The International Monetary Fund (IMF) said on
Thursday that it is taking a new look at how it assesses risks and prospects for
economies around the world in the wake of the global economic crisis, reviewing
the effectiveness of its monitoring and the coverage, candour, and
evenhandedness of its reports.
In respect of Ireland for example, during the
bubble, the Fund's regular reports gave mild warnings about the risk of
overreliance on property but it was hobbled by a practice of agreeing the text
of such reports with the incumbent government.
So it was not a system that was conducive for the
public airing of inconvenient truths.
In the process, the Fund will look at ways to
strengthen assessments of the advanced economies in which the global financial
The IMF regularly gives economies around the world at the country, regional, and
global level a health check and provides policy advice through a process known
as surveillance, publishing reports on its findings after consultation with
country or regional authorities. The aim is to identify weaknesses that need
addressing and possible risks for regional or global stability.
Over the past three years, the IMF has worked to assist its 187 member countries
in addressing the repercussions of the global financial crisis while also
tackling gaps in its surveillance framework laid bare by the crisis.
The IMF reviews the effectiveness of its surveillance work every three years,
but this time is particularly important because of lessons to be learned from
the global economic crisis.
The internal review is proceeding against the backdrop of a series of landmark
reforms at the IMF since the crisis, in particular to modernize its
surveillance, strengthen its lending toolkit, and to improve its governance
structure by giving greater representation to dynamic emerging markets and a
bigger voice to the poorest developing countries whose voting shares are also
“Speak truth to power”
A recent report by the IMF’s
Independent Evaluation Office (IEO) said that the Fund had not provided
clear warnings about the buildup of vulnerabilities and risks associated with
the impending crisis before its outbreak. This was in line with an earlier study
by Fund staff. The IMF has since taken steps to address pre-crisis weaknesses.
The IEO report recommended that the IMF should create an environment that
encourages candour and considers dissenting views; modify incentives to
“speak truth to power;” better integrate macroeconomic and financial sector
issues in its surveillance; overcome what it saw as a silo mentality and insular
culture at the IMF; and deliver a clear, consistent message on the global
outlook and risks.
The new assessment, expected to be completed by September, will consider how
well the Fund is positioned to detect and warn about the spectrum of economic
and financial sector risks and ways they are transmitted, as well as how
effectively the IMF is ensuring consistency and completeness across the various
levels of surveillance (from bilateral to multilateral).
The review, to be discussed by the IMF Executive Board, will also assess the
candour and evenhandedness of IMF surveillance - - including surveillance of
systemically important countries. Building on the recent proposals of the IEO,
it will consider possible recommendations.
Sharpening focus, broadening analysis
Since the last assessment in 2008 and a number of other proposals, the IMF has
taken several steps to sharpen its surveillance, including focusing on early
warning signs and potential vulnerabilities. It has also begun to look at how
the actions of big countries affect others--known as spillovers--and how to deal
with financial crises after they take place.
Work on spillover reports is now under way for the five largest economies (the
United States, Japan, China, the United Kingdom, and euro zone). The IMF has
also made Financial Sector Assessment Reports mandatory for 25 major economies
and financial sector expertise has been ramped up.
As part of the review, the IMF will draw on the views of country authorities,
civil society organizations, and Executive Board members. Outside experts will
also be consulted, particularly to assess financial sector crisis strategy and
response, the crisis in the euro area, and the consistency of the Fund’s global
and country-level surveillance tools. The review will make use of an external
advisory group and a series of interviews to dig into early findings in more
The IMF will also examine the legal framework for surveillance, including the
2007 Decision on Bilateral Surveillance, which will be conducted concurrently.
It will consider the effectiveness of the current legal framework in supporting
the role of Fund surveillance and options for reform.