Ieo Evaluation Of Exchange Rate Policy

The IMF is charged by its Articles of Agreement and a 1977 Executive Board Decision to exercise surveillance over the international monetary system and members’ exchange rate policies. The overriding question addressed by this evaluation is whether, over the 1999–2005 period, the IMF fulfilled this core responsibility. The main finding is that the IMF was simply not as effective as it needs to be in both its analysis and advice and in its dialogue with member countries. The evidence supporting this conclusion, along with other key findings, is set out in this report. The report also presents a detailed set of recommendations that could go a long way in improving the quality and effectiveness of IMF surveillance.

The IMF is charged by its Articles of Agreement and a 1977 Executive Board Decision to exercise surveillance over the international monetary system and members' exchange rate policies. The overriding question addressed by this evaluation is whether, over the 1999-2005 period, the IMF fulfilled this core responsibility. The main finding is that the IMF was simply not as effective as it needs to be in both its analysis and advice and in its dialogue with member countries. The evidence supporting this conclusion, along with other key findings, is set out in this report. The report also presents a detailed set of recommendations that could go a long way in improving the quality and effectiveness of IMF surveillance.

This report is the seventh in a series of evaluation updates by the Independent Evaluation Office of the IMF (IEO) that return to past IEO evaluations and assess the continuing relevance of their main conclusions. The report revisits the 2007 evaluation of IMF Exchange Rate Policy Advice, which found that the IMF was “not as effective as it needed to be” in fulfilling its responsibilities for exchange rate surveillance in the period 1999–2005. While acknowledging the inherent complexity of providing exchange rate policy advice, including the lack of professional consensus on many of the key issues, the evaluation observed serious weaknesses in the IMF’s work on key analytical issues and in its engagement with members. The update finds that the IMF has substantially overhauled its approach to exchange rate policy advice since 2007. Key steps taken include: adoption of a more comprehensive approach to exchange rate surveillance under the 2012 Integrated Surveillance Decision; development of enhanced analytical tools; a new institutional view on capital flows; and introduction of the annual External Sector Report that provides an integrated picture of the external balances of major economies. The IMF continues to work on further enhancements of its approach. Nonetheless, the update concludes that challenges remain that impact the effectiveness of the IMF’s work in an area central to its mandate. The approach for assessing external balances and exchange rates continues to be contentious, in part reflecting differing views across the membership about the process of external adjustment. There are also ongoing questions in other areas, including considerations for exchange rate regime choice, attention to policy spillovers, the institutional view on capital flows, and data availability. The update suggests that the persistence of key issues identified in 2007 merits a full evaluation by the IEO.

Since its April 2007 Report to the IMFC, the IEO has released its report on The IMF’s Advice on Exchange Rate Policy, continued work on three other evaluations, and issued its Annual Report for 2006–07.

Since the October 2017 report to the IMFC, the IEO has completed an evaluation of the IMF’s work in fragile states and an update of its 2007 evaluation of IMF exchange rate policy advice. The office continued work on two evaluations, on IMF financial surveillance and on IMF advice on unconventional monetary policies, as well as an update of the 2008 evaluation of structural conditionality. It also launched an update of IEO’s 2008 Evaluation of IMF Governance. The IEO welcomes recent steps taken by the IMF to follow through on Board-endorsed recommendations of its 2016–17 evaluations.

This paper discusses that the Independent Evaluation Office (IEO) has also launched three new evaluations—which will analyze the IMF’s role on fragile states, its financial surveillance activities, and its advice on unconventional monetary policies—and two evaluation updates—which will look into the IMF’s exchange rate policy advice and structural conditionality. The evaluation found that, for the most part, the IMF’s euro area surveillance identified the right issues during the pre-crisis period but did not foresee the magnitude of the risks that would later become paramount. The IMF’s surveillance of the financial regulatory architecture was generally of high quality, but staff, along with most other experts, missed the buildup of banking system risks in some countries. The report found several issues with the way decision making was managed by the IMF. In May 2010, the IMF Executive Board approved a decision to provide exceptional access financing to Greece without seeking preemptive debt restructuring, even though its sovereign debt was not deemed sustainable with a high probability.

The IEO’s latest Annual Report covers its activities during the financial year ended April 2007. It summarizes the most recent IEO evaluations of The IMF and Aid to Sub-Saharan Africa and IMF Exchange Rate Policy Advice. The report also presents messages that are common to many IEO evaluations and are particularly noteworthy as the IMF proceeds with the implementation of its Medium-Term Strategy. Other topics discussed include implementation of recommendations made in 2006 by the External Evaluation Panel of the IEO, ongoing projects, the identification of future evaluations, and summaries of follow-ups of past evaluations.

Drawing on evidence from a sample of emerging market economies over the period 1990-2004, this evaluation report reviews the IMF’s approach to capital account liberalization and related issues. The evaluation seeks to contribute to transparency by documenting what in practice has been the IMF's approach to these issues and to identify areas where the IMF’s instruments and operating methods might be improved, in order to deal with these issues more effectively.