Coverage of Surveillance

16. The evolution of the coverage of surveillance can be roughly characterized as the successive addition to an initial focus on exchange rate, monetary, and fiscal policies of four sets of issues: structural policies; capital account issues, including external debt sustainability; financial sector surveillance; and institutional issues.

Exchange Rate and Other Macroeconomic Policies

17. Macroeconomic policies have been at the center of the Fund’s Article IV surveillance since its inception. As noted above, while surveillance was conceived as an instrument to foster discipline in members’ exchange rate policies following the collapse of the Bretton Woods system, it was recognized that exchange rate policies could not be analyzed in isolation. The Fund’s appraisal of a member’s exchange rate policies required a comprehensive assessment of economic developments and policies.

18. Persistent efforts have been made to strengthen the Fund’s analysis of members’ exchange rate policies. Analytical work has focused on exchange rate movements among major currencies and on the contribution of major industrial countries’ macroeconomic policies to these movements; on the choice of exchange rate and monetary regimes, including in the context of strategies to restore macroeconomic stability; and on the consistency between exchange rate policy, other macroeconomic policies, and institutional features—including access to international capital markets and openness of the capital account.⁵ Following calls from the Executive Board, efforts have also been made to increase the candor of discussions of exchange rate regimes and analyses of exchange rate levels in surveillance reports.

19. Placing greater emphasis on the systemic impact of major industrial countries’ macroeconomic policies has been seen as another important element of better surveillance, given the growing degree of interdependence between the largest economies and other countries.

Structural Policies

20. Structural policies in industrial countries became a major surveillance issue in the early 1980s, as these countries struggled with persistent fiscal deficits and high and rising unemployment rates, and academic and policy-making circles considered the merits of supply-side economics. This heightened attention to structural issues in developed countries complemented a growing focus on structural adjustment in developing countries, which reflected the limits of exchange rate changes in the presence of distortionary pricing policies (e.g. marketing boards) and complex systems of import taxation and export subsidies, and, more generally, explicit stress on growth-enhancing policies in the wake of the debt crisis.

21. Consideration of structural policies in Fund activities, including in surveillance, gained further prominence following the enlargement of the Fund’s membership to Central and Eastern European countries, Baltic countries, Russia, and other republics that became independent after the dissolution of the Soviet Union. In these countries, it was immediately evident that macroeconomic and structural issues were inextricably linked. In recent years, in light of developments in the United States, potential growth and productivity issues have gained further prominence in surveillance for advanced economies.

22. Given the vast array of structural problems faced by many member countries, maintaining a proper focus in covering structural issues has long been an important concern for Fund surveillance. Macroeconomic relevance—i.e. only covering issues that have a direct and appreciable influence on macroeconomic developments—eventually became the accepted criterion for decisions on coverage of surveillance.

23. One area of structural policies that, from the start, was recognized as important to Fund surveillance is trade policy. For instance, at the conclusion of the 1983 review of surveillance, Executive Directors stressed the need for the Fund to address the dangers associated with the growth of protectionism; encouraged staff to expand the coverage and analysis of trade policy matters in Article IV consultation reports—while avoiding overlap with the areas of responsibility of the GATT (now the WTO); and indicated that such coverage should be on the impact of trade measures on domestic adjustment of the country imposing these measures and on its trading partners. In the latest review of the Fund’s role in addressing trade issues, Executive Directors agreed that the Fund has a mandate to support open international trading system and trade liberalization; and given this principle, that the Fund should continue to address trade issues and support trade liberalization in the context of surveillance and Fund-supported programs where appropriate.

Capital Account and External Debt Issues

24. All issues related to macroeconomic stabilization and adjustment have always been at the center of Fund surveillance. These naturally include the balance of payments, the international investment position, and capital flows. The 1977 Surveillance Decision reflected this consideration, as it specified that “[t]he Fund’s appraisal of a member’s exchange rate policies shall be based on an evaluation of the developments in the member’s balance of payments, against the background of its reserve position and its external indebtedness.” This being said, the emphasis placed on capital account issues in the implementation of surveillance substantially increased first in the wake of the debt crisis of the 1980s and again following the emerging market crises of the 1990s.

25. The debt crisis of the 1980s pointed to the need to improve coverage of external debt developments and policies in Article IV consultations and, in particular, to include in reports on borrowing countries a forward-looking analysis of the policies needed to maintain the external debt service profile within appropriate bounds.

26. The emerging-market crises of the 1990s demonstrated that countries with access to international capital markets could be extremely vulnerable to a cessation or reversal of capital inflows, even when there were no doubts as to the ability of the sovereign to service its debt obligations; and that such shifts in capital flows could have severe macroeconomic consequences. These crises focused attention on the size and composition of capital flows, global conditions likely to affect capital flows (e.g., interest rates in the major advanced economies, degree of risk aversion in mature financial markets), contagion, and emerging market countries’ vulnerabilities to abrupt changes in market sentiment. As noted above, this emphasis on capital account developments prompted the 1995 amendment to the 1977 Surveillance Decision, which highlighted the standing of capital account developments in the Fund’s assessment of members’ exchange rate policies.

Issues Related to the Financial Sector and Non-financial Corporate Sector

27. Financial crises in the 1990s, including the banking crises in Nordic countries in the early part of the decade and the emerging market crises later on, provided a vivid illustration of the strong, two-way links between the health of the financial sector and economic performance. Spurred by these developments, financial sector issues—especially, conditions in the banking system—have gained greater prominence in the Fund’s surveillance activities since the mid-1990s and, indeed, have become one of the core areas of Fund surveillance. As discussed below, efforts to strengthen financial sector surveillance were markedly enhanced by the introduction of the Financial Sector Assessment Program in 1999.

28. The experience in emerging-market countries affected by the 1997-98 crisis, particularly in Asia, also demonstrated that balance sheet weaknesses of the non-financial corporate sector could have direct dramatic macroeconomic repercussions, aggravate financial sector problems, and significantly constrain the scope for exchange rate or interest rate adjustment in the face of a shift in market sentiment. Recognizing these links, the assessment of vulnerabilities of the nonfinancial corporate sector increasingly came to be seen as an important complement of financial sector surveillance, although efforts to address these issues have often been stymied by lack of adequate information.

Institutional Issues

29. A broad range of institutional issues, including central bank independence, financial sector regulation, corporate governance, and policy transparency and accountability—which contribute to good public sector governance—became an important element of Fund surveillance in the 1990s. This development can be traced to a conjunction of several factors: the experience in transition economies, which clearly showed that development of well-built institutions and legal frameworks was an essential ingredient of a successful transformation into a market economy; the experience of countries with severe governance problems, which highlighted, inter alia, the benefits of fiscal transparency;⁶ the adoption of formal inflation targeting regimes and rules-based fiscal policy frameworks by a number of advanced economies; financial sector crises, which pointed to weaknesses in supervisory and regulatory regimes and shortcomings in corporate governance and bankruptcy laws; emerging-market crises, which called attention to external debt and foreign exchange reserve management; and, finally, a growing focus on activities that might undermine the integrity of the international financial system (e.g., money laundering).

Tools of Surveillance

30. The extension of the coverage of surveillance has been accompanied by initiatives to improve the tools of surveillance. Effective coverage of additional policy areas in Fund surveillance and strengthened coverage of traditional areas required more extensive, detailed, frequent, and accurate information. It also required appropriate tools to support information gathering and analysis. Fund surveillance has consistently relied on both standardized quantitative tools and qualitative country-specific analysis, with a view to ensuring that surveillance be simultaneously even-handed across the membership and well adapted to the circumstances of individual countries.

31. Data provision to the Fund. Adequate provision of data to the Fund has always been essential for effective surveillance.⁷ Over time, with the extension of the coverage of surveillance and the need for more continuous monitoring, data requirements for surveillance have correspondingly expanded.

32. Crises were important catalysts in this process. The debt crisis in the 1980s drew attention to the need for adequate data on external borrowing. Following the 1994/95 Mexican crisis, which showed the high speed at which incipient difficulties could blossom into a full-fledged crisis and highlighted the impact on surveillance of even temporary gaps in data provision, the Executive Board emphasized the importance of receiving comprehensive, high-quality, and timely macroeconomic and financial data. As an absolute minimum, the Board called on members to provide to the Fund on a timely basis a set of key economic indicators and the central bank balance sheet. In recent years, in light of the nature of the 1997/98 emerging-market crises, attention has focused on the timely provision of data on external reserves, foreign currency liquidity, and, again, external debt.⁸ In this context, in June 2000, the Board agreed to establish the SDDS prescription for international reserves, foreign currency liquidity, and external debt as benchmarks for data provision to the Fund in these areas. The most recent staff paper on this issue considers data requirements for vulnerability assessments, in light of the considerations that surfaced in the October 2001 Board discussion of vulnerability assessments for emerging market economies.

33. Other sources of information also gained greater importance as the coverage of surveillance expanded. For instance, strengthened surveillance over capital account developments required paying closer attention to market sentiment, i.e., capital market participants’ views about both global financial developments and the situation of particular countries. The Research Department kept regular contacts with market participants and analyzed financial market data. The creation of the International Capital Markets Department and the establishment of the Capital Markets Consultative Group have further strengthened the collection and analysis of such information for surveillance in countries that are vulnerable to large capital account swings (see below).

34. Covering issues beyond the Fund’s traditional areas of expertise, particularly in the structural domain, has necessitated greater use of the expertise of other international institutions, such as the World Bank and the OECD. The Executive Board has instructed staff to be aware of the work done by other institutions and to incorporate the results of this work into the surveillance process, whenever they are relevant to the Fund’s concerns. As regards cooperation between the World Bank and the Fund, the Executive Boards of both institutions have stressed the importance of strengthened and more systematic coordination between the Fund and the World Bank to secure the benefit of the complementary areas of expertise of the two institutions.⁹ For instance, where appropriate, Fund staff would be expected to draw on analysis of structural (e.g., privatization) and social (e.g., health, education, poverty alleviation) issues within the World Bank’s core areas of expertise.

35. Tools for exchange rate analysis. Strengthening the analysis of exchange rate developments has always been critical for Fund surveillance. In 1983, a system was established to track developments in members’ real effective exchange rates and inform the Executive Board on a regular basis of these developments.¹⁰ While formal notifications to the Board were later discontinued, real effective exchange rate series have continued to figure prominently in the Fund’s analysis of exchange rate development and policies in member countries.^{11 12}

36. The creation of the Coordinating Group on Exchange Rate Issues (CGER) in 1995 was another step toward strengthening the Fund’s analysis of exchange rate developments. CGER work has focused primarily on medium-run equilibrium levels of exchange rates in industrial countries. These assessments have been used as inputs into staff’s analysis of exchange rate issues in both bilateral and multilateral surveillance.¹³ Beyond this, various approaches for exchange rate assessments have been used in Article IV Consultation reports, with, recently, more attention to Balassa-Samuelson effects and the distinction between equilibrating and disequilibrating moves.¹⁴

37. Tools of financial sector surveillance. The extension of the coverage of surveillance to financial sector issues raised a number of questions: How could the Fund bring to the surveillance process the necessary expertise to tackle these issues? What information needed to be collected, and how should it be collected? How should financial sector assessments be structured to bring them to bear on the Fund’s Article IV consultations?

38. It was recognized that, while Article IV missions, possibly with teams reinforced by adding financial sector expertise, could attempt to address selected financial sector issues, they could not reasonably be expected to conduct in-depth financial sector assessments. In light of this fact, the joint World Bank-IMF Financial Sector Assessment Program (FSAP) was introduced in May 1999, first on a trial basis, and, subsequently, on a permanent basis. The purpose of the FSAP was to offer countries a coherent and comprehensive framework for identifying financial system vulnerabilities, ascertaining development needs and priorities, and developing appropriate policy responses.

39. At the discussion of the last review of the FSAP, Executive Directors concluded that the FSAP process had succeeded in providing such a framework and that the Financial System Stability Assessments (FSSAs), which are derived from FSAP findings and discussions conducted during Article IV consultations, had contributed to deepening the coverage of financial sector issues in bilateral surveillance.¹⁵ Consequently, while participation in the FSAP is voluntary, FSSAs have become the preferred tool for financial sector assessments in the context of Fund surveillance.

40. Effective financial sector surveillance requires not only an appropriate framework for analysis but also adequate data. To improve data collection and reporting, a core set of financial soundness indicators (FSI) for the banking sector and an “encouraged set” of financial indicators for other sectors have been identified.¹⁶ The Executive Board has welcomed these efforts and expressed support for a more systematic compilation of such data in Article IV consultations where in-depth financial sector assessments are undertaken. Where available, data on FSIs should be included in Article IV consultation reports.

41. Tools for assessing external vulnerabilities. The need to assess countries’ vulnerabilities to sudden shifts in capital flows prompted a search for quantitative tools to support this analysis. In particular, indicators of reserve adequacy based on current account flows were no longer seen as sufficient, even though they continued to provide valuable information. Against this background, the Executive Board considered the use of various debt- and reserve-related indicators of external vulnerability and concluded that these indicators, notably the ratio of reserves to short-term debt, could be important tools for strengthening the analysis of vulnerability.¹⁷

42. In circumstances where there are questions about continued access to international financial markets, either because of general market conditions, contagion effects, or the economic situation of the particular country under consideration, estimates of the country’s external financing needs are of great importance. As part of the quarterly vulnerability assessment exercise for emerging market countries (see below), such estimates are regularly produced.

43. Analysis of high-frequency market data on borrowing spreads, which are available for most emerging market countries, provides valuable information on market sentiment and changing sensitivities to contagion. Such analysis has been more widely used in surveillance. In particular, it is one of the main inputs of the quarterly vulnerability assessment exercise for emerging market countries. The use of information on market developments in surveillance is expected to be strengthened with the creation of the International Capital Markets department.

44. Formal Early Warning System (EWS) models are also a potentially useful tool for the analysis of external crisis vulnerabilities. While the Executive Board has encouraged staff to discuss the results of EWS models with country authorities and to keep the Board informed of these discussions, it has cautioned that EWS models are imperfect signaling tools and, in particular, suffer from high false positive signal ratios.

45. Tools for strengthening the coverage of institutional issues. The coverage of institutional issues in bilateral surveillance raises questions that are similar to those concerning the coverage of the financial sector. Substantial treatment of these issues requires the relevant expertise to collect and analyze the needed information, the capability to draw from this analysis conclusions regarding the existence of significant institutional weaknesses, and, where relevant, the capacity to arrive at a set of prescriptions for remedial actions.

46. As in the case of financial sector surveillance, efforts to strengthen the coverage of institutional issues in surveillance were paralleled by broader initiatives to help countries evaluate and improve their institutional, legal, and regulatory settings through design of standards and codes and assessments of their observance. In eleven areas, standards and codes have been identified as useful to the operational work of the Fund and the World Bank: data dissemination, fiscal transparency, monetary and financial policy transparency, banking supervision, securities, insurance, payments systems, corporate governance, accounting, auditing, and insolvency and creditor rights.¹⁸ In these areas, Reports on the Observance of Standards and Codes (ROSCs) provide a systematic framework for organizing and presenting information on institutional issues and, thus, valuable input for Fund surveillance.¹⁹ In other areas, such as public debt management and foreign exchange reserve management, recently developed guidelines may be used to inform the discussions between the authorities and the Fund on these issues. In particular, they may serve as useful benchmarks for assessments of current strengths and weaknesses.²⁰ The Capital Markets Consultative Group Report on Creditor-Debtor Relations provides information on best practices regarding investor relations programs, which can help guide staff’s work in this area. In still other instances, for example to address anti-money laundering issues, a voluntary questionnaire has been developed as a possible framework for discussions during Article IV consultations.²¹

47. In addition to the development of the above tools, which were designed to improve coverage of specific areas, efforts have been made to strengthen discussion of many areas of surveillance through greater use of cross-country analysis. For instance, Article IV consultations for several European countries were informed by common cross-country background papers;²² discussions of external competitiveness have benefited from comparative analyses of the evolution of exports, market shares, and labor costs covering the member concerned and comparable countries; and discussions of financial and external vulnerability have gained from cross-country comparisons of key vulnerability indicators.

Modalities of Bilateral and Regional Surveillance

48. In parallel with the extension of the coverage of surveillance and the development of better tools, continuous efforts have been made to adapt the modalities of surveillance in order to strengthen it. These efforts have focused on four areas: (i) ensuring the continuity of surveillance; (ii) adapting the modes of surveillance to the realities of growing regional integration; (iii) strengthening multilateral surveillance to reflect growing interdependencies; and (iv) enhancing the impact of surveillance. Initiatives relating to bilateral and regional surveillance are discussed in this section, while innovations in multilateral surveillance and efforts to enhance the impact of surveillance are covered in the next two sections.

49. Ensuring the continuity of surveillance. The ability to detect incipient economic difficulties and engage in a meaningful dialogue with national authorities on possible remedies requires continuity in the surveillance process. The importance of continuous surveillance was recognized in the 1977 Surveillance Decision, which established the principle of annual Article IV consultations. However, while the principle of annual Article IV consultations has been re-affirmed on numerous occasions—most recently during the 2000 biennial surveillance review—application of this principle has had to contend with persistent concerns about resource constraints. Consultation cycles and, more generally, consultation procedures thus have been regularly re-examined. In this process, calls for—and actions toward—a stricter adherence to the principle of annual consultations have tended to alternate with moves toward greater flexibility (Box 2).

50. From the inception of the Article IV consultation process, there has been a clear understanding that, in some instances, effective surveillance may call for more frequent than annual discussions with a member. Efforts to use formal procedures for these cases, such as the special consultations envisaged in the 1977 Surveillance Decision or the ad hoc consultations contained in the 1979 supplemental surveillance procedures, proved largely unsuccessful because these procedures soon came to be seen as carrying a stigma.^23,24 Instead, informal contacts between national authorities, staff, and management became the main vehicle for discussions between consultations. In recent years, in addition to regular exchanges of information, staff visits half-way between two Article IV consultations have been routine in a number of countries, particularly in emerging market countries. Informal meetings on country matters provide a channel to inform the Executive Board of significant developments between Article IV consultations. In addition, Post-Program Monitoring (PPM), which was introduced in 2000, provides for close monitoring of economic developments and policies in members with substantial Fund credit outstanding following the expiration of their arrangements with the Fund.²⁵

51. Surveillance over economic policies in major industrial countries, which are frequently covered in bilateral, regional, and multilateral exercises, has long been characterized by a high degree of continuity. In developing economies, surveillance had usually been less continuous, with the major surveillance exercise being the annual (or biennial) Article IV consultation. For countries without market access, this practice has generally been appropriate, given the nature of shocks and vulnerabilities faced by these countries. However, the crises of the second half of the 1990s have shown that this is insufficient for emerging market countries, which rely heavily on private market financing and are thus vulnerable to shifts in market sentiment. In these countries, effective surveillance requires a high degree of continuity. As discussed in greater detail below, to keep track of the risks of an external crisis in these countries, a new framework was set up in May 2001 to assess their vulnerabilities to changing market conditions on a monthly and quarterly basis.

52. Enhancing regional surveillance. With members in different parts of the world pressing ahead with regional economic integration—a phenomenon most prominent in Europe but also evident in parts of Africa and the Western Hemisphere, the traditional modes of bilateral and multilateral surveillance were missing an increasingly important level of economic decision-making. To close this gap, contacts between staff and regional economic institutions have intensified, and Board discussions of monetary, exchange rate, and other relevant policies in currency unions (i.e. the euro area, the West African Economic and Monetary Union, the Central African Economic and Monetary Community, and the Eastern Caribbean Currency Union) have progressively expanded. The frequency and degree of formality of these activities have varied across currency unions, with the highest frequency and greatest degree of formality (i.e., formal integration in Article IV consultations with union members) reached for the euro area.

Modalities of Multilateral Surveillance

53. Strengthening multilateral surveillance. Traditionally, the two main pillars of the Fund’s multilateral surveillance have been the semi-annual discussions on the World Economic Outlook (WEO) report, and annual discussions on the International Capital Markets (ICM) report. In response to the growing interdependencies among member countries, notably the rapid expansion of financial linkages, the Fund has undertaken significant efforts to strengthen surveillance over capital markets, to enhance the continuity of multilateral surveillance, and to boost the integration of multilateral surveillance and bilateral surveillance.

54. A key initiative to strengthen surveillance over capital markets was the creation of the International Capital Markets Department (ICM) in 2001. The objective was to deepen the Fund’s understanding of capital market operations; improve its capacity for addressing systemic issues related to capital market developments; enhance its capability to provide early warning of potential stress in the financial markets; and strengthen its ability to help member countries gain access to international capital markets. ICM has intensified the collection and analysis of information on developments in international financial centers, and has made this information available to area and other departments. It has also broadened the Fund’s liaisons with capital market participants, national authorities, and international fora concerned with capital market issues. Another important initiative to enhance capital market surveillance was the establishment of the Capital Markets Consultative Group in 2000, which has facilitated high-level contacts between capital market participants and Fund staff.

55. Efforts to enhance capital markets surveillance have resulted in the production and broad dissemination within the Fund of a substantially higher volume of information on capital market developments. This includes the daily Global Markets Monitor, which provides information on developments in both mature and emerging markets as well as on changes in market sentiment; up to 2001, the quarterly report on Emerging Market Financing; and, as of the first quarter of 2002, the quarterly Global Financial Stability Report (GFSR), which replaces the annual International Capital Markets Report and the quarterly report on Emerging Market Financing. The GFSR was created to allow broader and more continuous surveillance of capital market developments and more frequent reporting to the Executive Board and to the public on multilateral or systemic capital market issues. The report’s main objective is to identify potential vulnerabilities in the international financial system from a multilateral perspective and to analyze linkages between developments in mature financial centers and capital flows to emerging markets.

56. To increase the continuity of multilateral surveillance, the World Economic and Market Developments (WEMD) sessions have been held approximately every six to eight weeks since 1993 to allow staff, management, and the Board to keep abreast of the rapid evolution of global economic and financial conditions. In these sessions, the Economic Counselor has presented to the Executive Board summaries of key global economic and financial market developments and their implications for the outlook and policy requirements. These presentations have been supported by background papers outlining issues for discussion and updating major global developments. In recent years, risks and vulnerabilities emanating from financial markets, and systemic risks, have been an increasing focus of the sessions. In addition, special topics related to multilateral surveillance have been folded into some of the WEMD presentations, including highlights from the latest CGER exercise on exchange rate assessments for industrial countries, discussion of exchange rates in key emerging markets, highlights from early warning system (EWS) models, the rise in oil prices (December 2000), and the shrinking supply of US treasury securities (March 2001). Two mini-WEMD sessions were held in September and October of 2001 to assess the impact of the September 11 terrorist attacks.

57. In line with the recommendations of the external review of surveillance and the conclusions of the 2000 biennial surveillance review, efforts have been made to strengthen the integration of multilateral surveillance with bilateral surveillance. The key initiative on this front was the launch in May 2001 of a new framework to keep track of the risks of an external crisis in emerging market countries and help assess their vulnerabilities to changing market conditions. This framework was designed to provide a systematic process for high-frequency (monthly and quarterly) monitoring coupling detailed, country-specific knowledge of area departments with expertise and market information of functional departments. Specifically, the assessment of vulnerabilities relies on the following inputs: changes in the world economic outlook, capital market information—including assessment of market access conditions under various scenarios and analysis of borrowing spreads and contagion, estimates of external financing requirements, financial sector vulnerability assessments, results of Early Warning System models, and country-specific expertise of area departments.

58. Other efforts to strengthen the integration of multilateral and bilateral surveillance include greater attention to the implications of the global economic outlook—both baseline and risks—for individual countries in Article IV consultations discussions and other bilateral surveillance activities, including for countries with limited or no market access for which the key channel of transmission of external shocks continues to be trade developments (e.g., terms of trade, level of foreign demand).

Dissemination of Surveillance Assessments

59. The potential impact of Fund surveillance on members’ policies depends critically on the importance members attach to the Fund’s assessments of economic conditions, prospects, and policies. To enhance the effectiveness of surveillance, the Fund has persistently attempted to strengthen its ability to persuade members by improving the quality of its advice and providing it on a timely basis. All initiatives described above to adapt the coverage, tools, and modalities of surveillance to a changing global environment are part of this effort. However, it has been clearly recognized that better and more timely advice may not be sufficient to ensure that this advice is taken seriously. Thus, the Fund has also sought to strengthen the channels for transmitting its policy advice. In particular, it has sought to make greater use of peer pressure and to increase transparency.

60. Fundamentally, Fund surveillance is a peer review of members’ economic policies. The output of bilateral surveillance is an assessment of the economic situation and policies of individual members by the whole membership of the Fund through the Executive Board, while the output of multilateral surveillance is a Fund assessment of global economic conditions and needed policy responses. For both bilateral and multilateral surveillance, the first audience is the national authorities of member countries.

61. Peer review of economic policies is also conducted in the context of meetings of the International Monetary and Financial Committee and a number of fora, including the G-7, the Manila Framework Group, the Gulf Cooperation Council, and the Western Hemisphere Finance Ministers Group. Over the years, at their invitation, the Fund has stepped up its participation in these groups’ activities, and, in doing so, has striven to strengthen peer pressure for necessary policy changes, particularly by drawing attention to key risks and vulnerabilities in individual economies and globally. Generally, for meetings of these fora, the Fund has contributed surveillance notes providing assessment of policies and risks in the major economies, in the region, and globally; and the Managing Director, the Economic Counselor, or other senior Fund officials have made presentations. Occasionally, at the request of these groups, surveillance notes have also included discussion of specific issues (e.g., in the past two years, global imbalances and adjustment issues, and prospects and risks in emerging market countries).

62. Transparency in Fund surveillance was long confined to publication of the semi-annual WEO and annual ICM reports and the release of Article IV consultation reports to selected international agencies.²⁶ Greater transparency in bilateral surveillance was resisted on the basis of concerns that it might lead to less candid discussions between staff and national authorities. However, gradually, the view gained ground that Fund surveillance would benefit from public scrutiny and would become more effective if Fund views on members’ policies were made publicly available in a systematic and timely manner. Against this background, the Fund’s policy on transparency evolved over time toward greater provision of information. In 1997, the Board agreed to publication on a voluntary basis of the summings up of Board discussions of Article IV consultations in the form of Press Information Notices, later renamed Public Information Notices. This was followed in 1999 by a decision to allow publication on a voluntary basis of Article IV consultation reports.²⁷ Other initiatives to increase transparency include efforts by staff missions to meet with a broader set of economic stakeholders (e.g., trade unions) and increase contacts with local media.

Focus of Coverage

74. The focus of surveillance varies considerably across country groups: Fund surveillance is not a one-size-fits-all exercise. The broadened framework of surveillance appears to have helped draw attention to a wide range of issues that are potentially relevant, but it has been applied selectively. While the review does not allow judgment on the adequacy of the focus of surveillance in every individual case, it does suggest that much of the variation reflects differences in country-specific circumstances.

75. In major advanced economies, surveillance typically focused on cyclical developments, the stance of fiscal and monetary policies, the medium-term fiscal outlook, and structural policies needed to boost potential growth (e.g., labor market policies in continental European countries, financial and corporate sector restructuring in Japan) or to ensure medium-term fiscal sustainability in the face of aging populations (e.g., pension and health sector reforms). Substantial attention was devoted to the impact of economic conditions, prospects, and policies of the largest economies (the United States, the euro area, and Japan) on the global economy, and to the factors underlying the movements of the three major currencies (Box 5).

76. Surveillance in other advanced economies focused essentially on the same issues but, for good reasons, lacked the systemic dimension of surveillance in the large advanced economies. In addition, reports for non-euro-area members (e.g., Australia, New Zealand), contained substantial coverage of exchange rate movements, capital account developments, external vulnerabilities, and financial sector issues.

77. In emerging market economies, vulnerabilities to both domestic and external crises, including those related to capital account developments, financial sector problems and weaknesses in the corporate sector, were at the center of surveillance, together with macroeconomic, structural, or institutional policies needed to minimize identified vulnerabilities. In particular, in several Article IV consultation reports for emerging market countries—especially but not exclusively those for countries affected by the Asian crisis—key vulnerability assessments served as the organizing principles for discussions of macroeconomic policies, structural reforms, and institutional reforms.

78. In small developing countries, which predominantly maintain pegged exchange rate regimes, are dependent on exports of a few goods or services, and have little or no access to international capital markets, surveillance typically focused on three areas: the consistency of short-term fiscal and monetary policies with the fixed exchange rate regime, reforms needed to ensure medium-term fiscal sustainability (e.g., civil service reform), and structural policies designed to lift potential output growth and reduce vulnerability to shocks through greater diversification.

79. In oil-exporting countries, reducing macroeconomic vulnerability to oil price fluctuations, ensuring an optimal use of proceeds from nonrenewable resources, and promoting the development of the non-oil sector were the key issues addressed in surveillance. Thus, Article IV consultation reports generally focused on fiscal issues such as the level of public savings, the budget structure (e.g., containment of current expenditures, development of non-oil-based sources of taxation), mechanisms to insulate the state budget from oil price swings (e.g., oil stabilization funds), as well as policies to facilitate private- sector-led growth (e.g., liberalization of foreign direct investment, promotion of a competitive market environment, liberalization of the financial sector).

80. The focus of surveillance in other developing countries varied widely, given the diversity of the sample. In some countries, Article IV consultations gave particular prominence to exchange rate, price, and trade liberalization as the main economic challenge was to move toward market-oriented policies. In another group, fiscal consolidation and public finance reform dominated the discussions. In a third group, fiscal policies and structural reforms (including public sector reform, financial sector reform, and trade policies) to generate higher growth and promote poverty alleviation were given center stage. In these countries, as in most other developing countries, macroeconomic and structural policy issues were typically closely linked and it was frequently difficult to separate the two.

Depth of Coverage

81. While the range of issues covered in surveillance has expanded substantially, macroeconomic developments and policies have remained at the center of surveillance activities in all countries. Focus and perspective of coverage have varied considerably across countries—ranging from cyclical conditions in industrial countries to medium-term fiscal sustainability in oil exporting countries and growth prospects in low-income developing countries. The analysis has typically been well founded and integrated, reflecting the long- standing expertise of Fund staff in this area.

82. Exchange rate issues have been at the heart of the Fund’s surveillance from its inception and were discussed in all reports, albeit to a varying degree. Greater skepticism on the durability of “soft pegs”—or closely related regimes (e.g., narrow bands)—in countries with market access has prompted candid discussions on the sustainability of such exchange rate regimes in emerging market countries (Box 6). Conversely, other exchange rate regimes in emerging market countries, including currency boards, have generally not been questioned. The exchange rate pegs prevailing in most small developing and oil exporting countries have rarely been the subject of extensive discussions either. In these countries, with the noteworthy exception of those maintaining complex, multiple exchange rate regimes, surveillance has generally focused on the consistency of macroeconomic policies with the existing exchange rate regime. The regime itself and the current level of the peg were usually not called into question, except when developments (e.g., depletion of reserves, external arrears, intensification of exchange rate restrictions) pointed to large and pressing external imbalances. This limited coverage may be related to perception that candid treatment of these issues in staff reports could trigger adverse market reactions. For countries with flexible exchange rate regimes, discussions have tended to focus on exchange rate movements, their possible causes and the potential reversal. However, the depth of the underlying analysis has varied, with analyses relying on more sophisticated quantitative tools typically limited to the advanced economies.

83. Coverage of structural issues has been selective and the focus has, consequently, varied widely according to country-specific circumstances. Nevertheless, certain areas of structural reform—notably reforms to strengthen public sector finances—have prominently featured in surveillance exercises with many different economies, advanced as well as developing ones. While the macroeconomic rationale for covering certain structural issues is typically evident, the intensity of the linkages between macroeconomic and structural policy issues clearly varies across countries. In many developing and transition economies, macroeconomic and structural policies often seem inextricably linked. Given widespread structural rigidities and distortions in these countries, it appears difficult to conceive of a meaningful discussion of macroeconomic policies that ignores the structural aspects of fiscal sustainability, external viability, and sustainable growth. Indeed, in some instances, issues such as the implications of the AIDS epidemic may be crucial for the assessment of macroeconomic prospects.

84. While, in most instances, the macroeconomic relevance of the structural policy issues covered in the context of surveillance is clear, the depth of coverage of these issues is not always consistent. In certain instances, particularly on topics related to the Fund’s traditional areas of expertise, discussions of structural issues are substantial. In certain other instances, they lack specificity or appear limited to a repetition of past recommendations. In the latter cases, coverage might be improved by drawing more on the expertise of other institutions, as recommended by the Executive Board at the conclusion of the 2000 biennial review of surveillance. Currently, explicit references to work done by other institutions are relatively rare in Article IV consultation reports, with some exceptions (e.g., OECD studies on labor market policies).

85. Trade policy has been addressed in all Article IV consultations, but the depth of coverage has varied widely. Trade policy issues received substantial attention in reports for major advanced economies (the United States, the euro area/European Union, Japan, and Canada), which stressed, inter alia, the need to roll back agricultural and other subsidies and improve market access for developing countries. In other countries, coverage of trade issues has varied, sometimes but not always in line with the restrictiveness of the trade regime. In addition, multilateral trade issues have been the subject of substantial coverage in WEO reports.³²

86. While financial sector surveillance has become a standard element of Fund surveillance, coverage has shown substantial variation. To an extent, this is justified by differences in the development of the financial sector, access to external finance, and, generally speaking, potential interactions between macroeconomic and financial sector developments. However, differences in coverage of financial sector issues also reflect resources and expertise brought to bear on the analysis of these issues. Participation in the FSAP has generally enriched the treatment of financial sector issues in a very substantial manner. The benefits of FSAP participation have included greater availability of data (e.g., financial soundness indicators), better ability to assess the fragility (or strength) of the financial sector and quantify the impact of macroeconomic shocks (e.g., lower growth, sharp exchange rate depreciation, an interest rate spike) on the financial system, and the ability to analyze in greater depth the potential impact of a financial sector crisis on macroeconomic developments (e.g., fiscal costs of banking sector restructuring). Altogether, participation in the FSAP, combined with close integration of the FSAP work in the Article IV consultation process—though not a panacea—allows a more substantial discussion of potential problems and possible remedies to existing financial sector weaknesses (Box 7). In countries that did not participate in the FSAP, a similar depth of coverage of financial sector issues could generally only be found in cases where a financial sector crisis had occurred—and, thus, considerable technical work had been done by the Fund, the World Bank, and other institutions—or where the existence of important financial sector weaknesses had been established for some years. In many other countries, the treatment of conditions in the financial sector has been relatively limited, mostly due to lack of adequate information.

87. The coverage of capital account developments and discussions of various aspects of a member’s vulnerability to a currency crisis have been most prominent and explicit in the emerging market countries and a few advanced economies (New Zealand, Australia). In developing countries without market access, vulnerability assessments have typically been subsumed in discussions on the current account outlook and the consistency of macroeconomic policies with the exchange rate regime. However, coverage of crisis vulnerabilities has also varied within the group of emerging market countries, with more extensive treatment observed in Asia. In this region, vulnerability analyses have tended to employ a variety of indicators, including indicators of financial and corporate sectors’ exposure to exchange and interest rate risks; in other countries, use of vulnerability indicators has often been more limited, although short-term debt to reserves ratios and other debt- and reserve-related indicators have been commonly reported.

88. Even in countries with relatively extensive coverage of crisis vulnerabilities, one weak link in the analysis has commonly been the assessment of medium-term debt sustainability. While nearly all Article IV consultations reports for emerging market and developing countries contain a medium-term balance of payments scenario—a legacy of earlier efforts to address debt sustainability issues in the wake of the 1980s debt crisis—the usefulness of these scenarios for a meaningful analysis of debt sustainability is often questionable. In most cases, the medium-term balance of payments analysis is limited to the presentation of a baseline scenario with optimistic assumptions on growth, interest, and exchange rates and little or no substantial discussion of risks or alternatives.

89. Institutional issues—ranging from inadequate bankruptcy laws to fiscal policy frameworks—have typically been covered selectively, according to country-specific circumstances. As in the case of financial sector surveillance, coverage of issues related to the institutional features of an economy frequently requires special expertise that goes beyond the Fund’s traditional focus on macroeconomics. In a number of cases, ROSCs have helped strengthen the coverage of institutional issues, by providing a consistent framework to assess observance of a standard or code, recognize existing institutional strengths, and identify weaknesses as well as potential remedies (Box 8). In other instances, the contribution of ROSCs to the treatment of institutional issues appeared more limited. This might be explained by three factors: (i) on issues closely related to the Fund’s traditional areas of expertise, (e.g., fiscal transparency, monetary transparency, statistical issues), the supplementary contribution of ROSCs to Fund staff’s knowledge may not be explicitly attributed; (ii) some prepared ROSCs modules may relate to institutional issues that are not seen to deserve priority attention in surveillance—given their nature, ROSC may be prepared whether concerns exist about the related institutional issue or not; and (iii), possibly most importantly, for the period covered by this survey, very few ROSCs were prepared in institutional areas where Fund staff are likely to be most in need of other institutions’ expertise (e.g., corporate governance, insolvency regimes). In the absence of ROSCs, the quality of coverage of institutional issues appears to have varied considerably, depending on whether the issues covered are closely related to the Fund’s traditional areas of expertise.

90. Given the importance of adequate data for the quality of Fund surveillance, data adequacy has become a standard element of consultation discussions. Consequently staff reports have routinely covered data issues, even though the extent of coverage has naturally varied according to the quality of data available in a specific country.

91. Coverage of certain systemic issues—such as the implementation of the OECD Anti- Foreign Bribery Initiative or anti-money laundering efforts, has been mandated by the Executive Board, given the broad interest of the membership in these matters. Coverage of these issues in Article IV consultation reports is usually very brief (typically, a few sentences).

Integration of Coverage

92. The preceding review suggests that Fund surveillance has fully embraced the broadened framework, while applying it selectively according to country-specific circumstances. However, covering the various elements of the broadened framework does not automatically amount to a well integrated assessment of a country’s macroeconomic conditions, vulnerabilities, and policy challenges. Proper integration of these elements would seem essential if the broadened framework is to strengthen surveillance. Thus, an important question is whether this integration has been achieved. In particular, can it be said that, where relevant, attention to global economic and financial developments, analysis of financial and external vulnerabilities, and coverage of such issues as corporate governance have been fully integrated with the “traditional” coverage of macroeconomic and structural policies to form a unified view of a given country’s key policy challenges and possible actions to address these challenges?

93. While it is difficult to answer this question conclusively, the review of surveillance reports suggests that in many countries, this integration has not yet been fully achieved. In particular, in a significant number of countries, coverage of financial sector issues is largely an add-on to a well integrated macroeconomic analysis. Inadequate information in the absence of FSAP participation may account for this shortcoming. In 2000-01, FSAPs have been completed for only 14 percent of the Fund’s membership. Vulnerability assessments were also not always fully integrated into the broader analysis. However, in several reports for emerging market countries, the various components of surveillance did add up to a unified, coherent exercise. Indeed, as noted above, in some of these reports, the discussions of external vulnerabilities—including the vulnerabilities of the financial and corporate sectors—served as the point of entry to the analysis of macroeconomic policies as well as structural and institutional reforms. This was the case in China (with a strong focus on financial and corporate sector vulnerabilities), Lebanon, and, in particular, the countries affected by the Asian crisis (Box 9). Reports for some developing countries without market access also added up to a unified, coherent exercise (Box 10).

Cycles, Frequency, and Delays

104. At end-1999, following efforts undertaken in 1997-98 to make greater use of longer consultation cycles, 160 out of 182 members were on a 12-month consultation cycle, one member was on an 18-month consultation cycle, and 21 were on a 24-month consultation cycle. During 2000-2001, four member countries—Iceland, Libya, the Seychelles and St. Kitts and Nevis—were shifted from a 24-month to a 12-month cycle. In three cases—Iceland, the Seychelles, St. Kitts and Nevis—the shift to an annual cycle was prompted by concerns about large external or domestic imbalances and an ensuing desire to follow economic developments more closely. For Libya, the shift reflected a shared desire for closer collaboration in a situation where the authorities were likely to face important macroeconomic choices for the foreseeable future. As a result, at end-2001, 164 countries were on a 12-month consultation cycle and 18 on a longer cycle.³⁴

105. Notwithstanding these changes in consultation cycles, the number of Article IV consultations concluded by the Board declined from an average of 132 per year during 1998-99 to an average of 125 in 2000-01.³⁵ Coverage of Article IV consultations—i.e., the share of members with which consultations were concluded in a given year—fell from an average of 72 percent of the membership in 1998-99 to 67 percent in 2000-01 (Table 2).³⁶ The decline in coverage occurred in all country groups, but it was particularly pronounced for non-G-10 industrial countries, emerging market and developing countries under a Fund program, and transition countries (Table 3).

Table 2.

Indicators Related to Article IV Consultations, 1992-2001

Sources: Office of Budget and Planning, and the Policy Development and Review and Secretary’s Departments.

^1/Including consultations which were concluded on a lapse-of-time basis.

^2/Excluding assistants.

^3/Main text up to and including staff appraisal and excluding decisions, tables and graphs.

^4/For 1994-1996, includes text and tables, and excludes charts. For 1997-1999, includes text, tables, and charts. The change is due to the

^5/Including consultations combined with use of Fund resources and with overdue obligations reports.

^6/For 1992-1999, as of December of each year and for 2000-01, as of the date of consulstation discussion by the Board, excluding compensatory

^7/Including consultations, use of Fund resources, and reports on overdue obligations.

Table 2.

Indicators Related to Article IV Consultations, 1992-2001

		1992	1993	1994	1995	1996	1997	1998	1999	2000	2001
Coverage and frequency
	Consultations concluded by Board 1/	88	127	138	145	142	130	126	138	123	126
	Membership coverage (in percent)	50	70	75	79	78	70	69	74	67	68
	Average interval since last consultation (months)	16.7	17.2	16.3	15.7	15.1	15	15.3	16.7	17.9	17.6
Missions
	Number of consultation missions	132	164	168	184	179	166	160	167	165	170
	Average size of missions 2/	4.4	4.8	5.2	5.1	5.0	4.9	4.6	4.8	4.4	4.2
Reporting
	Number of staff reports issued	109	130	143	141	140	134	132	136	118	128
	Average length of staff reports (pages) 3/	14.9	15.7	16.2	16.1	16.7	18.7	19.6	20.0	19.8	20.6
	Number of REDS issued 4/	53	90	93	69	76	96	86	89	84	77
	Average length of REDs (pages)	81	91	90	95	92	108	102	101	101	87
Executive Board discussion
	Total Board hours on consultations 5/	160	217	208	232	208	277	203	223	223	217
	In percentage of total Board hours	38	46	38	40	41	45	36	35	29	32
	Average Board hours per consultation	1.8	1.7	1.5	1.6	1.5	2.1	1.6	1.6	1.8	1.7
Memorandum items:
	Number of program countries 6/	49	44	55	61	61	57	60	58	67	72
	Number of country items discussed by Board 7/	253	232	209	225	190	195	191	186	196	191

Sources: Office of Budget and Planning, and the Policy Development and Review and Secretary’s Departments.

^1/Including consultations which were concluded on a lapse-of-time basis.

^2/Excluding assistants.

^3/Main text up to and including staff appraisal and excluding decisions, tables and graphs.

^4/For 1994-1996, includes text and tables, and excludes charts. For 1997-1999, includes text, tables, and charts. The change is due to the

^5/Including consultations combined with use of Fund resources and with overdue obligations reports.

^6/For 1992-1999, as of December of each year and for 2000-01, as of the date of consulstation discussion by the Board, excluding compensatory

^7/Including consultations, use of Fund resources, and reports on overdue obligations.

View Table

Table 2.

Indicators Related to Article IV Consultations, 1992-2001

		1992	1993	1994	1995	1996	1997	1998	1999	2000	2001
Coverage and frequency
	Consultations concluded by Board 1/	88	127	138	145	142	130	126	138	123	126
	Membership coverage (in percent)	50	70	75	79	78	70	69	74	67	68
	Average interval since last consultation (months)	16.7	17.2	16.3	15.7	15.1	15	15.3	16.7	17.9	17.6
Missions
	Number of consultation missions	132	164	168	184	179	166	160	167	165	170
	Average size of missions 2/	4.4	4.8	5.2	5.1	5.0	4.9	4.6	4.8	4.4	4.2
Reporting
	Number of staff reports issued	109	130	143	141	140	134	132	136	118	128
	Average length of staff reports (pages) 3/	14.9	15.7	16.2	16.1	16.7	18.7	19.6	20.0	19.8	20.6
	Number of REDS issued 4/	53	90	93	69	76	96	86	89	84	77
	Average length of REDs (pages)	81	91	90	95	92	108	102	101	101	87
Executive Board discussion
	Total Board hours on consultations 5/	160	217	208	232	208	277	203	223	223	217
	In percentage of total Board hours	38	46	38	40	41	45	36	35	29	32
	Average Board hours per consultation	1.8	1.7	1.5	1.6	1.5	2.1	1.6	1.6	1.8	1.7
Memorandum items:
	Number of program countries 6/	49	44	55	61	61	57	60	58	67	72
	Number of country items discussed by Board 7/	253	232	209	225	190	195	191	186	196	191

Sources: Office of Budget and Planning, and the Policy Development and Review and Secretary’s Departments.

^1/Including consultations which were concluded on a lapse-of-time basis.

^2/Excluding assistants.

^3/Main text up to and including staff appraisal and excluding decisions, tables and graphs.

^4/For 1994-1996, includes text and tables, and excludes charts. For 1997-1999, includes text, tables, and charts. The change is due to the

^5/Including consultations combined with use of Fund resources and with overdue obligations reports.

^6/For 1992-1999, as of December of each year and for 2000-01, as of the date of consulstation discussion by the Board, excluding compensatory

^7/Including consultations, use of Fund resources, and reports on overdue obligations.

Table 3.

Article IV Consultations—Membership Coverage, 1996-2001

Source: Policy Development and Review Department.

^1/Includes consultations with Finland and Sweden in 2000 and Austria, Kuwait, Malta, and Singapre in 2001, which were concluded on a lapse-of-time basis without Executive Board discussion.

^2/Includes consultation discussions with Aruba and the Netherlands Antilles at the request of the Netherlands’ authorities, with Hong Kong at the request of UK authorities, with Hong Kong SAR at the request of the People’s Republic of China’s authorities, and with Macau at the request of Portugal’s authorities.

^3/Excludes arrangements under the systemic transformation facility.

^4/Members only, excluding consultation discussions with Aruba, Hong Kong, Hong Kong SAR, the Netherlands Antilles, and Macau.

^5/Includes multiple missions for individual consultations.

Table 3.

Article IV Consultations—Membership Coverage, 1996-2001

			1996	1997	1998	1999	2000	2001
			(Number of consultations)
Consultations concluded by Executive Board 1/ 2/			142	130	126	138	123	126
	Industrial countries		23	22	19	22	21	19
		G-10	11	11	10	11	11	11
		Non-G-10	12	11	9	11	10	8
	Emerging markets		14	11	16	16	28	28
		Program countries	4	3	6	8	13	10
		Non-program	10	8	10	8	15	18
	Developing countries		83	75	67	78	59	70
		Program countries	30	28	23	27	28	27
		Non-program	53	47	44	51	31	43
	Countries in transition		22	22	24	22	15	9
		Program countries 3/	14	12	12	11	8	7
		Non-program	8	10	12	11	7	2
			(In percent of membership)
Coverage 4/			78	70	69	74	67	68
	Industrial countries		96	92	79	92	84	76
		G-10	100	100	91	100	100	100
		Non-G-10	92	85	69	85	71	57
	Emerging markets		81	63	94	94	78	75
		Program countries	80	50	86	80	65	56
		Non-program	82	70	100	100	88	94
	Developing countries		73	65	60	68	57	66
		Program countries	79	80	64	87	72	66
		Non-program	70	58	58	60	48	66
	Countries in transition		73	73	80	73	79	47
		Program countries 3/	78	75	71	65	100	54
		Non-program	67	71	92	85	64	33
Memorandum items (in absolute numbers):
	Staff reports issued		140	134	132	136	118	128
	Consultation missions 5/		179	166	160	167	165	170
Total membership			181	182	182	182	183	183
	Industrial countries		24	24	24	24	25	25
		G-10	11	11	11	11	11	11
		Other	13	13	13	13	14	14
	Emerging markets		16	16	16	16	36	36
		Program countries	5	6	7	10	20	18
		Non-program	11	10	9	6	16	18
	Developing countries		111	112	112	112	103	103
		Program countries	38	35	36	31	39	41
		Non-program	73	77	76	81	64	62
	Countries in transition		30	30	30	30	19	19
		Program countries 3/	18	16	17	17	8	13
		Non-program	12	14	13	13	11	6

Source: Policy Development and Review Department.

^1/Includes consultations with Finland and Sweden in 2000 and Austria, Kuwait, Malta, and Singapre in 2001, which were concluded on a lapse-of-time basis without Executive Board discussion.

^2/Includes consultation discussions with Aruba and the Netherlands Antilles at the request of the Netherlands’ authorities, with Hong Kong at the request of UK authorities, with Hong Kong SAR at the request of the People’s Republic of China’s authorities, and with Macau at the request of Portugal’s authorities.

^3/Excludes arrangements under the systemic transformation facility.

^4/Members only, excluding consultation discussions with Aruba, Hong Kong, Hong Kong SAR, the Netherlands Antilles, and Macau.

^5/Includes multiple missions for individual consultations.

View Table

Table 3.

Article IV Consultations—Membership Coverage, 1996-2001

			1996	1997	1998	1999	2000	2001
			(Number of consultations)
Consultations concluded by Executive Board 1/ 2/			142	130	126	138	123	126
	Industrial countries		23	22	19	22	21	19
		G-10	11	11	10	11	11	11
		Non-G-10	12	11	9	11	10	8
	Emerging markets		14	11	16	16	28	28
		Program countries	4	3	6	8	13	10
		Non-program	10	8	10	8	15	18
	Developing countries		83	75	67	78	59	70
		Program countries	30	28	23	27	28	27
		Non-program	53	47	44	51	31	43
	Countries in transition		22	22	24	22	15	9
		Program countries 3/	14	12	12	11	8	7
		Non-program	8	10	12	11	7	2
			(In percent of membership)
Coverage 4/			78	70	69	74	67	68
	Industrial countries		96	92	79	92	84	76
		G-10	100	100	91	100	100	100
		Non-G-10	92	85	69	85	71	57
	Emerging markets		81	63	94	94	78	75
		Program countries	80	50	86	80	65	56
		Non-program	82	70	100	100	88	94
	Developing countries		73	65	60	68	57	66
		Program countries	79	80	64	87	72	66
		Non-program	70	58	58	60	48	66
	Countries in transition		73	73	80	73	79	47
		Program countries 3/	78	75	71	65	100	54
		Non-program	67	71	92	85	64	33
Memorandum items (in absolute numbers):
	Staff reports issued		140	134	132	136	118	128
	Consultation missions 5/		179	166	160	167	165	170
Total membership			181	182	182	182	183	183
	Industrial countries		24	24	24	24	25	25
		G-10	11	11	11	11	11	11
		Other	13	13	13	13	14	14
	Emerging markets		16	16	16	16	36	36
		Program countries	5	6	7	10	20	18
		Non-program	11	10	9	6	16	18
	Developing countries		111	112	112	112	103	103
		Program countries	38	35	36	31	39	41
		Non-program	73	77	76	81	64	62
	Countries in transition		30	30	30	30	19	19
		Program countries 3/	18	16	17	17	8	13
		Non-program	12	14	13	13	11	6

Source: Policy Development and Review Department.

^1/Includes consultations with Finland and Sweden in 2000 and Austria, Kuwait, Malta, and Singapre in 2001, which were concluded on a lapse-of-time basis without Executive Board discussion.

^2/Includes consultation discussions with Aruba and the Netherlands Antilles at the request of the Netherlands’ authorities, with Hong Kong at the request of UK authorities, with Hong Kong SAR at the request of the People’s Republic of China’s authorities, and with Macau at the request of Portugal’s authorities.

^3/Excludes arrangements under the systemic transformation facility.

^4/Members only, excluding consultation discussions with Aruba, Hong Kong, Hong Kong SAR, the Netherlands Antilles, and Macau.

^5/Includes multiple missions for individual consultations.

106. The frequency of Article IV consultations continued to decline as evidenced by a lengthening of the average interval between consultations from 16 months in 1998-99 to 18 months in 2000-01 (Table 4). In 2000-01, as in the past, the consultations with G-10 members have effectively taken place on an annual cycle; for most other groups, the effective cycles have been on average in the 14-16 month range; for developing countries, they were around 18 months on average (Figure 5). In general, consultation frequency was lower for program countries than for non-program countries, except for the developing country group where countries on a longer consultation cycle are concentrated.

Table 4.

Frequency of Article IV Consultations, 1996-2001

Average interval since last consultation (In months)

Source: Policy Development and Review Department.

^1/Includes consultation discussions with Aruba and the Netherlands Antilles at the request of the Netherlands’ authorities, with Hong Kong at the request of UK authorities, with Hong Kong SAR at the request of the People’s Republic of China’s authorities, and with Macau at the request of Portugal’s authorities.

^2/Excludes arrangements under the systemic transformation facility.

^3/Member countries not concluding consultations with the Executive Board.

Table 4.

Frequency of Article IV Consultations, 1996-2001

Average interval since last consultation (In months)

				1996	1997	1998	1999	2000	2001
Consultations concluded by the Executive Board 1/
All countries				15.1	15.0	15.3	16.7	17.9	17.6
	Of which: countries on 12-month cycle			14.7	14.7	14.7	15.8	17.4	16.6
Industrial countries				13.6	12.3	13.5	15.4	13.4	14.6
	Of which: G-10			13.0	11.8	12.2	13.0	11.7	12.9
			Non G-10	14.2	12.8	14.9	17.8	15.4	16.9
Emerging markets				13.3	13.6	14.1	14.4	15.9	14.9
	Of which: program			14.4	13.7	13.9	15.9	17.0	15.7
			Non program	12.3	13.6	14.2	12.8	15.0	14.5
Developing countries				15.9	15.7	16.4	17.9	20.9	19.8
	Of which: program			15.6	15.0	15.8	16.2	19.3	18.8
			Non program	16.1	16.2	16.6	18.8	22.4	20.4
Countries in transition				14.9	16.2	14.5	15.8	16.4	15.5
	Of which: program 2/			14.4	16.7	15.9	16.3	16.3	16.1
			Non program	15.9	15.5	13.2	15.2	16.6	13.3
Countries without consultations 3/
	Number of countries			40	55	57	48	60	60
		Of which: program		13	14	19	12	18	28
Countries without a consultation for more than 24 months				5	4	10	11	11	11

Source: Policy Development and Review Department.

^1/Includes consultation discussions with Aruba and the Netherlands Antilles at the request of the Netherlands’ authorities, with Hong Kong at the request of UK authorities, with Hong Kong SAR at the request of the People’s Republic of China’s authorities, and with Macau at the request of Portugal’s authorities.

^2/Excludes arrangements under the systemic transformation facility.

^3/Member countries not concluding consultations with the Executive Board.

View Table

Table 4.

Frequency of Article IV Consultations, 1996-2001

Average interval since last consultation (In months)

				1996	1997	1998	1999	2000	2001
Consultations concluded by the Executive Board 1/
All countries				15.1	15.0	15.3	16.7	17.9	17.6
	Of which: countries on 12-month cycle			14.7	14.7	14.7	15.8	17.4	16.6
Industrial countries				13.6	12.3	13.5	15.4	13.4	14.6
	Of which: G-10			13.0	11.8	12.2	13.0	11.7	12.9
			Non G-10	14.2	12.8	14.9	17.8	15.4	16.9
Emerging markets				13.3	13.6	14.1	14.4	15.9	14.9
	Of which: program			14.4	13.7	13.9	15.9	17.0	15.7
			Non program	12.3	13.6	14.2	12.8	15.0	14.5
Developing countries				15.9	15.7	16.4	17.9	20.9	19.8
	Of which: program			15.6	15.0	15.8	16.2	19.3	18.8
			Non program	16.1	16.2	16.6	18.8	22.4	20.4
Countries in transition				14.9	16.2	14.5	15.8	16.4	15.5
	Of which: program 2/			14.4	16.7	15.9	16.3	16.3	16.1
			Non program	15.9	15.5	13.2	15.2	16.6	13.3
Countries without consultations 3/
	Number of countries			40	55	57	48	60	60
		Of which: program		13	14	19	12	18	28
Countries without a consultation for more than 24 months				5	4	10	11	11	11

Source: Policy Development and Review Department.

^1/Includes consultation discussions with Aruba and the Netherlands Antilles at the request of the Netherlands’ authorities, with Hong Kong at the request of UK authorities, with Hong Kong SAR at the request of the People’s Republic of China’s authorities, and with Macau at the request of Portugal’s authorities.

^2/Excludes arrangements under the systemic transformation facility.

^3/Member countries not concluding consultations with the Executive Board.

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Intervals between Article IV Consultations in 2000-01

Citation: Policy Papers 2002, 008; 10.5089/9781498328838.007.A001

Source: Policy Development and Review Department.1/ Covering only countries on the 12-month consultation cycle.

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107. Underlying the effective lengthening of consultation cycles in recent years has been an increase in delays of consultations. Delays beyond the three-month grace period for countries on the 12-month consultation cycle, which had surged in 1999, remained high during 2000-01 (Table 5). In most of these cases, the delay was relatively short, typically less than two months. As in previous years (with the exception of 1999), the two most frequent reasons for delays were a desire to combine the Article IV consultation with a request for, or a review of, a Fund-supported program and unsettled political conditions or changes in the composition of governments.

Table 5.

Reasons for Delays and Further Delays in Completion of Article IV Consultations,1996-2001

(Number of cases)

Source: Policy Development and Review Department

^1/Including the staff’s decision to incorporate inputs from the FSAP exercise in the Article IV staff report for one case in 2001.

^2/In some cases more than one delay notice was issued for a country-for example, on occasion the revised date for a delayed consultation proved unattainable, necessitating a further delay. Thus, the number of delays and further delays will exceed the number of countries in delay.

Table 5.

Reasons for Delays and Further Delays in Completion of Article IV Consultations,1996-2001

(Number of cases)

		1996	1997	1998	1999	2000	2001
Change of government, change within government, or unstable political situation		17	18	15	20	25	25
Scheduling conflicts		6	5	3	20	17	13
Issuance of staff report delayed pending additional data or action by the authorities 1/		3	4	7	6	8	8
Desire to combine consultation with program request or review		35	30	32	35	56	50
Request of the authorities		4	5	11	15	6	9
Staff constraints		9	11	14	29	12	10
Ongoing policy discussions		0	0	4	9	3	2
Total		74	73	86	134	127	117
By region
	Africa	21	23	34	33	56	46
	Asia	8	9	11	16	18	19
	Europe	18	15	14	32	19	24
	Middle East	7	7	5	12	12	6
	Western Hemisphere	20	19	22	41	22	22
	Total	74	73	86	134	127	117
Memorandum items:
	Number of countries involved in delays in completion of Article IV consultations 2/	57	56	54	87	76	69

Source: Policy Development and Review Department

^1/Including the staff’s decision to incorporate inputs from the FSAP exercise in the Article IV staff report for one case in 2001.

^2/In some cases more than one delay notice was issued for a country-for example, on occasion the revised date for a delayed consultation proved unattainable, necessitating a further delay. Thus, the number of delays and further delays will exceed the number of countries in delay.

View Table

Table 5.

Reasons for Delays and Further Delays in Completion of Article IV Consultations,1996-2001

(Number of cases)

		1996	1997	1998	1999	2000	2001
Change of government, change within government, or unstable political situation		17	18	15	20	25	25
Scheduling conflicts		6	5	3	20	17	13
Issuance of staff report delayed pending additional data or action by the authorities 1/		3	4	7	6	8	8
Desire to combine consultation with program request or review		35	30	32	35	56	50
Request of the authorities		4	5	11	15	6	9
Staff constraints		9	11	14	29	12	10
Ongoing policy discussions		0	0	4	9	3	2
Total		74	73	86	134	127	117
By region
	Africa	21	23	34	33	56	46
	Asia	8	9	11	16	18	19
	Europe	18	15	14	32	19	24
	Middle East	7	7	5	12	12	6
	Western Hemisphere	20	19	22	41	22	22
	Total	74	73	86	134	127	117
Memorandum items:
	Number of countries involved in delays in completion of Article IV consultations 2/	57	56	54	87	76	69

Source: Policy Development and Review Department

^1/Including the staff’s decision to incorporate inputs from the FSAP exercise in the Article IV staff report for one case in 2001.

^2/In some cases more than one delay notice was issued for a country-for example, on occasion the revised date for a delayed consultation proved unattainable, necessitating a further delay. Thus, the number of delays and further delays will exceed the number of countries in delay.

108. Requests for extension of the 3-month period between the end of Article IV Consultation discussions between staff and the authorities and the conclusion of the consultation by the Executive Board have also risen. The primary reason for such requests has been Board scheduling conflicts, which were particularly acute around the time of the Spring and Annual Meetings. However, the increase in the average time elapsed between the two above-mentioned dates has been relatively small; and most consultations were completed within the time limit (Tables 6 and 7). ³⁷

Table 6.

Article IV Consultations—Time Lapsed Between Termination of Discussions with the Staff and Board Consideration, 1996-2001 ^1/

(Average number of days)

Source: Policy Development and Review Department

^1/Recorded as the year in which the consultation discussions with the staff are terminated.

^2/Excludes arrangements under the systemic transformation facility.

Table 6.

Article IV Consultations—Time Lapsed Between Termination of Discussions with the Staff and Board Consideration, 1996-2001 ^1/

(Average number of days)

		1996	1997	1998	1999	2000	2001
Industrial countries		83.2	83.8	87.6	90.8	82.6	83.9
	G-7	71.9	74.8	77.0	85.2	81.7	73.9
	Non G-7	88.2	88.0	92.5	93.3	83.0	89.8
	G-10	76.2	77.8	82.5	90.4	82.2	78.3
	Non G-10	89.2	89.8	93.3	91.0	83.0	91.8
Emerging markets 2/		78.4	77.6	81.7	52.0	75.2	77.2
	Program	62.3	63.0	63.3	41.0	61.2	73.8
	Non program	84.8	83.1	86.7	66.7	87.3	79.1
Developing countries		85.2	89.6	78.5	83.3	86.7	86.9
	Program	78.7	79.5	70.0	69.2	78.8	75.1
	Non program	89.2	95.6	83.8	90.1	93.9	94.3
Countries in transition 2/		67.7	69.5	79.2	60.3	88.1	80.6
	Program	60.2	64.3	70.5	50.0	75.5	79.9
	Non program	79.2	75.6	88.7	73.4	102.4	83.0
All countries		81.6	84.2	80.4	77.8	83.6	83.8
		(Percentage distribution)
50 days or less		14	11	13	22	11	10
51-65 days		9	10	12	13	14	17
66-80 days		19	21	23	21	19	23
81-95 days		32	28	26	22	31	20
More than 95 days		26	29	26	22	26	31

Source: Policy Development and Review Department

^1/Recorded as the year in which the consultation discussions with the staff are terminated.

^2/Excludes arrangements under the systemic transformation facility.

View Table

Table 6.

Article IV Consultations—Time Lapsed Between Termination of Discussions with the Staff and Board Consideration, 1996-2001 ^1/

(Average number of days)

		1996	1997	1998	1999	2000	2001
Industrial countries		83.2	83.8	87.6	90.8	82.6	83.9
	G-7	71.9	74.8	77.0	85.2	81.7	73.9
	Non G-7	88.2	88.0	92.5	93.3	83.0	89.8
	G-10	76.2	77.8	82.5	90.4	82.2	78.3
	Non G-10	89.2	89.8	93.3	91.0	83.0	91.8
Emerging markets 2/		78.4	77.6	81.7	52.0	75.2	77.2
	Program	62.3	63.0	63.3	41.0	61.2	73.8
	Non program	84.8	83.1	86.7	66.7	87.3	79.1
Developing countries		85.2	89.6	78.5	83.3	86.7	86.9
	Program	78.7	79.5	70.0	69.2	78.8	75.1
	Non program	89.2	95.6	83.8	90.1	93.9	94.3
Countries in transition 2/		67.7	69.5	79.2	60.3	88.1	80.6
	Program	60.2	64.3	70.5	50.0	75.5	79.9
	Non program	79.2	75.6	88.7	73.4	102.4	83.0
All countries		81.6	84.2	80.4	77.8	83.6	83.8
		(Percentage distribution)
50 days or less		14	11	13	22	11	10
51-65 days		9	10	12	13	14	17
66-80 days		19	21	23	21	19	23
81-95 days		32	28	26	22	31	20
More than 95 days		26	29	26	22	26	31

Source: Policy Development and Review Department

^1/Recorded as the year in which the consultation discussions with the staff are terminated.

^2/Excludes arrangements under the systemic transformation facility.