Fifth Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations

Periodic Monitoring Reports update the status on Management Implementation Plans (MIPs) in response to Executive Board-endorsed IEO recommendations. The last Periodic Monitoring Report (PMR) was discussed by the Board Evaluation Committee (EVC) and then agreed by the Board in August 2011. That report concluded that all key performance benchmarks related to the MIPs covered in that report had either been met or were on track for timely completion, that no new remedial actions were proposed, and that there were no outstanding performance benchmarks to be reviewed in the next PMR. In their assessment to the Executive Board, the EVC did, however, note that further work was needed on three other issues—staff mobility, enhanced coverage of previous implementation plans, and the process for following up on IEO recommendations. This fifth report therefore updates work on these three issues, including a consolidated picture of recent progress on all Board-endorsed recommendations made since the first PMR in 2007. This PMR also presents progress on the Implementation Plan in response to Board-endorsed recommendations arising from the IEO Evaluation of IMF Interactions with Member Countries (hereafter, Interactions Evaluation).

Abstract

Periodic Monitoring Reports update the status on Management Implementation Plans (MIPs) in response to Executive Board-endorsed IEO recommendations. The last Periodic Monitoring Report (PMR) was discussed by the Board Evaluation Committee (EVC) and then agreed by the Board in August 2011. That report concluded that all key performance benchmarks related to the MIPs covered in that report had either been met or were on track for timely completion, that no new remedial actions were proposed, and that there were no outstanding performance benchmarks to be reviewed in the next PMR. In their assessment to the Executive Board, the EVC did, however, note that further work was needed on three other issues—staff mobility, enhanced coverage of previous implementation plans, and the process for following up on IEO recommendations. This fifth report therefore updates work on these three issues, including a consolidated picture of recent progress on all Board-endorsed recommendations made since the first PMR in 2007. This PMR also presents progress on the Implementation Plan in response to Board-endorsed recommendations arising from the IEO Evaluation of IMF Interactions with Member Countries (hereafter, Interactions Evaluation).

I. Overview

1. Periodic Monitoring Reports update the status on Management Implementation Plans (MIPs) in response to Executive Board-endorsed IEO recommendations.1 The last Periodic Monitoring Report (PMR) was discussed by the Board Evaluation Committee (EVC) and then agreed by the Board in August 2011.2 That report concluded that all key performance benchmarks related to the MIPs covered in that report had either been met or were on track for timely completion, that no new remedial actions were proposed, and that there were no outstanding performance benchmarks to be reviewed in the next PMR. In their assessment to the Executive Board, the EVC did, however, note that further work was needed on three other issues—staff mobility, enhanced coverage of previous implementation plans, and the process for following up on IEO recommendations. 3 This fifth report therefore updates work on these three issues, including a consolidated picture of recent progress on all Board-endorsed recommendations made since the first PMR in 2007. This PMR also presents progress on the Implementation Plan in response to Board-endorsed recommendations arising from the IEO Evaluation of IMF Interactions with Member Countries (hereafter, Interactions Evaluation).

II. Summary of Implementation Status

2. The implementation status of the performance benchmarks are reported below. Section A describes progress on the key benchmarks for the implementation plan on the Interactions Evaluation. The EVC’s request for a progress update on staff mobility and the process for following up on IEO recommendations are provided in section B. Section C presents an update on previous implementation plans agreed since the first PMR in 2007.

A. IMF Interactions with Member Countries

3. As detailed below, the implementation of performance benchmarks related to the Interactions Evaluation have either been met or are on track for timely completion:4

  • Improve the quality and relevance of the international dimensions of the Fund’s work. “ The following initiatives have been put in place:

    • i.      New products and procedures have been introduced to strengthen the systematic and international aspects of Fund surveillance, including: continuing spillover reports (discussed by the Board in July 2012), the External Sector Report (a pilot report was discussed by the Board in July 2012), more coverage of spillovers and cross country work in Article IV reports, Board discussion of Article IV reports in clusters (the plan is to extend these beyond the clustered discussion of the five systemic economies), and Risk Assessment Matrices (RAMs), which systematize discussion of how key global risks affect each country.

    • ii.      The Integrated Surveillance Decision was approved by the Board in July 2012.

    • iii.      Given insufficient Board support for increasing the frequency of mandatory FSAPs for systemic economies, the 2011 Triennial Surveillance Report (TSR) described the alternative modalities that will be pursued. For example, a financial expert will be assigned to each Article IV team involving systemically important financial sectors. Additional resources will be mobilized for these countries as well as others as needed (e.g., in case of mounting financial vulnerabilities).

  • As an element of concerted strategy to engage more deeply with both emerging and advanced economies, develop menus of products and services to be offered and make sure they are transparent, compelling, and feasible. “ Reform to lending products to meet the needs of the membership has continued. These have included the creation of the Precautionary and Liquidity Line (PLL) and amendments to the Flexible Credit Line (FCL) in November 2011. The 2011 review of fragile states saw the implementation of a number of new policies and practices, including fuller use of the Rapid Credit Facility (RCF).

  • Replace the now defunct country surveillance agendas with strategic agendas. “ While there was little Board support for strategic agendas, much has happened to improve the traction of the IMF’s advice. The 2011 TSR directly tackled this issue, and proposed a number of actions, including reiterating that country teams should exchange views with authorities on key issues for discussion prior to Article IV missions, without compromising their capacity—and obligation—to raise relevant and difficult issues.

  • As part of new ways of engaging and to underpin the Fund’s strategic shift, bring more experts on country visits, especially when country interest and traction are waning. “ Given insufficient Board support for the IEO’s specific proposal, efforts have instead been focused on continuing to broaden the professional diversity of staff, including their educational background and skill mix, as discussed in the recent MIP for the evaluation of the IMF Performance in the Run-Up to the Financial and Economic Crisis (hereafter the Crisis Evaluation). In this regard, steps have been taken to: recruit a higher proportion of midcareer economists with substantial policy experience; hire more staff with financial sector experience as well as experts with fiscal and debt policy skills; and increased support for training and secondments. The MIP for the Crisis Evaluation detailed the progress made in this area. The next update on strategic HR issues will be provided in the context of the corporate workforce planning discussions in the fourth quarter of 2012. In the last year, a Working Group has also been looking at recommendations on boosting the effectiveness of staff in the field and suggested actions to fill in gaps in implementation. Recommendations being taken forward include those to strengthen the training and preparation of resident representatives for their assignments, to ensure better advance planning in the selection process by focusing on the right balance of skills and experience, and to clarify the mandate and strengthen departmental management of resident representatives. Finally, regional advisory groups have continued to play an important role in some area departments.

  • Clarify the rules of the game on outreach. “ The Fund’s approach to outreach continues to evolve, with a number of new initiatives to assist staff in their outreach efforts, including regularly held communications meeting chaired by the Managing Director/Acting Managing Director. The toolkit continues to be updated and plays a central role in supporting the Fund’s outreach efforts.

  • Decide how to handle the Fund’s negative reputational legacy and tell staff so that they can act upon it”. Efforts described in the Interactions Evaluation MIP, such as reforms to the Fund’s conditionality and lending frameworks, continue to help address the legacy issue. The 2011 Review of Conditionality (discussed by the Board in September 2012) assesses the progress made since the introduction of these reforms, and finds broadly positive results for a substantial majority of Fund-supported programs. At the same time, the review highlights challenges in some of the Fund’s recent arrangements, particularly for countries with high debt.

  • Provide guidance and training on professional conduct for staff interactions with the authorities and IMF senior/staff management on matters of country assessments. “

    Reforms have been announced covering professional conduct, leadership, management training, mobility, and accountability. In particular, a statement of workplace values for employees has been agreed and was launched in July 2012. It emphasizes the need for an enhanced focus on people management and diversity. The statement of workplace values provides a basis for guidance as to the desired culture and behaviors for the Fund’s managers and staff. The statement emphasizes, among other things, that staff should contribute their ideas to the work program of departments, to encourage diverse contributions that may not be in line with the Fund’s “groupthink.” As described above, a number of recommendations from the working group on staff presence in the field that directly address the concerns raised by the IEO in this area are also being taken forward.

  • Increase mission chief and staff tenure on country assignments, as well as training and incentives for interactions. “New measures aim to balance the demand for crosscountry experience and fresh perspectives with the demand for mission team stability. As highlighted in the recent MIP for the Crisis Evaluation, reforms have recently been announced which mean that, going forward, assignments will be expected to last three years on average, and for staff members with seven or more years in a department, there will be a centralized mobility support program to complement existing market mechanisms. The Human Resources Department (HRD), with the support of the Technology and General Services Department (TGS), has also put in place a system to monitor mission chief and team tenure, the results of which will be shared with the Board as a part of briefings on strategic human resources issues.

  • Clarify relationship management arrangements, emphasizing the importance of team work. “ The mandate of resident representatives has been clarified, and departmental management strengthened. This was one of the key recommendations of the recent working group on increasing staff effectiveness in the field. As a consequence, tailored job standards are being established for resident representatives, and terms of reference are being drawn up that are substantive and country specific, in consultation with key stakeholders.

  • The Fund should continue to strengthen implementation of its vision for country-specific technical assistance strategies. “ The Fund opened a new era in its capacity building activities on May 1, 2012 with the launch of the Institute for Capacity Development (ICD). The new department brings together the former IMF Institute (INS) and Office of Technical Assistance Management (OTM) with a sharper focus on developing a strategic approach to the two planks of the Fund’s capacity building-technical assistance and training—and exploiting synergies in the Fund’s operations in this area. The new department will strengthen the strategy and coordination of capacity building activities of the Fund and also enhance outreach in this area. A new Strategy and Evaluation Division is tasked with continually developing and enhancing the Fund’s capacity building strategy, while the Department’s new regional divisional structure is more closely aligned with area departments and regional technical assistance centers (RTACs) allowing a more cohesive approach.

B. Progress on Specific Issues Highlighted by the EVC from the Fourth PMR

4. In their discussion of the fourth PMR, the EVC noted that further work was needed to address three issues.

  • I. Staff tenure: As discussed above, there is now a system to monitor mission chief and team tenure, the results of which will be shared with the Board as a part of briefings on strategic human resources. This aspect will be covered in the briefing on corporate workforce planning scheduled for the fourth quarter of 2012.

  • II. A better process for endorsing and following up on IEO recommendations: The current MIP/PMR process, while seen as a useful way of helping monitor whether IEO recommendations are followed up on, also has a number of constraints. For instance, it is often seen as overly-bureaucratic—e.g., forgetting about IEO recommendations once they have been declared “implemented” in the PMR process. The upcoming external review of the IEO provides a timely opportunity to consider changes to the process. While there is always room for improvement, from the staff’s perspective, it is unquestionable that IEO recommendations do have a major impact on the work of the Fund long after the initial IEO evaluation—as seen most recently in the 2011 TSR and the 2011 Review of Conditionality. As the Managing Director emphasized at the conference celebrating the ten-year anniversary of the IEO, any new system for follow up should avoid being bureaucratic, cumbersome, and costly, especially when there are severe competing demands on staff time.

  • III. Enhanced coverage of previous implementation plans: one immediate step that this PMR takes is to produce a table highlighting the status of past implementation plans, which will help facilitate an overall assessment of the effectiveness with which the IEO recommendations endorsed by the Board are being pursued. The first PMR provided a comprehensive assessment of all IEO recommendations made up to the 2006 IEO report on the IMF’s Multilateral Surveillance. Subsequent PMRs have reported on those reports that had their implementation outstanding. This PMR updates on the implementation status of all those Board-endorsed recommendations made since the first PMR in 2007. The reports covered in section C are:5

  • The IMF and Aid to Sub-Saharan Africa (2007);

  • IMF Exchange Rate Policy Advice 1999-2005 (2007);

  • Structural Conditionality in IMF-Supported Programs (2007);

  • IMF Involvement in International Trade Policy Issues (2009).

A summary of the initial implementation of the MIP for the Crisis Evaluation, which was discussed by the Board in May 2012, is also provided below.

C. Implementation of IEO Reports - Summary of Recent Developments

5. A summary of developments on issues related to recent IEO reports is provided below. More detailed explanations of how the original Board-endorsed recommendations have progressed are provided in Annexes 2-5. For each recommendation the annexes provide: (1) the original Board reaction; (2) the proposed follow up at the time of the relevant MIP discussion; (3) the progress with implementation provided at the time of the subsequent PMR discussion, and (4) an update on more recent progress.

The IMF and Aid to Sub-Saharan Africa

  • The Fund overhauled its facilities for low-income (LIC) members in 2009, with a view to increasing their flexibility and tailoring them to meet the increasingly diverse needs of its LIC members. Coming at the height of the global crisis, the reform was seen as part of the Fund’s response to assist LICs, many of which had become increasingly integrated into the world economy and thus become more exposed to global shocks.

  • The reform created a new architecture of facilities comprising: (i) the Extended Credit Facility (ECF); (ii) the Standby Credit Facility (SCF); (iii) the Rapid Credit Facility; and (iv) the (pre-existing) Policy Support Instrument (PSI). Access was doubled and access policies revised; blending rules strengthened; concessionality increased, including through temporary interest relief; Poverty Reduction Strategy documentation requirements made more flexible; and a medium-term financing package put in place, supported in part from resources linked to gold sales. Around the same time, the Fund also adopted a new policy on debt limits in Fund-supported programs, making its debt policy more flexible, and discontinued structural performance criteria.

  • LIC demand for Fund-supported programs has remained very high—there are currently

    around 50 PRGT-eligible countries in program or near-program status, of which around 30 in sub-Saharan Africa. LIC facilities will be reviewed in 2012.

IMF Exchange Rate Policy Advice

  • The 2007 Surveillance Decision and related guidance notes provided additional clarity on what is expected in Fund surveillance of exchange rates and external stability. In addition, the 2008 and 2011 TSRs contained recommendations clarifying the content of exchange rate surveillance, and Surveillance Guidance notes following each TSR provided guidance to staff. Staff also prepared proposals for an Integrated Surveillance Decision, which was approved by the Board in July 2012.

  • With regard to exchange rate analysis, to enhance evenhandedness and promote knowledge dissemination, the Research Department has produced practical guidance to desks on implementing the Consultative Group on Exchange Rate Issues (CGER) assessments. Staff is also developing improved exchange rate methodologies, notably the External Balance Assessment (EBA), building on CGER. The Strategy, Policy, and Review Department (SPR) and Area Departments are promoting best practice, including on ways to adapt exchange rate analysis to countries in specific circumstances. The 2011 TSR and related guidance note also emphasized the importance of Article IV reports going beyond exchange rates to take a broad view of external stability, including examination of current accounts, reserves, capital flows, and balance sheets. They also emphasized the importance of discussing exchange rate policies in the context of the overall policy mix. These recommendations are now being implemented in staff reports.

  • With regard to multilateral exchange rate surveillance, following Board endorsement of the MD’s 2011 Statement on Strengthening Surveillance, staff has prepared a pilot External Sector Report that analyzes external sector imbalances on a multilaterally consistent basis. The report presents assessments of current accounts, exchange rates, capital flows, reserves (including intervention), and net foreign asset positions for 28 major economies plus the Euro Area. It will also enhance the transparency and consistency of the Fund’s policy advice on exchange rates.

  • Steps have also been taken on interdepartmental coordination on exchange rate analysis. While the existing team structure is deemed appropriate, attention has been given to developing better analytical techniques and disseminating these techniques to desks, e.g., via joint training sessions on external stability assessments by ICD and SPR. In addition, the External Sector Report Coordinating Group introduced a new interdepartmental process for integrating departments’ views on members’ external balances and exchange rates and ensuring information sharing across departments.

  • The IEO report highlighted the importance of engagement with country authorities. The 2011 TSR recommended steps to improve engagement, including through exchanging views with authorities on key issues prior to Article IV missions and having Article IV reports follow up on past policy advice. The Fund has also introduced new reports including spillover reports for five major economies in 2011, and again in 2012, which examined the impact of their policies on other members.

Structural Conditionality in IMF-Supported Programs

  • The 2011 Review of Conditionality found broadly positive results for a substantial majority of Fund-supported programs, but also highlighted challenges in some recent Fund financial arrangements.

  • The review finds that program conditionality has generally been appropriately streamlined, even-handed, and tailored to country needs. In a few recent programs, where restoring external competitiveness required deep labor and product market reforms, structural conditionality was more extensive.

  • In most programs, the conditionality guidelines were followed appropriately and programs succeeded in meeting their objectives. Program design adapted flexibly and appropriately to the challenges of the global financial crisis and its aftermath.

  • The macroeconomic impact of most programs appears to have been generally positive, and social spending has usually been largely protected and, in some cases, has increased. However, in some cases where large policy adjustment was needed for medium-term fiscal and external sustainability, it was associated with output losses, though here too efforts were made to protect the most vulnerable.

IMF Involvement in International Trade Policy Issues

Further progress has been made in those areas discussed in the MIP:

  • The guidance on financial services and preferential trade agreements (PTAs) that were developed by staff, issued to the Board for information, and published, are now being utilized.6

  • The Trade and Policy Review division in SPR reviews the consistency of Fund lending and surveillance with the updated trade guidance notes. Performance will be examined in the next review of trade policy, expected in 2014.

  • Coverage of cross-cutting trade policy issues are regularly included in the Fund’s surveillance vehicles. More trade-related multilateral surveillance material was also prepared on a standalone basis, including for example a 2011 paper Changing Patterns of Global Trade, which outlined recent developments in global trade, and analyzed their implications for the outlook for global trade patterns. A follow up paper will look into the dynamic aspects of the global supply chains, and will also address implications for surveillance—e.g., the impact of value added trade on real effective exchange rates (REERs) and linkages with financial flows.

  • A November 2011 paper, The WTO Doha Trade Round—Unlocking the Negotiations and Beyond, provided an update on the status of Doha negotiations and an outlook on significant non-Doha trade issues that should be tackled.

  • Trade policy work is carried out by staff economists able to work effectively on both trade policy and broader macroeconomic issues, which helped to integrate trade policy into the Fund’s broader work.

  • Progress has been made on several fronts to ensure that staff has ready access to timely and relevant summary trade policy information regarding goods trade, preferential trade agreements (PTAs), and financial services. Examples include the Fund-wide availability of the Global Trade Atlas (containing up to date, detailed bilateral monthly trade statistics), and the preparation of a quarterly internal trade monitor publication. There was also continued close cooperation between IMF staff and those of the World Bank, WTO, and others on information and data sharing.

  • Regular meetings have taken place between senior staff of the WTO and World Bank, as well as other relevant multilateral organizations, including semi-annually with the WTO experts group on trade finance. 2011 saw the first IMF/WB/WTO joint trade workshop, the goal of which was to exchange views on policy issues of common interest and discuss ongoing research projects. A senior staff member also made a presentation in the WTO workshop on exchange rates and trade. Finally, IMF staff presented their analysis of protectionism to WTO ambassadors in a session chaired by the Director General of the WTO.

IMF Performance in the Run-Up to the Financial and Economic Crisis

6. The Board discussed the MIP in response to Board-endorsed recommendations for the Crisis Evaluation in May 2012. They broadly supported the specific proposals in the implementation plan, and welcomed management’s statement on an ambitious agenda to break down silos and promote diverse views and candor, further advancing initiatives underway. Directors considered that both sets of proposals provide a good start and encouraged management and staff to continue to build on them, and where appropriate, engage the Board in the process.

7. The next PMR will make an assessment of the progress made on the measures set out in the MIP for the Crisis Evaluation. At the same time, as the Managing Director highlighted in her statement for that meeting, the MIP may not be the best vehicle for assessing the more intangible goals. Therefore, in addition to that process, the Board will return in a year’s time to the issues raised in the Managing Director’s statement.

III. Conclusions

8. All performance benchmarks from the Interactions MIP have either been met or are on track for completion, and no new remedial actions are proposed. There are no outstanding performance benchmarks to be reviewed in the next PMR, although the next PMR will provide further updates on any broader issues raised in the context of this report.

Proposed Decision

The Executive Board supports the conclusions in Paragraph 8 of the Fifth Periodic Monitoring Report on the Implementation of Board-Endorsed IEO Recommendations.

Annex 1. Implementation Status for the IEO Report on IMF Interactions with Member Countries

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Annex 2. Recent Progress on the IEO Report on the IMF and Aid to Sub-Saharan Africa

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Annex 3. Recent Progress on the IEO Report on IMF Exchange Rate Policy Advice, 1999-2005

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Annex 4. Recent Progress on the IEO Report on Structural Conditionality in IMF-Supported Programs

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Annex 5. Recent Progress on the IEO Report on IMF Involvement in International Trade Policy Issues

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1

Periodic Monitoring Reports (PMRs) were established by the Executive Board in January 2007 to ensure the systematic monitoring of IEO recommendations that the Board has endorsed. The first PMR was discussed by the Board in January 2008 (Periodic Monitoring Report on the Status of Board-Endorsed IEO Recommendations and Management Implementation Plans), the second was discussed by the Evaluation Committee (EVC) in November 2008 (Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations), and the third was discussed by the EVC in January 2010 (Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations).

2

Fourth Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations.

3

The assessment by the EVC is reflected in Fourth Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO RecommendationsAssessment by the Evaluation Committee to the Executive Board.

4

Details are provided in Annex 1.

5

There was no Management Implementation Plan for the 2008 report—Governance of the IMF: An Evaluation—given the complexity of the issues, and the need for a broader discussion than could be considered within the PMR framework. These issues remain under active discussion, and Section B of the recent Work Program provides a summary of recent discussions and outlines the agenda going forward.

6

See Reference Note on Trade in Financial Services (September 2010), and Reference Note on Trade Police Preferential Trade Agreements, and WTO Consistency (October 2010).