Vendor transacts in Hyderabad, India. IMF work plan includes focus on financial deepening in emerging economies (photo: Noah Seelam/AFP/Newscom)
IMF WORK PROGRAM
Against the backdrop of a global economy that has avoided the worst, but is still in a fragile and uneven recovery, the work program discussed by the IMF Executive Board on June 3 is designed to help place the global economy on sustained and balanced growth path.
The Board’s biannual discussion of its work program focused on translating the policy priorities laid out in the Global Policy Agenda into a specific action plan for the 188-member institution over the next six to twelve months. The IMF’s Global Policy Agenda was presented by Managing Director Christine Lagarde at the recent IMF–World Bank Spring Meetings.
In addition to assisting members with identifying emerging risks and designing calibrated policies to encourage stronger and sustainable growth, the work program emphasizes the need to address medium-term structural issues to restore the world economy’s resilience—strengthening financial systems, addressing high deficits and debt, supporting growth and jobs, and narrowing global imbalances and anticipating spillovers.
IMF Survey spoke with Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, about the key components of the work program.
IMF Survey: At the 2013 Spring Meetings, the emphasis was on a better balance of monetary, fiscal, and structural strategies. How is this reflected in the work program?
Tiwari: At the time of the Spring Meetings, it was recognized that even though sentiment had improved, growth and jobs were still lagging in many countries. New risks were also emerging because of limited progress in addressing legacy issues of the crisis. Against this background, policies that balanced the need to support growth with the need to overcome weak fundamentals, be it fiscal, financial, business or household, were needed. The current work program focuses on these issues.
• For the euro area, the Fund’s analysis will seek to promote a common understanding on options for fiscal and financial sector repair and reform, as well as growth-promoting structural reforms.
• In other advanced economies, especially the United States and Japan, we will be analyzing the implications of unconventional monetary policies, while taking into account their growth and structural reform priorities.
• Emerging market economies, which have been growing at a robust pace, need to recalibrate their policies to guard against financial excesses and rebuild policy buffers. For this, our work will focus on their growth performance and prospects, and on financial sector deepening, which should help bolster their resilience and capacity to absorb and manage capital flows.
• In low-income countries, our advice will focus on rebuilding policy buffers while meeting pressing infrastructure and social needs. We will further strengthen our policy advice on the management of natural resource wealth, financial deepening, and structural transformation. Our work on reviewing the Fund’s debt limits policy envisaged for end-2013 should also help low-income countries scale up investment while safeguarding debt sustainability.
IMF Survey: How will the work program tie into the IMF’s ongoing work to examine the role of unconventional monetary policy during and after the global crisis?
Tiwari: At the time of the Spring Meetings, concerns were being raised about the spillovers from loose and unconventional monetary policies in advanced economies and the risks associated with exit. The current work program envisages a number of papers on the topic of unconventional monetary policy. A paper on The Global Impact of Unconventional Monetary Policy, due in September, will examine the impact of this policy on advanced and emerging market economies, its contribution to narrowing global imbalances, and the implications of exit strategies.
Monetary policy trends before and during the crisis and architecture issues will be the subject of an umbrella paper in November on Monetary Policy: Its Role Now and in the Future. At the same time, the Spillover Report in July will look at stabilization dividends from unconventional monetary policy and at exit issues.
IMF Survey: How does the IMF’s work program for the months ahead address the global objective of job creation and inclusive growth?
Tiwari: Job creation and inclusive growth are imperatives that resonate in the entire membership, and the work program includes a number of initiatives in this area. A guidance note, drawing on the Board discussion in March on the Jobs and Growth paper is planned for later this year. This will allow Fund staff to tailor its advice and recommendations to differing countries’ challenges and constraints.
Tiwari: ‘Job creation and inclusive growth are imperatives that resonate in the entire membership, and the work program includes a number of initiatives in this area’ (IMF photo)Work is also currently under way to examine in depth the macroeconomic and structural factors that may help enhance growth in Europe. A forthcoming paper on growth developments and prospects in emerging market economies will examine how they are faring in the wake of the crisis, assess their medium-term growth prospects, and draw implications for Fund surveillance. For low-income countries, a paper in November will look at issues of structural transformation and productivity to boost their long-term growth prospects. A policy paper on Fiscal Policy and Equity is planned for early 2014, which will examine the role of tax and expenditure policies in meeting equity goals.
IMF Survey: Will the work program also entail supporting adjustment of global imbalances and taking account of cross-border spillovers?
Tiwari: Building on our revamped surveillance framework, we will continue to enhance our analysis of multilateral policy consistency and cross-border spillovers. The upcoming Spillover Report in July will cover a range of topics, including the impact of policy action in the United States and the euro area in reducing tail risks, and the impact of unconventional monetary policy—providing background for the Article IV reports that check the health of systemic economies. The External Sector Report, due in July, will include an examination of the implications of capital flows and be based on an enhanced external balance assessment methodology. We will also continue our analysis on interconnectedness to deepen our understanding of how shocks are transmitted and to derive implications for Fund surveillance.
One innovation that follows directly from the Integrated Surveillance Decision approved last year is that we are increasingly bringing a multilateral perspective into bilateral surveillance with the adoption of cluster-based surveillance. Starting July, we will begin to examine the spillovers and risks from interconnected countries that are exposed to common shocks through clustered Article IV reports, beginning with the countries in central Europe and with the Nordic region.
IMF Survey: The IMF is taking a fresh look at sovereign debt restructuring. What will this review entail?
Tiwari: There have been important developments in sovereign debt restructuring since the last Board review of the subject in 2005. In May, the Board discussed a staff paper on “Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy Framework”. This paper reviewed the recent application of the Fund’s policies and practices on sovereign debt restructuring and identified issues that have emerged from recent experience. For instance, the paper noted that sovereign restructurings have often been too little and too late in recent crisis cases, thus failing to reestablish debt sustainability and market access in a durable way.
Follow-up work on issues related to the timeliness and adequacy of sovereign debt restructurings, and analysis of possible policy options and ways to improve the market-based, contractual approach is planned. The IMF’s staff plans further analysis to better understand why debt restructurings have often been delayed and / or have been inadequate to effectively restore sustainability, including the role played by the availability of large-scale official financing. The planned follow-up work would also focus on options to strengthen the existing contractual framework, and on examination of the merits and feasibility of possible ways to link Fund support to the resolution of collective action problems.
IMF Survey: What are the next steps in the IMF’s governance reform?
Tiwari: Completing the 2010 quota and governance reform is essential to the Fund’s legitimacy and effectiveness. We have met two of the three conditions needed for the 2010 quota and governance reform to take effect. The remaining condition is to secure the 85 percent of the total voting power needed for the Board Reform Amendment to enter into force. The Board will continue to be informed of progress on a regular basis. A paper updating the quota formula calculations based on recent data will be presented to the Board in June.
