Public Information Notice: IMF Executive Board Reviews Surveillance: Making IMF Surveillance as Interconnected as the Global Economy

October 31, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 11/130
October 31, 2011

On October 24, 2011, the Executive Board of the International Monetary Fund (IMF) concluded a comprehensive review of the IMF's surveillance activities.


Triennial Surveillance Reviews (TSR) examine the way the IMF conducts its analysis of economic and financial developments and formulates policy advice, in order to make recommendations for improvement. This year’s review assessed multilateral surveillance as well as bilateral surveillance (the regular check of individual countries’ economic and financial health). The findings and recommendations are based on a wide range of research and feedback. In addition to in-depth staff studies, examination of country reports, stakeholder surveys, and interviews, the TSR employed extensive external inputs, including studies by external consultants on various aspects of surveillance—the euro area, financial stability, and the coverage, consistency, and coherence of surveillance—and commentaries by Joseph E. Stiglitz and Martin Wolf. For the first time, the review’s findings and recommendations were also assessed and endorsed by an independent External Advisory Group.

While pre-crisis surveillance suffered from a number of weaknesses, the 2011 TSR background and overview papers found that Fund advice during the crisis was seen as timely and responsive by country authorities. The crisis catalyzed important improvements in surveillance which are already under way, but scope for progress remains. In particular, more could be done to promote interconnectedness, risk assessment, financial stability, external stability, and the traction of surveillance.

Alongside the TSR, a staff paper reviewing the legal framework for surveillance found it falling short of supporting stronger and more integrated surveillance. This paper argues that the current legal framework does not sufficiently account for economic realities nor adequately integrate bilateral and multilateral surveillance. An improved legal framework would also help strengthen its legitimacy. The paper discusses options for reform, including: (i) amending the Articles of Agreement1 and (ii) adopting an integrated surveillance decision that would replace the 2007 Decision on Bilateral Surveillance, cover multilateral surveillance as well as bilateral surveillance, and foster greater integration between the two activities.

Against this background, the Managing Director has proposed a surveillance action plan to make surveillance more effective, candid, and evenhanded.

Executive Board Assessment

Directors welcomed the comprehensive Triennial Surveillance Review (TSR) and the review of the legal framework for surveillance. They appreciated the broad scope of the reviews, which, for the first time, included multilateral surveillance, and welcomed the stepped-up use of external inputs. Directors broadly agreed with the main conclusions of the review. In particular, they agreed that significant progress has been made in the way surveillance is conducted since the 2008 TSR, but that important gaps remain.

Directors concurred that six areas of work deserve particular attention, namely (i) interconnections; (ii) risk assessments; (iii) financial stability; (iv) external stability; (v) legal framework; and (vi) traction. Directors welcomed the Managing Director’s statement on strengthening surveillance and considered that the concrete measures it lays out, building on the review’s recommendations, would support progress in surveillance. Therefore, they broadly endorsed the action plan described in the statement, while noting differences of views on a number of points discussed below. They also endorsed the corresponding operational priorities for 2011–14 as proposed by staff. Several Directors noted the need for measures to further strengthen surveillance, including addressing data gaps.

Interconnections. Directors saw merit in strengthening the link between the global and country level analyses to inform policy recommendations at the bilateral level. They agreed that the analysis of outward spillovers, such as employed in spillover reports for five systemic economies, has been a useful contribution to Fund surveillance and should be repeated for them before taking stock in 2012. In this context, a number of Directors suggested integrating this analysis, as appropriate, in existing multilateral or bilateral reports. While Directors strongly supported further use of cross country analysis, some Directors noted potential difficulties in bringing interconnected countries to the Board in clusters.

Risk assessments. Directors agreed on the need to pay more attention to risks and their transmission channels in bilateral and multilateral surveillance, while not losing attention to the baseline. In this regard, Directors generally supported staff’s proposals, including on better drawing on the results of existing risk assessment tools, but a few Directors cautioned that communication on tail risks needs to be handled carefully.

Financial stability. Directors emphasized the importance of continued progress in financial sector surveillance. They recommended adopting a strategic work plan, promoting work on financial interconnections, strengthening financial sector analysis in bilateral surveillance, and addressing data gaps, while encouraging a close coordination with other international bodies. Directors supported increasing the participation of financial sector experts in Article IV missions for economies with systemic financial sectors or with high financial sector vulnerabilities. They considered it a welcome alternative to an increased frequency of mandatory financial sector assessments under the FSAP for economies with systemic financial sectors.

External stability. Directors supported efforts to broaden the analysis of external stability beyond exchange rates, while emphasizing that exchange rate analysis should not be diluted in the process. In this regard, most agreed that the Fund should regularly publish multilaterally consistent staff assessments of external balances, building on refined exchange rate assessments conducted by the Consultative Group on Exchange Rates (CGER). A number of Directors stressed that the limitations to such analysis should be recognized and that due attention needs to be paid to communication issues so as not to adversely affect financial markets. Some other Directors did not see a need to publish such assessments in light of the market sensitivity of such information.

Legal framework. Most Directors considered it appropriate to update the current legal framework to enable a more effective conduct of surveillance. Most Directors supported, or were open to, the adoption of a new integrated surveillance decision, which would encompass both bilateral and multilateral surveillance and reflect a broader approach to global stability, and looked forward to the follow-up paper on the integrated surveillance decision in early 2012. Many Directors supported, or were open to considering, the option of amending the Articles of Agreement. A significant minority of the Board, however, did not support or had reservations about the need to revamp the legal framework, considering that there is enough flexibility within the current system.

Traction. Directors agreed that traction has to be earned. In addition to quality, they were of the view that candor, evenhandedness, the need to tailor advice to country circumstances, and adequate follow-up to past advice are key to achieving greater traction. In this regard, Directors welcomed the new consolidated multilateral surveillance report as a useful tool to foster discussion among policymakers and strengthen the role of the IMFC. Directors agreed that the Fund could pay more attention to inclusive growth, employment, and other social issues that have significant macroeconomic impacts, drawing from the expertise of other institutions. Directors noted the importance of an exchange of views between staff and the authorities on the key issues prior to Article IV consultation discussions. A few Directors saw merit in periodically reviewing the relevance of past policy recommendations. Directors welcomed organizational changes that would address the shortcomings identified by the IEO—including to enhance collaboration and promote diversity of views among staff and greater continuity of mission teams—and encouraged their timely implementation.

Resources. Directors welcomed management’s commitment that the costs of implementing TSR proposals would be contained and that offsetting savings would be sought in the next budget round, while ensuring the quality of surveillance for all members. A number of Directors saw merit in consolidating some of the multilateral and/or regional surveillance outputs.

Completion of reviews. Directors decided to complete the reviews of the 2007 Surveillance Decision and of the general implementation of the bilateral surveillance as required under Paragraph 21of the 2007 Decision. It is expected that the next such reviews will be completed no later than October 24, 2014.

1 which would require the approval of three-fifths of the membership having an 85 percent majority of the total voting power.


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