In today’s globalized economy, one country’s economic and financial policies can reverberate far beyond its borders. Be it the spread of inflation or the impact of currency devaluation half a world away, global economic forces can have a direct impact on every person’s livelihood. Under such circumstances, international cooperation is essential to ensure stability and growth and prevent disruptive crises. But for such cooperation to be effective, the international community needs the right tools.
The International Monetary Fund provides one of the most important tools. For many years, the IMF has engaged its member countries in a process known as “surveillance,” in which it monitors, analyzes, and consults on each country’s economic policies – both exchange rate policies and relevant domestic policies. These regular checkups help to identify potential vulnerabilities and maintain economic stability. However, the increasingly complex policy challenges of the globalized economy demand a fresh look at this process.
This June, the IMF’s Executive Board did just that, reaching a broad consensus on updating surveillance to make it more focused and effective. This is one of the most important reforms to the Fund’s work in the 30 years since the surveillance process was designed. Indeed, it is part of a much broader reform effort aimed at strengthening the IMF and will have implications extending well beyond the Fund’s boardroom.
The new reform brings three critical changes. First, it affirms that surveillance should focus on what matters for stability, and gives detailed guidance in this area. IMF advice should not be spread too thin.