Part I Statement by Thomas Bernes, Chairman of the Evaluation Group of Executive Directors, on the Report of the External Evaluation of Surveillance
- International Monetary Fund
- Published Date:
- December 1999
Summing Up by the Chairman of the Executive Board of Executive Board Meeting 99/100, on the External Evaluation of Fund Surveillance
Statement by Thomas Bernes, Chairman of the Evaluation Group of Executive Directors, on the Report of the External Evaluation of Surveillance
August 27, 1999
It is to be expected that any comprehensive evaluation of the Fund’s surveillance activities will touch upon an impressive range of issues. In this regard, the report of the external evaluators does not disappoint. On behalf of the Evaluation Committee, I would therefore like to express my sincere appreciation to Messrs. Arriazu, Crow, and Thygesen for an outstanding effort that has resulted in the production of a well-written, insightful, and thought-provoking document. It is the mark of a good evaluation that questions about the prevailing wisdom are raised and the status quo challenged. Indeed, were the evaluators to have concluded that all was well and good at the Fund, I would have had reservations as to whether or not our money had been well spent. This is clearly not the case here. That is not to say that the institution could—or should—adopt all recommended changes, but that we should seize on the opportunity provided by the evaluators’ report to reassess long-standing practices and the adequacy of institutional and procedural reforms presently under way.
It is worth noting that—with a topic as broad as that addressed by the evaluators—there will inevitably be exceptions to the conclusions drawn, even while the broad thrust of generalized observations remains valid. This suggests that the relevance of particular recommendations will vary by country, within the Fund’s institutional structure, and across staff. Therefore, to make the most constructive use of this evaluation, we need to approach its observations with a considerable degree of honesty and openness to criticism, drawing on the insights where appropriate. The flip side of this is that we need to avoid excessive fixation on individual instances where the criticisms may not be as directly relevant.
In terms of next steps, and consistent with existing precedents, it would seem appropriate that the text of the report should be published along with the staff’s response and the summing up from this discussion.
In the period after the Annual Meetings, and in light of both the report and the Board discussion, I would suggest that management prepare an “action plan” for consideration by Directors on proposals to respond to the report. A date within 12 months of the approval of this plan should be set for a “stocktaking” of our response. As with the external evaluation of ESAF, I believe it is critical to provide some formalization of the follow-up process to our evaluations.
More generally, we will then need to turn our attention—before the end of the year—to launching a review of our experience with independent evaluation. The terms of reference and modalities for such a review should be discussed shortly after the Annual Meetings. At the same time, I believe it would be appropriate to undertake a further external evaluation—perhaps more modest in scope than the surveillance evaluation—since it would not be appropriate or desirable for this institution to cease the conduct of independent evaluations while we assess our experience to date.
Summing Up by the Chairman of the Executive Board of Executive Board Meeting 99/100, on the External Evaluation of Fund Surveillance
September 8, 1999
Executive Directors welcomed the Report of External Evaluators on Fund Surveillance. They expressed their deep appreciation for the careful work and considered judgments of the panel. Directors considered that the issues raised in the report would serve to stimulate debate within and outside the institution, and to motivate further discussion of a number of topics of importance to the work of the Fund.
Directors welcomed the comprehensive evaluation of the Fund’s surveillance work and the high consideration in which the World Economic Outlook (WEO) and the International Capital Markets reports (ICMR) are held. They noted the value that members place on the Fund’s surveillance of their own economies. In this regard, the evaluators’ observation that Fund surveillance should be viewed as an “input” to a country’s policies—that could on occasion be significant—underscored the importance of the Fund’s analysis being first rate and of remaining focused on issues of serious and immediate concern.
Directors underlined the substantial common ground between the evaluators’ report and the Fund’s own internal evaluations. They noted, in particular, the need to (i) revisit the definition of the core areas; (ii) give more explicit attention to international aspects of a country’s macroeconomic policies and spillover issues; (iii) focus more on crosscountry comparisons and regional developments; (iv) devote substantially more attention to vulnerability analysis; and (v) give more emphasis to financial sector and capital account issues.
On the focus of surveillance, Directors acknowledged that the issue remains a challenge for the organization in light of the forces driving an expanding agenda. In this regard, they acknowledged that issues identified in Fund surveillance as core had changed over time, moving from a narrow focus on exchange rate policy and the balance of payments and attendant monetary and fiscal policies to greater emphasis on capital account, financial sector, and nonfinancial structural issues. Some Directors stressed that the report was written at a time when the focus of surveillance was undergoing major changes within the Fund, largely as a result of the crises of the last five years. Thus, as noted in the evaluation, some of the recommendations on the focus of surveillance, including those relating to enhancing surveillance of the financial sector, capital account issues, and policy interdependence and contagion, are in the process of being implemented.
Nevertheless, Directors expressed a range of views on which issues should be considered generally as noncore issues in the context of Fund surveillance. Most Directors thought that one of the main recommendations of the report—that surveillance should focus only on the core areas of exchange rate policy and directly associated macroeconomic policies—ran counter to the demands of the membership and the international community for increasing emphasis on the interactions between macroeconomic, structural, and social policies. They viewed the broader focus of surveillance as appropriate in light of global developments and the need for a surveillance process that remains relevant to the policy challenges faced by Fund members. Nevertheless, a number of these Directors saw scope for sharpening the focus of surveillance in the context of a country-by-country approach: coverage of issues could differ depending on the circumstances of a particular country, but the staff would be expected to present a clear case for the consideration of any particular set of noncore issues as relevant to the core concerns of the Fund. Other Directors, however, felt that Fund surveillance had moved inappropriately beyond the original core issues, including into areas such as labor markets, pension reform, social policy, and governance. Nevertheless, most Directors agreed that, to the extent possible, the Fund should make use of outside expertise in areas beyond its conventional mandate and when it had little in-house expertise. In this regard, Directors stressed the importance of close cooperation with other international institutions, taking due account of comparative advantage and expertise, and avoiding duplication of effort. Directors agreed to return to the issue of the focus of surveillance more systematically in the context of the internal review of Fund surveillance later in the year.
Directors supported increased attention to the international and regional aspects of surveillance. They saw the need for increased cross-country comparisons—in which the Fund has a unique advantage—in the context of greater emphasis on regional and international developments. They also endorsed the recommendation to heighten the interaction between bilateral and multilateral surveillance, and looked forward to a better integration of the ICMR and WEO analysis with bilateral surveillance. However, Directors agreed that, while the Article IV process should be enriched through the integration of global and regional dimensions, it should remain clearly focused on a country’s own policies.
Directors emphasized their support for more explicit attention to vulnerability issues in Fund surveillance: this would entail enhanced analysis of the capital account, the financial sector, and the treatment of contagion. They agreed that, in an environment of increased financial and trade flows between countries, Fund surveillance at the country level should pay greater attention to the sequencing and the pace of moves toward capital account liberalization. Directors observed that the stepped-up level of staff work on financial sector issues in collaboration with the World Bank (including through the Financial Sector Assessments Program), the Bank for International Settlements, and other international organizations was being reflected in more comprehensive coverage of vulnerabilities in this area. Directors agreed that surveillance should pay greater attention to policy interdependence and the risks of contagion, and they noted in this regard that multilateral surveillance has an important role to play in identifying potential spillover effects.
On surveillance procedures, Directors observed that the strength of the Fund as an institution derives from the symmetry with which countries are treated in the surveillance process. Many Directors saw annual consultations as a cornerstone in ensuring the continuity of Fund surveillance. At the same time, Directors recognized the need for some flexibility in Fund procedures given the institution’s strained resources. Against this backdrop, Directors agreed that, for most industrial economies, in light of their systemic impact, annual consultations remain appropriate. Most Directors thought that surveillance of these countries should continue to focus on their domestic policies while also bringing to the table the international implications of those policies.
To ensure resource-efficient surveillance that, at the same time, could be more continuous, some Directors thought it should be possible in some cases to have shorter annual consultation visits supplemented with interim electronic communications. However, other Directors thought it important that this not lead to any diminution of the attention paid by national authorities to the formal consultation discussion. Directors asked the staff to come forward with proposals in this area.
Most Directors viewed annual consultations with smaller industrial countries—particularly those that are members of the euro area—as providing a number of critical advantages that could be lost with less frequent consultations, although a few Directors saw potential advantages in reducing consultation frequency. Several Directors also pointed out that, in the case of the euro area countries, fiscal policy remained a national prerogative and many other policies continued to be conducted at the national level; it would thus be impossible to cover these areas adequately in consultation with the European Central Bank or European Union institutions. While several Directors considered that there might be scope to reduce the size and duration of missions to these countries as European integration proceeds, other Directors were not in favor of diminished attention to the euro area.
Directors were also not in favor of shifting sole responsibility for the WEO projections to the Research Department. They felt that the area departments provided critical input to these projections and that the projections should remain a joint product of the staff. They noted that the current practice of six-monthly WEO reports, with special issues when warranted by circumstances, had worked well and should continue.
On organization, Directors considered with interest the proposal that all Article IV staff reports be discussed in the first instance in a committee rather than by the full Board, but they thought this likely to result in an increased work load for the organization as a whole. In this regard, most Directors thought it desirable to continue with the lead speaker experiment recently undertaken as a step toward more efficient and focused Board coverage of surveillance. Directors welcomed the observations of the evaluators on the internal review process. They urged management and staff to pursue greater efficiencies in this area, while preserving the valuable contribution of the process to the high quality of analysis.
Directors noted that the transparency of the Fund had increased considerably in recent years and that a pilot project for the voluntary release of staff reports had been launched. They agreed that the review of the pilot project would inform the development of a general publication policy for Article IV staff reports.
Looking ahead, Directors stressed that the strengthening of Fund surveillance has been, and is, an ongoing process. In this regard, the report of the evaluators provides an informed outside perspective that should serve as an important input in deliberations on enhancing surveillance. Directors looked forward in the period ahead to further consideration of many of the issues addressed in the evaluators’ report. Directors considered that the key issues to return to later this year could include the focus of surveillance; the increased attention to international, regional, and cross-country issues; vulnerability analysis and early warning systems; and the coverage of financial sector and capital account issues.
Management intends to come back to the Board after the Annual Meetings with precise suggestions on a program to deal with the issues raised by the External Evaluation Report. These issues will also be followed up in more detail in the Biennial Review of Surveillance scheduled for end-1999.