* Some IMF staff lack financial expertise
* IMF uncertain if countries listening to advice
* Analyst says real test is predicting next crisis
* New surveillance could also cost more money
By Anna Yukhananov
WASHINGTON, Dec 11 The International Monetary
Fund must improve its ability to monitor financial risks around
the world, as it seeks to guard against future economic crises,
IMF staff said on Tuesday in a report largely backed by the
The IMF has sought to play a greater role in policing the
world economy since it failed to predict the last global
financial crisis, and 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 said last year it would look at capital flows as
well as monetary and fiscal policies to assess the risk of
cross-border spillovers. It also plans to examine clusters of
financially connected countries.
In the first assessment of the new strategy, IMF staff said
the fund has made progress in analyzing financial risks, but
should do more to quantify them and monitor how each country's
policies impact its neighbors.
The fund should also make sure this analysis is part of its
annual health check of countries' economies.
"Several teething problems are delaying progress in the
implementation of the 2011 (surveillance) priorities," IMF staff
said in the report.
The report also said not all IMF staff have sufficient
financial expertise, and existing experts do not have enough
time to help everyone. The IMF also needs better models to
assess how risks spread through financial channels.
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.
The report said it was still to early to tell whether
countries were listening to the IMF's advice.
In the past, the IMF had failed in its efforts to fix
trouble spots in the economy through multilateral consultations
with the world's major powers.
The IMF hopes its new surveillance can be influential if it
provides convincing, relevant advice to countries and follows up
on problem areas.
"There is some evidence that the fund is generating more
public debate, including in advanced countries," the staff said.
Domenico Lombardi, a former IMF board member who is now a
senior fellow at the Brookings Institution, said the report
attested to the progress the fund has made in its surveillance
framework. But the "acid test" is whether the new rules are
enough to detect future economic crises.
It also remains unclear if countries would be willing to
take the IMF's advice, he said.
"In the end, it's impossible for the IMF to force
implementation of certain policies in member countries,
especially the most important ones that are key for systemic
stability," Lombardi said. "I think this is a fundamental
tension that is up to the membership to resolve."
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
The IMF board of directors said the new surveillance was
likely to cost the fund more money, but directors disagreed on
whether the IMF should ask for more funds or just try to find
internal cost savings.