IMF needs to do more to detect global financial risk -report

WASHINGTON Tue Dec 11, 2012 11:54am EST

Related Topics

WASHINGTON Dec 11 (Reuters) - The International Monetary Fund must do more to quantify financial risks around the world and monitor how each country's policies impact its neighbors, IMF staff said on Tuesday.

The IMF has sought to play a greater role in policing the world economy since the global financial crisis, when it was unprepared for how quickly the crisis spread across borders and destabilized the world economy.

Moving beyond its traditional role of analyzing exchange rates, the IMF now looks at capital flows as well as monetary and fiscal policies to assess the risk of cross-border spillovers. It also examines clusters of financially interconnected countries.

"Several teething problems are delaying progress in the implementation of the 2011 (surveillance) priorities," IMF staff said in their first progress report on the new strategy.

They said the IMF has made progress in analyzing financial risks around the world, but needs to do a better job of integrating the analysis into the IMF's annual health check of countries' economies.

In July, the IMF expanded the reach of its country reviews to assess how domestic policies affect global financial stability. Previously, the IMF only had to consider how a country's policies affected its own economy.

In reviewing the staff report, some of the IMF's board directors said the Fund may have practical difficulties in trying to analyze multiple countries' policies at the same time, but said it was important to try.

ANYONE LISTENING?

The IMF staff said it was still to early to tell whether countries were listening to the IMF's advice.

In the past, efforts by the IMF to fix trouble spots in the economy through multilateral consultations with the world's major economies have failed to address problem areas.

In its new surveillance, the IMF hopes it can gain "traction" if it provides convincing advice to the countries and follows up on risks.

"There is some evidence that the Fund is generating more public debate, including in advanced countries," the staff said in the report.

The IMF staff also questioned whether the IMF had enough resources to really dig into financial risks and surveillance while still devoting enough time to economic problems in low-income countries.

The IMF board of directors said the new surveillance was likely to cost the Fund more money, but directors divided on whether the IMF should ask for more funds or just try to find internal cost savings.

FILED UNDER: