Journal Issue

The Response: IMF Weighs Advice on Exchange Rate Work

International Monetary Fund. External Relations Dept.
Published Date:
May 2007
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The IMF has already begun to make changes to its framework for exchange rate surveillance that are in line with several of the recommendations in the latest report from the IMF’s Independent Evaluation Office (IEO) on exchange rate policy advice, according to IMF Managing Director Rodrigo de Rato.

These initiatives include strengthening analytical tools for exchange rate analysis, better integrating financial sector analysis into IMF surveillance, and tackling issues of global importance through multilateral consultations involving the major players in the global economy, de Rato said. The IMF is also seeking to clarify the parameters of its surveillance mandate through an update of the so-called 1977 Decision on Surveillance over Exchange Rate Policies.

While de Rato welcomed the report as a timely contribution to the debate about how to improve the IMF’s work on exchange rates, he also noted that it had certain limitations. “The IEO report contains a great deal of valuable information,” he said. “However, because the report does not address the specific initiatives in this area that have been launched since 2005, its applicability is somewhat diminished. Moreover, the report’s conclusions are not fully supported by the evidence.”

Mark Allen, head of the IMF’s Policy Development and Review Department, said he was not surprised the IEO had identified areas in which the Fund’s exchange rate analysis could be strengthened. “Exchange rate surveillance is a major challenge. There are no widely agreed economic theories to analyze many exchange rate issues. And many of the issues are political in nature as well as market-sensitive.” But like the Managing Director, IMF staff noted that the report disregarded much of its own positive evidence on the quality of the Fund’s work, ignored progress made during the period under review, and was sometimes premised on unrealistic expectations about the IMF’s ability to influence its members.

In its discussion of the findings on May 9, the IMF Executive Board welcomed the IEO report, noting that the evaluation would be “an important input into ensuring that the Fund remains responsive to the rapidly evolving world economy.” Executive Directors stressed “the shared responsibility of the Board, management, and staff—as well as national authorities—in carrying forward these objectives.”

De Rato said the IMF would make specific proposals to the Executive Board on how to follow up on the IEO’s recommendations over the next few months.

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