Strengthening IMF Surveillance

Mark Thoma reads Rodrigo Rato on "surveillance":

Economist's View: "Strengthening IMF Surveillance": The Managing Director of the International Monetary Fund, Rodrigo de Rato, discusses attempts to and strengthen IMF surveillance over the economic policies of member nations:

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...

Paul Krugman likes to say that IMF surveillance is (a) tremendously valuable when it serves to strengthen the internal political hand of factions in a country committed to reality-based economic policy, but (b) tremendously harmful when it serves to strengthen the internal political hand of factions in a country committed to pointless deflationary austerity--and that it is hard for outsiders to figure out what effects they are really having.

I think surveillance has the additional important effect of keeping people in the IMF more-or-less current on what is going on, so that if a crisis does develop the staff has a better chance of giving their bosses good advice as to how to deal with it.

Comments

[RKimble]

Prof:

Surveillance is indeed important (as long as certain major shareholders do not use surveillance of others to compensate for their own lousy policies). The problem with surveillance is that many Fund staff (especially in PDR, which runs the Fund) are: (i) in the MICs, incapable of distinguishing "surveillance" from "pointless deflationary austerity"; and (ii) in the LICs, incapable of understanding a related point, which is that debt sustainability is not harmed by spending financed by grants.

[RKimble]

Prof:

Surveillance is indeed important (as long as certain major shareholders do not use surveillance of others to compensate for their own lousy policies). The problem with surveillance is that many Fund staff (especially in PDR, which runs the Fund) are: (i) in the MICs, incapable of distinguishing "surveillance" from "pointless deflationary austerity"; and (ii) in the LICs, incapable of understanding a related point, which is that debt sustainability is not harmed by spending financed by grants.

[andres]

IMF surveillance is beneficial only if the IMF staff are not hobbled by unrealistic preconceptions. In the case of Argentina, for example, these preconceptions were (a) a government that was truly committed to bringing the budget deficit under control could actually do so without committing political suicide, and (b) as long as price stability reigned, foreign investors would continue sinking capital into Argentina.

By the time the IMF awoke to the unreality of these preconceptions, it was already too late, and an extensive amount of surveillance directed at Argentina did no good at all.