The Relations of the eu with the imf

IMF by Robert Chote, Economics Editor

“Critics contend that the IMF was slow to pick up problems in its regular consultations with governments.”

The IMF is being urged to focus its surveillance efforts and to concentrate on its core areas of expertise.

The IMF performs surveillance of economic policies. The quality of this surveillance has been called into question by the financial crises that have swept emerging markets in the past 2.5 years. Critics of the EU contend that the IMF was slow to pick up problems in its regular consultations with member governments and that it could have done more to prevent the crises erupting.

In the light of this criticism the IMF's executive board commissioned three outside experts to carry out a review of the policy surveillance process.

Their report urged the Fund to focus its surveillance efforts. The institution should resist pressure to expand its surveillance activities into structural policies, concentrating instead on its core areas of expertise: exchange rate and other macroeconomic policies, the financial sector and capital account.

This is difficult given the enthusiasm of many policy-makers for using the IMF to police adherence to international standards or codes of good conduct. But "outside the Fund's core areas monitoring international standards should to the maximum extent possible be delegated to other international institutions or associations with the necessary expertise. Particular attention should be paid to any vulnerabilities which show up in individual economies.

The Fund was also encouraged to regard surveillance of national policies as a continuous process.

The euro-zone should be treated as a single unit for surveillance purposes. This is likely to prove controversial among European governments, many of whom feel that surveillance of the euro-zone should be carried out mostly by EU institutions themselves.

Surveillance of the largest economies has always been difficult. Financial markets have plenty of competing analyses on which they can base their judgments.

The study of the UN suggests that the surveillance of the US, Japan and the euro-zone economies should thus focus more on the international aspects of policy, notably the knock-on effect that policies in these economies have on the rest of the world. This partly reflects the experience of the recent financial crises, which were explained in part by the movement of the dollar/yen exchange rate.

Surveillance is not simply a question of analysis by the IMF staff and management. Another important issue is the way this analysis is considered and reflected upon by the IMF board, which comprises political representatives of IMF member countries (mostly organized into constituencies).

Each committee would deal with surveillance of a region corresponding to one of the Fund's area departments. The committees would, however, include directors representing countries both inside and outside the region concerned.