IMF Surveillance
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To promote global economic stability through multilateral cooperation, the IMF has been given the mandate of overseeing the international monetary system and monitoring the economic and financial policies of its 185 member countries. This activity is known as surveillance. IMF surveillance provides an expert assessment of economic and financial developments, both globally and in individual countries. It and advises on risks to stability and growth and if policy adjustments are warranted. In this way, the IMF helps the international monetary system serve its essential purpose of providing a framework that facilitates the exchange of goods, services, and capital among countries and sustains sound economic growth. |
Why is IMF surveillance important?
In today's globalized economy, where the economic and financial policies of one country may spill over to affect many other countries, international cooperation on a global scale to monitor and influence economic developments is essential. With its nearly universal membership of 185 countries, IMF surveillance provides the mechanism for this cooperation. Effective surveillance contributes to a stable international monetary system that sustains sound economic growth through the following mutually-reinforcing processes: multilateral surveillance, or oversight of the world economy; and bilateral surveillance which comprises appraisal of and advice on the policies of each individual member country to promote external and domestic stability (including growth); analysis of cross country spillovers; and sharing of the aggregate experience of 185 members.
The evolution of IMF surveillance and its role today
Surveillance in its present form was established by Article IV of the IMF Articles of Agreement as revised in the late 1970s after the collapse of the Bretton Woods system of fixed exchange rate parities. Under Article IV, member countries undertake to collaborate with the IMF and with one another to promote the stability of the global system of exchange rates. In particular, they commit to running their domestic and external economic policies in keeping with a mutually agreed code of conduct. The IMF is charged with (i) overseeing the international monetary system to ensure its effective operation, and (ii) monitoring each member's compliance with its policy obligations. (These are the distinct but closely related multilateral and bilateral aspects of surveillance.) To ensure that surveillance evolves to remain effective in the globalized 21st century, the IMF is implementing a Medium-Term Strategy.
The 2007 Decision on Bilateral Surveillance
In June 2007, the policy framework of surveillance received a major update, its first since the 1970s, through the new Decision on Bilateral Surveillance Over Members' Policies, which also sought to codify best practice. Highlights of the Decision are that it clarifies:
• that country surveillance should be focused on assessing whether countries' policies promote external stability. That means that surveillance should mainly focus on exchange rate, monetary, fiscal, and financial policies and on an assessment of risks and vulnerabilities;
• what is and is not acceptable to the international community in terms of how countries run their exchange rate policies; and
• that surveillance is a collaborative, candid, and evenhanded process between the Fund and its members, that takes into account countries' specific circumstances and has a multilateral, medium-term perspective.
Strengthening the Practice of Surveillance
The quality of IMF analysis is constantly being upgraded, to ensure that the IMF offers the best advice possible to its members. In line with the new Surveillance Decision, a priority is sharpening exchange rate assessments; one innovation is widening the set of countries to which the IMF applies its multilateral framework for assessing exchange rate misalignment. Financial sector issues are also receiving elevated coverage under IMF surveillance, building on the Financial Sector Assessment Program (FSAP) and on analytical tools for integrating financial sector and capital markets analysis into macroeconomic assessments. Methodologies to better capture cross-country spillovers and emerging market vulnerabilities are also part of the innovations to strengthen the practice of surveillance.
Because surveillance needs to evolve with the global economy, the IMF periodically reviews its policies and practices in this area. The Medium-Term Strategy identified priorities for surveillance including sharper focus, deeper treatment of exchange rate issues, enhanced financial sector surveillance, and greater coverage of regional and global spillovers.
Other Innovations
Various other changes are being implemented to increase the focus and relevance of surveillance. For example, the IMF is now using country-specific surveillance agendas, a strategic tool listing the priority objectives that surveillance will promote in a given member country over the medium-term. In selected appropriate cases, Article IV consultations and reports are being streamlined. To further improve the prioritization and accountability of surveillance institution-wide, the IMF is committed to adopt and periodically update, starting in 2008, a statement of time-bound surveillance priorities, which would cover both operational objectives (such as improving IMF exchange rate analysis) and economic objectives (such as contributing to the reduction of current global imbalances).
How IMF country surveillance works in practice
On a regular basis-usually each year-IMF economists visit the member country to gather information and hold discussions with government and central bank officials, and often with other stakeholders such as civil society organizations. The mission then submits a report to the IMF's Executive Board for discussion, whose views are subsequently transmitted to the country's authorities.
In recent years, surveillance has become increasingly transparent. Nine out of ten member countries now agree to publication of a Public Information Notice, which summarizes the views of Fund staff and the Board, and often also the staff report itself.
Multilateral surveillance
The IMF continuously reviews global and regional economic trends. Key instruments of global and regional surveillance are two semi-annual publications, World Economic Outlook and Global Financial Stability Report, the former focused on the world economy as a whole and the latter on the financial sector and capital markets. The successful completion of the first multilateral consultation on global imbalances, showed that this is a valuable innovation for enhancing global and regional surveillance. To further enhance regional surveillance, a set of measures including organizational changes, research, policy discussions, and outreach is being implemented. In particular, Regional Economic Outlook Reports on four major regions are now published on an annual or semi-annual basis.
