IMF exchange rate advice in the spotlight

• Author: Camilla Andersen
• Position: IMF Survey Magazine
• Pages: 129-133

Page 129

A new report by the IMF's Independent Evaluation Office, assessing the usefulness of the Fund's exchange rate advice to member countries, has put the IMF's role in exchange rate surveillance, a core function of the institution, in the spotlight. The report called for "a major refocus of efforts" to remedy what it referred to as an "effectiveness gap" in the IMF's advice. IMF Managing Director Rodrigo de Rato said the Fund is already making changes to its framework for exchange rate surveillance.

Page 131

The IMF's Independent Evaluation Office (IEO) called on May 17 for "a major refocus of efforts" to remedy what it referred to as an "effectiveness gap" in the Fund's advice on exchange rate policy, a core IMF function. In a report hat analyzed the IMF's work on exchange rate policy during 1999-2005, the IEO acknowledged that the quality of the Fund's advice to its member countries had improved in some ways during those years, citing "many examples of good analysis and dedicated staff teams." But in too many cases, the report went on to say, "there was a lack of effective engagement on exchange rate issues."

The IMF's Executive Directors welcomed the report and, in discussing it, broadly endorsed the IEO's conclusion that the Fund was not as effective as it needed to be in its exchange rate advice during 1999-2005. The Board also agreed that the Fund should aim to enhance the effectiveness of its analysis, advice, and dialogue with member countries, and that it should seek to address any perception of asymmetry in its exchange rate surveillance.

In his remarks, IMF Managing Director Rodrigo de Rato said that many initiatives were already under way to make exchange rate surveillance more effective.

He also pointed out that IMF staff and management disagreed with some of the report's conclusions (see page 132).

To gather evidence for its analysis, the IEO reviewed the last two country reports for each of the IMF's members through 2005, as well as related background material. These reports are produced every year for most countries and contain the Fund's advice to policymakers on a range of economic issues, including exchange rate policy. IEO staff also examined in detail the IMF's exchange rate advice to a group of 30 economies. To complement its desk reviews, the IEO conducted interviews with country authorities and IMF officials...