Interview with Mark Allen: IMF needs to do far more to help countries learn from each other's successes and failures

• Pages: 97-101

Page 97

IMF SURVEY : At last year's Annual Meetings, the IMF was called upon to improve the quality, effectiveness, and persuasiveness of its surveillance. Anything to report?

ALLEN: We've been making a major effort to strengthen our annual consultations with member countries, bringing in a number of new elements-the balance sheet approach; a greater emphasis on the financial sector, drawing on internal vulnerability exercises; standards and codes of best practices; and more analysis Page 99 of the impact of a country's policies on others in a given region. All of these elements give countries the tools to become more resilient to crises. In addition, there have been a number of calls for the surveillance process to take a fresh look at countries' policies, particularly those countries that have had IMF arrangements over an extended period of time. It also would be helpful if we could better disseminate our knowledge of the experiences of other countries in our surveillance.

IMF SURVEY : Can countries, in fact, learn from each other, or do they really learn only from their own mistakes? What should be the IMF's role in disseminating lessons learned?

ALLEN: Confucius said there are three ways to learn wisdom: "First, by reflection, which is noblest; second, by imitation, which is easiest; and third, by experience, which is the bitterest." Now, can countries learn from others? I think it has to be a tenet of faith of the IMF that they can. We sit on this wealth of experience, and we can be fairly criticized for not utilizing it more effectively in our surveillance process. Would countries actually listen? Countries are unique, but it is up to the mission chief to be effective in explaining that there are things to be learned from the way other countries have tackled similar problems-both their successes and their mistakes. Very often we do find receptive ministers of finance and central bank governors who are wrestling with problems they know others have faced, and they look to us for that experience. This is something that we ought to do far more of-it should be a more central feature of our surveillance work.

IMF SURVEY : You mentioned a new "balance sheet" approach to analyzing countries' economies. What does this mean in plain English?

ALLEN: The nature of financial crises has changed over the past 15 years, so we've been trying to understand better the genesis of these crises-what causes them, how they unfold, and what you can do to prevent them. The key element is that these are crises in which creditors lose confidence in some part of the debtor economy. It may be that they lose confidence in the solvency of the government. They may lose confidence in the banking system. They may lose confidence in the corporate sector's ability to pay its debts. The balance sheet approach complements our traditional approach of looking at the flow variables in the economy-how the economy is moving over time-with one that looks at the strength of the various balance sheets in the economy and how these interact. And if some balance sheets are...