Chapter

Statement by the Managing Director IMF Staff Response Summing Up of IMF Executive Board Discussion by the Acting Chair

Author(s):
International Monetary Fund. Independent Evaluation Office
Published Date:
September 2006
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Statement by the Managing Director on the Independent Evaluation Office—an Evaluation of IMF’S Multilateral Surveillance

Executive Board Meeting March 24, 2006

The IEO’s report provides timely input to the on-going reflection on strengthening a crucial aspect of Fund surveillance. As emphasized in my September 2005 statement on the Fund’s Medium-Term Strategy, multilateral surveillance is one of the Fund’s most critical responsibilities. Therefore, I am gratified and encouraged by the IEO’s generally positive assessment of the key outputs produced by the Fund in this area, and welcome the report’s focus on ways to increase the effectiveness of the Fund’s multilateral surveillance. The accompanying staff statement provides a more detailed response to the report’s findings and recommendations.

The IEO report also makes four strategic recommendations which, in terms of their broad objectives, are very much in line with those discussed in my Medium-Term Strategy. I look forward to the Executive Board’s discussion of these strategic recommendations. As to any specific organizational solutions that may be needed, the scope of issues to consider is rather broader than those highlighted in this report, and may therefore perhaps be more appropriately assessed in the context of the discussion on the Fund’s overall strategic direction.

Finally, I welcome the IEO’s view of prospects for a greater Fund engagement in and contribution to international policy discussion fora. I look forward to the Board’s reflections on the state of the global peer review system and how key stakeholders, including the Fund, can make it work better.

Staff Response to the Evaluation by the Independent Evaluation Office of the IMF’s Multilateral Surveillance

Executive Board Meeting March 24, 2006

Staff welcomes the IEO’s findings, which affirm the high quality of the Fund’s multilateral surveillance products, noting that they have been largely successful in identifying relevant issues and related risks in a timely manner. The staff is also pleased to note that the IEO report confirms the wide interest generated by these outputs within very diverse audiences.

Staff notes that the IEO, in evaluating the quality of multilateral surveillance, focused on hitherto underexamined aspects of quality, such as consistency of coverage with the Fund’s comparative advantage, and relevance and timeliness of analyses, which yielded useful insights. At the same time, the report’s assessment of the substantive quality of multilateral surveillance could have been more rigorous. For example, the report does not evaluate the ex post accuracy of assessments of risks and vulnerabilities in the various multilateral surveillance outputs. Some of the conclusions drawn by the IEO report in interpreting stakeholder surveys results also seem to reflect as much the authors’ perceptions as objective evidence. For instance, regarding the readership of the main reports, it is not clear why it should be considered a failure if principal policymakers read a summarized version from their officials. Likewise, the assessment that “it is not clear that regional outlooks effectively serve a regional surveillance function” is not well substantiated in the report (indeed, it appears to disregard the views expressed by a very high share of nonindustrial country officials). Finally, the claim that the interaction between GFSR issues and the G-7 or G-20 is limited ignores the influence of GFSR analyses on the agenda of the Financial Stability Forum, the preferred G-7 forum for financial stability issues.

As regards recommendations, staff sees merit in the report’s call for stronger integration of the various facets of surveillance, a more proactive role for the Fund in multilateral settings, and a more targeted communications strategy based on well-articulated and “client-focused” products. Indeed, these elements are present in the Managing Director’s report on the Fund’s Medium-Term Strategy. At the same time, for the reasons given below, staff has some reservations with regard to some of the report’s more specific proposals, particularly, but not exclusively, those under Recommendation 4, and whether they would deliver the desired results. In this respect, staff welcomes the fact that the report puts forward these proposals as “possible options” to be further explored, rather than as specific and firm recommendations. In any case, to avoid unnecessary proliferation of parallel initiatives, these proposals would have to be assessed against viable alternatives, especially those discussed in management’s Medium-Term Strategy.

Turning to specifics, we agree with the report’s call for a more proactive role in relevant groups (Recommendation 1), and an enhanced role for the Board and the IMFC in multilateral surveillance (Recommendation 2), but we are not convinced that the specific proposals spelled out under these recommendations would work. This said, we feel that the Board is better placed than the staff to comment on issues related to its own work processes.

We see merit in some streamlining of multilateral surveillance outputs and efforts to achieve greater “client-focus” (Recommendation 3), but some of the report’s proposals to implement this recommendation would seem to go in the opposite direction. For example, we agree that providing an executive summary of the whole WEO would be useful (indeed, a summary of the analytical chapters is already offered in the WEO’s Foreword). However, shortening can be carried to excess. In particular, leaving the special topics chapters to a different publication (even if it were the Report on Globalization), as suggested by the IEO, would risk losing vital analytical content and thus diminish, rather than enhance, the persuasiveness and impact of the Fund’s multilateral surveillance. Likewise, while we concur that there is scope for better integration and complementarity between the WEO and the GFSR—indeed, modalities to achieve this are being considered in the context of the Medium-Term Strategy, we think that untying the release of these publications from the cycle of twice-yearly IMFC meetings for the sake of avoiding bunching could significantly reduce their impact on policy discussions in this forum.

We also welcome the call for a clarification of the scope and outputs of regional surveillance, as also envisaged in management’s Medium-Term Strategy. We do not believe, however, that making the Executive Board responsible for determining the precise selection of topics would be in keeping with its institutional role or a useful development.

We welcome some elements of the recommendation to strengthen the structure of multilateral surveillance by clarifying operational goals (Recommendation 4). However, in our view, the fundamental organizational changes presented for consideration go beyond the IEO’s purview. Moreover, we are not convinced, given the report’s generally positive assessment of the Fund’s multilateral surveillance products, that drastic organizational changes are warranted. While the option to make greater use of the internal Surveillance Committee, chaired by management, to form institutional positions on systemically important issues, has merit and is consistent with the proposals in management’s medium-term strategic review, consideration of such an option is a management prerogative. The option of creating a new surveillance department is unwarranted, while the less radical options, such as to change sign-off responsibilities for papers on systemically important countries, are poorly motivated and their potential downsides (e.g., more complicated bureaucracy) not recognized.

Moreover, the report does not convincingly argue that the causes of the problem identified are organizational. Therefore, rather than organizational solutions, which may disrupt the activity of key departments without achieving much progress, it would seem preferable to explore more substantive approaches to achieving greater integration. The IEO is right in emphasizing the importance of internal incentives in this respect, and this issue warrants further reflection. Some of the proposals of the medium-term strategic review are likely to help in this regard, for example to require Article IV reports on systemic countries to include a section on spillovers. Staff is also exploring a more strategic approach to communications around multilateral surveillance outputs, including better targeting of our efforts to the specific needs of various audiences both within and outside the Fund. This should contribute to strengthen the Fund’s multilateral surveillance role in informing both bilateral surveillance and the broader public debate.

The Acting Chair’s Summing Up Evaluation by the Independent Evaluation Office of the IMF’s Multilateral Surveillance

Executive Board Meeting March 24, 2006

Executive Directors welcomed the evaluation by the Independent Evaluation Office (IEO) of the Fund’s multilateral surveillance, which has provided a valuable opportunity to take stock of achievements and identify areas for further improvement in the quality and effectiveness of this core activity of the Fund. Directors underscored the critical importance of effective multilateral surveillance in promoting global financial stability and sustained economic growth in an increasingly integrated world economy. Further, they observed that the IEO assessment is made all the more timely by the impending discussion of the Managing Director’s proposals on the implementation of the Medium-Term Strategy, which can only be enriched by our consideration of the recommendations of this independent evaluation.

Directors observed that multilateral surveillance complements bilateral surveillance by adding global and cross-country perspectives to the analysis of developments in individual countries. They were encouraged by the report’s broadly positive assessment of the quality of the analysis contained in the Fund’s key multilateral surveillance outputs, and by its assessment that these products have been largely successful in identifying relevant issues and related risks in a timely manner. Directors considered that the wide and diverse public interest in these outputs, documented by the IEO’s report, is a testament to this success.

Notwithstanding this broadly positive evaluation, Directors generally agreed with the report’s assessment that there remains scope for further improving the Fund’s multilateral surveillance. In particular, Directors took note of the recommendation that some of the outputs of multilateral surveillance should give less weight to descriptive information on developments and prospects, and more to analyzing economic policy linkages and the modalities of collective action. Directors also concurred with the report’s finding that effectively integrating macroeconomic analyses with financial sector and capital market work remains a significant challenge, as does the task of effectively integrating multilateral analysis with bilateral work. Complementary to these efforts, the scope of regional surveillance should be clarified. Directors called for further careful analysis of these issues, which are crucial for the effective discharge of the Fund’s mandate.

Against this background, Directors held a substantive discussion on ways to improve the effectiveness of multilateral surveillance, based on the IEO’s four recommendations. Most Directors looked forward to further consideration of the issues in the broader context of the upcoming discussion on the implementation of the IMF’s overall Medium-Term Strategy.

Recommendation 1

Directors took note of the report’s call for the IMF to strengthen its role at the center of a more robust global peer review system by establishing a more proactive engagement with relevant intergovernmental groups. Most Directors concurred that, while the Executive Board and the IMFC remain the most appropriate fora for discussions of policy spillovers and possible responses, the IMF should also enhance the effectiveness of its participation in other fora—such as, but not limited to, the G-7 or the G-20—which also provide opportunities for a frank exchange of views on these issues. Directors stressed that the IMF should provide leadership to the global economic community in trying to promote cooperative solutions. In doing so, the Fund should draw on its unique strengths of near-universal membership and access to policymakers of all systemically and regionally important countries. At the same time, it would be important to ensure that the Fund does not depart from its core mandate in pursuing these efforts, and that they are carried out in a transparent manner. In this regard, Directors agreed that the surveillance notes prepared for the G-7 and G-20 meetings could be more focused on policy spillovers and options for addressing them, and that outputs directly targeted at senior national policymakers would be helpful. Such notes should be consistent with the policy advice in Article IV and other surveillance discussions of the Executive Board. While a number of Directors also noted that greater continuity of IMF representation at these meetings could be considered, most Directors did not support the establishment of a unit whose sole or main purpose would be maintaining constant contact with relevant officials.

Recommendation 2

Most Directors welcomed the report’s recommendation to enhance the roles of the Executive Board and the IMFC in multilateral surveillance. However, they considered that the IEO’s characterization of formal WEO and GFSR sessions fails to do justice to the usefulness of these exchanges, noting that Board discussions in various multilateral surveillance contexts are generally free and open. At the same time, many Directors saw merit in the Board identifying and agreeing on key issues for ministers to discuss during the IMFC meetings, focusing on matters related to policy spillovers and scenarios for collective action. Most Directors did not support the setting up of a standing Board committee to monitor progress on strengthening the IMF’s and the Board’s surveillance activities. They considered, rather, that the full Board should retain ownership and oversight of this central surveillance function of the Fund.

Recommendation 3

Directors observed that, to heighten the impact of multilateral surveillance outputs on the global policy debate, they could be better targeted to their core audience, streamlined, and focused on key issues. While most Directors considered that a major streamlining and focusing of the WEO are not necessary and would detract from the quality of the underlying analysis, Directors offered a number of useful suggestions for further consideration. On issues of content, some Directors supported the suggestion to integrate better financial and capital market issues in the WEO’s Chapter I. They called for more analytical treatment and discussion of exchange rate issues, with some Directors cautioning the staff to be mindful of market sensitivities in the public communication of such analyses. Several Directors also considered that greater use could be made of scenario analysis, with sharper messages for policymakers. Most Directors did not find attractive the option of separating the chapters on special topics of the WEO and the GFSR and creating a separate globalization report to feature them. More generally, many Directors were not convinced of the merits of a new globalization report. Most Directors also did not favor changing the timing of the WEO and the GFSR. On presentation and communication issues, some Directors felt that the WEO and the GFSR should have more focused messages and better reflect the Fund’s unique role and perspective, facilitated by more collaboration in the production of these two reports. A few Directors supported the issuance of a biannual Board statement on the state of the world economy. Some Directors also suggested that publication of surveillance products in languages other than English could facilitate the effective dissemination of the results of multilateral surveillance and of the key Fund messages to a broader audience.

Directors welcomed the opportunity to consider further the scope of regional surveillance. They observed that staff has taken various initiatives in recent years, including the more formally conducted surveillance of common currency areas, and the production of papers for regional Board seminars. Directors concurred that it would be useful to clarify, in the context of the medium-term strategic review, the scope of regional surveillance, including the role of regional outlooks prepared by staff. Directors also saw merit in focusing these efforts on regional economic interlinkages and policy spillovers, and in better integrating them with multilateral surveillance. Some Directors supported the possibility of reorienting some regional studies on the basis of their analytical focus, rather than on the basis of geography, but most Directors did not favor separating analytical chapters from regional outlooks. Directors looked forward to reviewing these issues further.

Recommendation 4

Directors took note of the report’s recommendations on strengthening the structure of multilateral surveillance by defining organizational strategies and accountabilities. They agreed that it would be beneficial to clarify the operational goals of multilateral surveillance, but were not persuaded about the need for broad organizational changes. In particular, many Directors stressed that the risks and costs of fundamental organizational changes should be carefully considered before embarking on such steps. Directors agreed that priority should be given to strengthening the integration between multilateral and bilateral surveillance, particularly of systemically important countries. Many Directors were skeptical about the recommendation to establish a Surveillance Department. Directors looked forward to discussing these issues further in the context of the medium-term strategic review.

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