The IMF’s Articles of Agreement call for it to oversee the international monetary system in order to ensure its effective operation, and to exercise firm “surveillance”—that is, oversight, including monitoring and analysis—over its member countries’ exchange rate policies. As decided by the Executive Board, this appraisal of a country’s exchange rate policies must involve a comprehensive analysis of the economic situation and policies of the country, including domestic as well as external policies.
Surveillance lies at the heart of the IMF’s efforts to help prevent economic and financial crises. The Fund has taken a variety of measures in recent years to strengthen its surveillance, reflecting the changing global environment, including the increased importance of international capital flows, and drawing on the lessons of international financial crises. These initiatives aim to encourage members to adopt policies and institutional reforms that make their economies more resilient to potentially harmful developments and financial stress, support sustained and balanced global growth, and contribute to a more stable international financial system.
While crisis prevention has been the main focus of the IMF’s reform agenda, the Fund has also been working to improve the management and resolution of the financial crises that do occur, where it also has a central role. Indeed, a stronger and clearer framework for crisis resolution should make an important contribution to crisis prevention in addition to lessening the number and severity of crises. Evolving reforms of the framework for crisis resolution have been designed to reinforce incentives for countries and their creditors to reach voluntary, market-oriented solutions to their financing problems. To this end, the IMF has sought to combine a clearer policy on access to Fund resources and greater selectivity in its lending with an examination of possible approaches to strengthening the mechanisms for the restructuring of sovereign debt. This chapter describes progress made in these areas during the past financial year.
The IMF provides financial support to member countries under a variety of policies and lending instruments (see Table 8.1). Most forms of IMF financing are made conditional on the recipient country’s adopting policy reforms to correct the underlying problems that gave rise to its need for support.
The central objective of the IMF’s operations in low-income countries is deep and lasting poverty reduction, which requires sustained economic growth and policies directed toward the needs of the poor. These are most likely to come about when, first, policies are sound, tailored to the needs and circumstances of individual countries, country-owned, and supported by strong institutions; and, second, when such national efforts are reinforced by a supportive global economic environment and international assistance. When these other conditions are in place, international assistance can be highly effective.
Sound economic policymaking and implementation require know-how and effective institutions of government. Many developing countries, in particular, need help to build up expertise in economic management and advice about what policies, reforms, and institutional arrangements are appropriate and have worked well elsewhere. Help of this kind is provided by the IMF through technical assistance. This is a benefit of IMF membership, provided at no charge except for countries that can afford to reimburse the IMF. (The framework used to allocate resources for technical assistance is outlined in Box 6.1.)
Many of the reforms introduced at the IMF in recent years reflect a recognition that the institution’s effectiveness depends largely on its ability to be transparent in developing and providing policy advice to its members; accountable for the advice it has given and lending decisions it has taken; responsive to lessons drawn from past experiences, particularly in program design; open to outreach and dialogue beyond official circles; and cooperative with other members of the international community in pursuing our common objective of promoting broadly shared, sustainable growth. These remain key objectives for the IMF on an ongoing basis.
A number of institutional changes took place or were announced during the financial year. Early in 2003, the Technology and General Services Department restructured its organizational units, particularly in the information technology area, to bring greater efficiency to the delivery of its services. Later in the year, the IMF created the Monetary and Financial Systems Department to reflect the expanded responsibilities of the former Monetary and Exchange Affairs Department in such areas as the Financial Sector Assessment Program and combating money laundering and terrorist financing. In another organizational change, the Treasurer’s Department became the Finance Department.