Selected Decisions and Selected Documents of the IMF, Thirty- Ninth Issue -- The Acting Chair’s Summing Up—Evenhandedness of Fund Surveillance—Principles and Mechanism for Addressing Concerns, Executive Board Meeting 16/16, February 22, 2016

Prepared by the Legal Department of the IMF
As updated as of March 31, 2017

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ARTICLE IV
Exchange Arrangements and Surveillance
General Decisions

The Acting Chair’s Summing Up—Evenhandedness of Fund Surveillance—Principles and Mechanism for Addressing Concerns, Executive Board Meeting 16/16, February 22, 2016

Executive Directors welcomed staff’s efforts to develop a more robust framework tohelp ensure the evenhandedness of Fund bilateral and multilateral surveillance, in line with the recommendations of the 2014 Triennial Surveillance Review. They emphasized that the evenhanded treatment of member countries is essential to the Fund’s credibility and legitimacy and, thus, to the traction of its policy analysis and advice. Directors broadly supported staff’s proposals as a step toward addressing actual and perceived cases of lack of evenhandedness. In this regard, they considered that the formulation of principles and the establishment of a mechanism for addressing concerns about lack of evenhandedness would be a useful initial step to complement existing avenues for dialogue throughout the surveillance processes.

Directors agreed on the importance of having a clearer and shared understanding of what it means to be evenhanded in surveillance, as lack of clarity on this definition has been an obstacle to addressing issues related to evenhandedness. They agreed that evenhandedness should be viewed through the lens of “uniformity of treatment,” which is a long-standing and central tenet of the Fund’s operations. Accordingly, evenhandedness does not mean that member countries be treated identically, but that member countries in similar circumstances should be treated similarly. Directors acknowledged the substantial degree of judgment required to apply this principle, and some of them were concerned that this could also give rise to a lack of evenhandedness.

Directors recognized the importance of better understanding whether and how surveillance is appropriately calibrated to country circumstances. They emphasized that the “outputs” of surveillance—effectively, the Fund’s policy analysis and advice as well as their presentation—should continue to be the primary basis for gauging evenhandedness. In this regard, many Directors noted that differences in the language, candor, and tone of Fund advice are sources of concerns. Most Directors considered that the concept of risk-adjusted “inputs” could be a useful tool for assessing how well surveillance “outputs” are calibrated to country circumstances. A number of others, however, cautioned against using ‘risk-adjustment’ as an overarching principle to calibrate surveillance inputs, and emphasized the importance of also considering other non-risk factors. A number of Directors noted that, when allocating resources to surveillance and considering risks, the Fund should take into account that Fund surveillance is the only source of analysis for some small or non-systemic member countries. A number of Directors observed that a high staff mission turnover affects the quality and evenhandedness of surveillance.

Directors acknowledged that forming a view on evenhandedness will require a significant degree of judgment. In this regard, they noted that the proposed principles related to surveillance “inputs” in the broad areas of available resources, analytical depth, and quality of engagement aim to provide a clearer basis for assessing whether differences in surveillance represent a lack of evenhandedness or reflect appropriate tailoring to country circumstances and, thus, should support more effective engagement among the Fund, its member countries, and other stakeholders on issues related to evenhandedness. Directors also took note that the outlined principles are not an exhaustive or exclusive list.

Directors supported the establishment of a mechanism for authorities to report concerns about lack of evenhandedness, while underscoring the importance of preserving the independence and candor of staff advice. They noted that such a mechanism would complement ongoing efforts to deepen the dialogue with member countries, which also provide a basis to tackle concerns about lack of evenhandedness in surveillance. Directors emphasized that the mechanism should allow Directors to report concerns on any country cases and not just on those countries in their constituency, and noted the importance of a prompt and timely review of reported concerns. Many Directors agreed that the proposed mechanism is a balanced and clearly defined channel that will help deal with concerns in a more transparent way, ensuring that these are not left unaddressed. A number of others felt, however, that the proposed mechanism is too cumbersome and onerous for the authorities, which could discourage reporting. While some Directors encouraged the establishment of a parallel, simpler process for cases that are not deemed by the authorities to be severe enough to warrant going through the full assessment mechanism, a number of others called for evenhandedness issues to be identified earlier and discussed more candidly in the surveillance process, with some Directors considering the mechanism as a last resort.

Many Directors agreed that the proposed staff-based committee will help ensure an efficient process and familiarity with the Fund’s operational issues, and that the proposed safeguards should ensure the independence and integrity of the committee, for instance, by including an external expert where appropriate or recusal of committee members with a potential conflict of interest. Many other Directors, however, called for a more active or even permanent involvement of external experts in the committee in order to increase its independence and build confidence in the process, and emphasized that these involvement should not be limited to specific policy or technical issues. While some Directors also noted a possible role for the Independent Evaluation Office (IEO) in this regard, some others only saw scope for the IEO to conduct a review of the mechanism at a later stage rather than assessing specific country cases.

Most Directors considered it appropriate to take a cautious approach to publication during the initial learning phase. They agreed that management’s annual reports to the Board will not be published at this stage; instead, the Fund will publish information on general progress toward addressing evenhandedness concerns through existing publications, such as the Fund’s Annual Report. A few Directors emphasized that these arrangements should be reviewed after the initial phase to allow for publication of management’s reports.

Directors emphasized that the framework for guiding evenhanded surveillance is a new and untested approach and would need to adapt and evolve as the Fund gains experience. Many of them called for extending the scope of the exercise beyond surveillance to include other Fund operations, particularly lending. Some Directors also noted the need for a cost and benefit analysis of this framework in light of the experience. Directors agreed that the 2019 Comprehensive Review of Surveillance would provide the appropriate opportunity for a thorough evaluation of the proposed principles and mechanism.

BUFF/16/16

February 26, 2016

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