Public Information Notice

Public Information Notice (PIN) No. 10/33
February 26, 2010

Background

At its October 2009 Istanbul meeting, the International Monetary and Financial Committee (IMFC)—the IMF’s policy advisory committee—called on the Fund to review “its mandate to cover the full range of macroeconomic and financial sector policies that bear on global stability, and report back by the next Annual Meetings”. The Executive Board met on February 22, 2010 for an initial discussion of how to strengthen the Fund’s mandate to better equip the institution to safeguard global stability. Reconsideration of the institution’s mandate is part of a broader reform effort underway at the Fund, including on governance, which is key to its long-term legitimacy and effectiveness. In the coming months, the Board will have the opportunity to discuss papers focusing individually on the Fund’s role in the key areas of its mandate: surveillance, financing, and the stability of the international monetary system. The final report to the IMFC will also be informed by extensive outreach with country authorities, academics, and civil society.

Executive Board Assessment

Executive Directors noted that the global crisis has brought to the fore the need to clarify and improve the role of the Fund in promoting global economic and financial stability. They welcomed this initial discussion of issues pertaining to the Fund’s mandate, and offered preliminary views and comments to help guide staff work in the coming months. While many of the proposals are ambitious and subject to further careful study, Directors expressed willingness to consider them with an open mind. They underscored that progress in updating the Fund’s mandate should move in parallel with broader governance reform, particularly on the size and realignment of quotas.

Surveillance. Given the potential systemic impact of countries’ economic policies, Directors considered it useful to clarify what is expected of the Fund and its membership to preserve systemic stability. Most Directors supported, or were open to, exploring a formal Board decision on multilateral surveillance, including modalities for discussing reports that focus on the broader systemic effects of individual country policies. A number of Directors considered that the Fund already has the tools and the flexibility to undertake this role, including the updated Statement of Surveillance Priorities. Directors emphasized that bilateral surveillance should remain a cornerstone of Fund activities, with most seeing scope for further strengthening it, including through thematic Article IV consultations.

Financial sector remit. Directors stressed that effective surveillance of global stability depends on an enhanced understanding of macro-systemic and financial sector risks and their linkages. This would require close collaboration with other international bodies and standard setters, and greater availability of financial data. Many Directors supported making FSAP assessments mandatory for countries with systemically important financial systems. A number of other Directors considered it appropriate to maintain the voluntary, cooperative approach to the FSAP.

Capital flows. Many Directors considered that, given the role of capital flows in recent crises, there is a case for the Fund to enhance its analysis and oversight of capital movements. A number of Directors were of the view that an explicit mandate on capital account issues is not necessary for the Fund to advise members on related policies in this area. Further work will be undertaken to deepen the understanding of capital flows and their interrelationships with other policy areas, as well as exploring ways to promote the voluntary dissemination of cross-border capital account data. Whether, and how, the Fund could provide a useful multilateral platform on managing capital flows will also need to be examined more carefully.

Financing. For the Fund to remain relevant in today’s integrated world, its ability to respond to systemic liquidity needs is important. Directors emphasized that any new initiatives in this area require a thorough analysis of the underlying assumptions, need to be anchored in the Fund’s core mandate, and must be grounded in a careful assessment of recently-reformed lending instruments, including for concessional lending. Most Directors were interested in considering innovative means of global insurance, including exploring the merits of multi-country credit lines and support to regional liquidity pools. However, other proposals, such as collateral-based lending, were seen as less promising, requiring a fundamental change to the character and the role of the Fund. Directors cautioned that innovations should build in appropriate safeguards of Fund resources and ensure that the quality of the Fund’s instruments is not compromised in the interest of rapid response.

Low-income countries. Notwithstanding the recent overhaul of the lending framework for low-income countries, consideration could be given to ascertaining the scope for further strengthening the Fund’s role in responding to their diverse needs. Some Directors were in favor of examining the Fund’s role in the provision of insurance against global volatility and other shocks, including from the effects of climate change. A few others stressed that the Fund should focus on its core competency, avoiding overlaps with other multilateral institutions.

Global liquidity. Directors generally observed the growing tensions in the international reserves system arising from the lack of automatic adjustments for systemic current account surplus countries and the lack of a diversified menu of reserve assets. Many Directors supported further consideration of options for the Fund to ease these tensions, assessing reserve adequacy and offering alternatives to the accumulation of reserves. A number of Directors also encouraged work toward a more balanced multi-currency system over the longer run, possibly including an enhanced role for the SDR. Others pointed out that it would be unfeasible to develop such a role for the SDR without changing important and fundamental elements of the SDR. Directors acknowledged that these issues require much deeper debate and for the most part are long-term ones.

Legal framework. While considering that the Fund could achieve meaningful reforms of its mandate under the existing legal framework, most Directors were open to amending the Articles of Agreement where it proves necessary. In this context, some favored a two-stage approach involving first, the implementation of reforms that are possible under the Articles, to be followed if needed by reforms requiring amendment of the Articles, once the requisite broad consensus had been built. Some Directors cautioned against introducing new obligations that could infringe upon national sovereignty, noting risks of overstretching the Articles of Agreement.

Way forward. Directors broadly supported building consensus around an updated mandate, which would thereafter be given content through Executive Board decisions. Early engagement of the membership, including through the IMFC, would help secure the political commitment needed to move the difficult proposals forward. Directors noted that once the mandate discussion is advanced, the Fund will have to assess the implications for staff and budgetary resources.