| IEO
Questions Effectiveness of IMF Exchange Rate Policy
Advice
 The Independent
Evaluation Office (IEO)'s most recent report examines
IMF exchange rate advice to member countries between
1999 and 2005.1 Released
in May, it calls for a revalidation of the fundamental
purpose of IMF surveillance and for a concerted effort
by IMF staff, management, and the Executive Board to
clarify policies and improve exchange rate advice. Based
on the evidence from a variety of sources, IEO Director
Tom Bernes said, "The IMF is simply not as effective as
it needs to be to fulfill its responsibilities for
exchange rate surveillance."
Main Findings
One
of the IMF's core responsibilities is to advise members
on exchange rate policy. In turn, members have an
obligation to consider the consequences of their
exchange rate policies for other countries.
While acknowledging "many examples of good
analysis and dedicated staff teams," the report
identifies shortcomings in the IMF's advice on exchange
rate policies that amount to an "effectiveness gap" in
the IMF's main line of business. The shortcomings were
evident in two respects. First, there was insufficient
focus on the key analytical issues of the day, including
on whether the stability of the international monetary
system is best preserved by countries' choices of
exchange regimes and exchange rate levels. Too often,
the IMF's views on regime choice and level were unclear
or insufficiently backed up by analysis. Second, the
IMF's dialogue with member countries was insufficiently
effective. IMF advice was sometimes not part of critical
debates taking place on exchange rate issues; important
aspects remained "off the table" in discussions with IMF
staff; and, in some cases, the country authorities did
not supply the data needed for a proper discussion.
Country authorities often saw IMF staff as out of touch
with the practicalities of implementation. Tom Bernes
stressed, "These are warning signs that the IMF needs to
find a way to re-energize its contribution to members'
policy discussions."
"These are warning signs that the
IMF needs to find a way to re-energize its contribution
to members' policy discussions."
— Tom Bernes, IEO
Director
Recommendations and New
Developments
The
IEO report calls on the IMF to revalidate the primary
purpose of surveillance by clarifying the expected roles
of both the institution and its members. It also
recommends specific steps to improve the management of
IMF exchange rate work. Recommendations include
undertaking a full Executive Board review of exchange
rate policy—the first since 1999; developing greater
guidance for staff, given the lack of professional
consensus on appropriate exchange rate regimes and
levels; requiring staff to document the reasons for
their advice to countries; ensuring the effectiveness of
dialogue with country authorities; prioritizing exchange
rate policy issues and initiatives across the
organization; addressing data provision problems;
seeking agreement on new procedures to respect members'
concerns about the confidentiality of discussions; and
giving strategic focus to opportunities for multilateral
concerted action.
The
IMF Executive Board has this year agreed to an overhaul
of the institutional mandate for international
surveillance. The report points out, however, that there
are problems identified that must be addressed
regardless of changes made to the Surveillance Decision.
The key to solving them lies in ensuring the trust of
member countries and their willingness to cooperate
within the legal framework, and this will take time and
effort. Against the background of ongoing work to
strengthen surveillance, IMF staff have developed a plan
to implement those IEO recommendations endorsed by the
Executive Board.
1 IMF Exchange
Rate Policy Advice, 1999–2005: An IEO Evaluation,
May 17, 2007. Washington, DC: Independent Evaluation
Office, International Monetary Fund. Evidence for the
evaluation comes from desk reviews of country documents;
interviews with country authorities, IMF staff,
Executive Board members, and market practitioners; and
surveys of country authorities and staff. The full
report, together with the reactions of the IMF's
management, staff and Executive Directors, is available
online at http://www.ieo-imf.org/eval/complete/eval_05172007.html.
back to
top
IEO
Evaluates the Corporate Governance of the
IMF
A
major IEO evaluation currently underway will focus on
various aspects of IMF governance, including the role of
the IMF Executive Board, the institutional structure,
and the formal and informal relationships that govern
IMF activities and decision-making. Work is ongoing, and
the IEO expects to release the report in
mid-2008.
In
the six decades since its founding, the IMF has
undergone key changes in its membership and mission.
While its governance structure has evolved to adapt to
such shifts—and has done so effectively, according to
some observers—others argue that the structure needs an
overhaul. According to them, the IMF Executive Board
micro-manages to the detriment of effective oversight
and strategic guidance. They also complain that the
lines of accountability are sometimes unclear and there
is a lack of transparency in the selection of the
Managing Director as well as in day-to-day decision
making. The IEO's evaluation will address the validity
of such criticism, while also identifying areas where
current governance arrangements can be strengthened.
(The evaluation will not address issues of voting power
or the ownership structure of the IMF, as these are
currently under active consideration.)
|
Selecting a New Managing
Director
As one of several work streams of the
ongoing evaluation of Aspects of IMF Corporate
Governance—Including the Role of the Board,
the IEO had commissioned a Background Paper with
the title, "The Process for Selecting and
Appointing the Managing Director and First Deputy
Managing Director of the IMF".
The paper authored by David Peretz reviews
the current formal and informal selection
processes, compares these with other international
organizations, and examines reform
proposals.
The announcement that Mr. Rodrigo de Rato
will leave his post as the International Monetary
Fund's Managing Director after the annual meetings
brought unexpected topicality to this IEO paper,
now available at http://www.ieo-imf.org/pub/background/pdf/BP071.pdf. |
To
this end, the evaluation will examine the governance
practices laid out in the IMF's own Articles of
Agreement and other internal documents, as well as
relevant practices employed by similar
inter-governmental organizations and the public and
private sectors. In this context, the relationships
between the entities at the center of the IMF governance
structure—management, the IMF Executive Board, and the
International Monetary and Financial Committee
(IMFC)—will be analyzed. The IMF Board of Governors,
staff, and country groupings will be covered in the
context of their interactions with the entities
mentioned above.
Together, these three standards for
comparison—IMF governing documents, other
inter-governmental organizations, and the public and
private sectors—should provide robust baseline
information and enable thorough and insightful
evaluation, even if the latter two standards, on their
own, would likely be unsuitable as benchmarks for IMF
governance.
The
evaluation will comprise several building blocks which,
together with a series of surveys, will inform a chapeau
report with the main findings and recommendations. The
building blocks include a detailed analysis of the IMF's
current governance structure, a historical overview of
its evolution, and comparisons of the IMF with a sample
of relevant inter-governmental and public and private
sector organizations. In addition, the IEO will prepare
a series of in-depth case studies to examine how key
governance functions, such as strategic thinking, policy
implementation, and oversight and accountability, are
performed in practice.
back to
top
Follow-up to Evaluation of IMF and Aid to
Sub-Saharan Africa: Monitoring Will Be
Key
On
June 29, 2007, the IMF Board of Executive Directors
(Board) endorsed the management plan for following up on
recommendations from the IEO's Evaluation of the IMF
and Aid to Sub-Saharan Africa.2 The endorsed plan sets out a
roadmap for action, covering several ongoing work
strands that address the specific points raised in the
evaluation.
To
date, the Board has also discussed papers on two major
strands of the roadmap. The most important concerned the
IEO recommendation that the IMF clarify its policies on
the handling of aid flows in macroeconomic programs
supported by the Poverty Reduction and Growth Facility
(PRGF). During the discussion, Executive Directors
clarified and reaffirmed existing policies on the
forecasting of aid and the use of alternative aid
scenarios; the spending and absorption of aid; and the
formulation of adjusters in PRGFs.
The IMF and Aid to Sub-Saharan
Africa recommended that the IMF clarify policies,
monitor implementation, communicate candidly, and define
the role of the resident
representatives.
The
Board has also considered follow-up to the IEO
recommendation that IMF communications be consistent
with IMF policies and practices. These discussions
underscored the importance of complementing enhanced
policy clarity with measures for ensuring that IMF
communication efforts are closely aligned with policies
approved by the Board.
The
third set of recommendations—on the role and resourcing
of resident representatives' and mission chiefs'
interactions with donor groups and civil society—is
being considered in the context of a forthcoming paper
on the role of the IMF in donor coordination and
countries' poverty reduction strategies.
Management's forward directions on the IEO
recommendations on monitoring and evaluation of the
implementation of the clarified policy on PRGFs have not
yet taken shape. The next Board review is scheduled to
take place in 2010. But, to maximize impact on staff
behavior and institutional accountability, an explicit
monitoring framework will be needed long before then,
setting out the benchmarks to be used in measuring and
assessing IMF performance.
2 The IEO evaluation
of The IMF and Aid to Sub-Saharan Africa is
available in English, French, and Portuguese at www.ieo-imf.org.
Public information notices for the original Board
discussion of the IEO report and the three board
discussions cited in this article are, respectively,
available at:
http://www.imf.org/external/np/sec/pn/2007/pn0793.htm
http://www.imf.org/external/np/sec/pn/2007/pn0783.htm
http://www.imf.org/external/np/sec/pn/2007/pn0774.htm
back to
top | 