Adapting IMF Surveillance to a Changing Global Economy

• Pages: 113-116

Page 113

E very two years, the IMF's Executive Board reviews the principles and procedures underlying IMF surveillance over its member countries' policies, as well as the formal 1977 Surveillance Decision. The following is a summary of the 1997 review that took place earlier this month, pre pared by Robert Kahn and Dominique Desruelle of the IMF's Policy Development and Review Department.

IMF surveillance over its members' policies is not a static concept but one that has evolved to meet the new challenges posed by a changing global environment. Events in Mexico in late 1994 and early 1995 dramatically illustrated the striking speed with which markets could react to shifts in sentiment about a country's economic situation or the sustainability of its financial policies. In turn, this episode highlighted the need for the IMF to monitor economic developments continuously on the basis of accurate and up-to-date data, particularly in a world with increasingly integrated financial markets, and to consult promptly with members when problems arise. Consequently, in 1995, the Executive Board adopted a strategy to strengthen IMF surveillance, a key goal of which was to improve the IMF's ability to detect emerging financial tensions at an early stage.

This strategy crystallized around four themes:

* Improving the flow of economic and financial data. The Mexican crisis illustrated that delays in the provision of key information could detract from discipline over policy and contribute to disorderly and disruptive market adjustments. Consequently, the IMF and its members recommitted themselves to working jointly to ensure that information provided to the IMF and the public would be regular, timely, comprehensive, and of high quality.

* Continuity of surveillance. Delayed adjustment that is forced by the markets can be more costly and disruptive than prompt implementation of corrective measures. This puts a premium on the early detection of risky or unsustainable economic situations. By making its surveillance more continuous, the IMF can play a key role in this regard.

* Focus of surveillance. The changing global environment has pointed to the need for more attention in IMF surveillance to new issues such as large flows of private capital. At the same time, the Board believed a more selective focus was necessary-both with respect to countries and issues- to ensure core areas of IMF responsibility are covered fully and effectively in discussions with national authorities.

* Candor of surveillance. All member countries favor tougher and more candid...