The IMF advises member countries on economic and financial
policies that promote stability, reduce vulnerability to crises, and
encourage sustained growth and high living standards. It also
reviews and publishes global economic trends and developments that
affect the health of the international monetary and financial system
and promotes dialogue among member countries on the regional and
global consequences of their policies. In addition to these
activities, which constitute “surveillance,” the IMF provides
technical assistance to help strengthen members’ institutional
capacity and makes resources available to them to facilitate
adjustment in the event of a balance of payments crisis.
Why is global economic stability important?
Promoting economic stability is partly a matter of avoiding economic
and financial crises, large swings in economic activity, high inflation,
and excessive volatility in exchange rates and financial markets.
Instability can increase uncertainty, discourage investment, impede
economic growth, and hurt living standards. A dynamic market economy
necessarily involves some degree of instability, as well as gradual
structural change. The challenge for policymakers is to minimize
instability in their own country and abroad without reducing the
economy’s ability to improve living standards through rising
productivity and employment.
Economic and financial stability is both a national and a
multilateral concern. As recent financial crises have shown, countries
have become more interconnected. Problems in one sector can result in
problems in other sectors and spillovers across borders. No country is
an “island” when it comes to economic and financial stability.
How does the IMF help?
The IMF helps countries to implement sound and appropriate policies
through its key functions of surveillance, technical assistance, and
Surveillance: Every country that joins the IMF
accepts the obligation to subject its economic and financial policies to
the scrutiny of the international community. The IMF's mandate is to
oversee the international monetary system and monitor the economic and
financial policies of its 188 member countries. This process, known as
surveillance, takes place at the global level and in individual
countries and regions. The IMF considers whether domestic policies
promote countries’ own stability by examining risks they might pose to
domestic and balance of payments stability and advising on needed policy
adjustments. It also proposes alternatives in cases where countries’
policies promote domestic stability but could affect global stability.
Consulting with member states
The IMF monitors members’ economies through regular—usually
annual—consultations with each member country. During these
consultations, IMF staff discusses economic and financial developments
and policies with national policymakers, and often with representatives
of private sector, labor unions, academia, and civil society. The staff
assesses risks and vulnerabilities, and considers the impact of fiscal,
monetary, financial, and exchange rate policies on the member’s domestic
and balance of payments stability and on global stability. The IMF
offers advice on policies to promote each country’s macroeconomic,
financial and balance of payments stability, drawing on experience from
across its membership.
The framework for these consultations is set forth in the IMF
Articles of Agreement and, more recently, in the
Integrated Surveillance Decision. These consultations are also
informed by membership-wide initiatives, including:
Overseeing the bigger world picture
The IMF also closely monitors global and regional trends.
The IMF’s periodic reports, the
World Economic Outlook, its regional overviews, the
Fiscal Monitor, and the
Global Financial Stability Report, analyze global
and regional macroeconomic and financial developments. The IMF’s broad
membership makes it uniquely well suited to facilitate multilateral
discussions on issues of common concern to groups of member countries,
and advance a shared understanding on policies to promote stability. In
this context, the Fund has been working with the
G-20 to assess the consistency of those countries’ policy frameworks
with balanced and sustained growth for the global economy.
The Fund has reviewed its surveillance mandate in light of the global
crisis. It has introduced a number of reforms to improve financial
sector surveillance within member countries and across borders, to
enhance understanding of interlinkages between macroeconomic and
financial developments (e.g. through
Spillover Report), and promote debate on these matters.
Data: In response to the financial crisis, the IMF is
working with members, the Financial Stability Board, and other
organizations to fill data gaps important for global stability.
Technical assistance: The IMF helps countries
strengthen their capacity to design and implement sound economic
policies. It provides advice and training on a range of issues within
its mandate, including fiscal, monetary, and exchange rate policies; the
regulation and supervision of financial systems; statistics systems; and
Lending: Even the best economic policies cannot
completely eradicate instability or avert crises. If a member country
does experience financing difficulties, the IMF can provide financial
assistance to support policy programs that will correct underlying
macroeconomic problems, limit disruption to the domestic and global
economies, and help restore confidence, stability, and growth. IMF
financing instruments can also support crisis prevention.