors discussed various options for achieving greater operational separation between program and surveillance activities. Many Directors expressed concern that surveillance would be weakened, rather than strengthened, by operational separation between surveillance and program work. They noted that it was important for the Fund to speak with one voice. These Directors also observed that staff rotation already ensured that a fresh perspective was brought to bear on analysis of members' economic situation every 2 to 3 years—although there was also some concern that rotation may in fact be too frequent. A number of other Directors, on the other hand, considered that further consideration of some of these options would be useful, in the context of the 2004 biennial surveillance review.

  • A number of Directors supported further exploration of circumstances under which the Fund could make greater use of specialized expertise from outside the institution, though a number of others expressed serious doubts about the effectiveness of this approach, noting that it could encroach upon the accountability of the institution. While some Directors advocated using outside experts to help design the 2004 biennial review of surveillance to ensure that the review benefits from an independent perspective, some others expressed reservations about this proposal: they preferred to maintain a clear separation between internal and external reviews, and pointed out that the Independent Evaluation Office could provide useful ex-post independent assessments of the surveillance process.

  • Directors encouraged staff to reflect further on how the Fund could best convey its views and recommendations to members on a confidential basis where there is high concern about vulnerability and sustainability. A number of Directors saw merit in developing a more frequent, structured process for surveillance in these cases. Others were more cautious in this regard, pointing to the risks of undermining confidence in difficult circumstances.

  • A number of Directors agreed that it would be opportune to produce an integrated guidance note to staff on vulnerability assessments, which would summarize best practices and focus on the connections to be made between the numerous elements involved in the assessments. Several Directors emphasized the importance of integrating balance sheet analysis in vulnerability analysis. Some Directors also encouraged the provision of more statistical information in surveillance papers to facilitate decision making at the Board. A few Directors stressed that it was important for staff to work toward having at hand all of the appropriate information on the level and structure of outstanding debt stocks to facilitate debt sustainability assessments at short notice.

  • Directors supported the proposal to reassess surveillance in low-income countries in light of the frameworks provided by the Poverty Reduction Strategy Papers and arrangements under the Poverty Reduction and Growth Facility. Generally, they saw merit in re-evaluating how Fund surveillance can best contribute to the development of conditions propitious to sustained high growth in these countries.

Directors looked forward to more attention being paid in subsequent studies, including those by the IEO, to assessing the impact of the innovations aimed at strengthening surveillance, including the quality of the Fund's advice and the effectiveness of the Fund in meeting the central objective of changing the views of the authorities and getting them to act on the Fund's advice.

Directors will come back to the issues discussed today, as well as to other matters previously identified such as effective surveillance over the policies of systemically important countries, in the context of the 2004 biennial review of surveillance.

1 See paper, Strengthening Surveillance—Further Considerations.
2 See Enhancing the Effectiveness of Surveillance: Operational Responses, the Agenda Ahead, and Next Steps, PIN No. 03/50.


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