Former IMF first deputy managing director Stanley Fischer yesterday attacked the decision by the G20 group of advanced and emerging economies to conduct mutual surveillance of each others economies with the IMF being only incidental to the exercise.
Economic surveillance is the IMFs job, Fischer argued at a briefing in Istanbul by the Group of 30 public and private sector financial experts, of which he is a member. The G20 have decided that they are going to engage in frank discussions on each others policies. That is good, but they should do it through the IMF.
Fischer, the Bank of Israel governor, added that he is concerned about the proliferation of bodies that have no statutory basis, to carry out such functions.
The G30 urged in a statement that all members countries should participate in the [IMFs] Financial Sector Assessment Programme.
It also said: In order to be more effective, the IMF should conduct assessment to detect vulnerabilities and the build-up of risk on a near-continuous basis in the financial sector and elsewhere.
It added that the IMF should equip itself to issue confidential warnings to systemically important countries whenever developments in their economies or financial sectors give cause for concern.
This was seen as a veiled reference to the fact that certain advanced economies, including the US, declined to participate in FSAP reviews in the run up to the recent financial crisis.
Some experts have argued that such reviews could have alerted authorities to critical threats to financial stability.
Fischer said: The financial sector has just seen the consequences of the failure to do proper surveillance of the financial sector. He also called for a clearer division of responsibilities between the IMF and the Financial Stability Board (FSB) in the field of oversight of the financial sector.
The IMF should carry out surveillance of the sector, while regulation is left to the FSB, he said. A memorandum of understanding is needed, between the two.
The G30 also called for urgent, far-reaching and comprehensive reforms of the IMF, including the need to make its surveillance of members countries economies more sharply focussed on current and impending problems so as to avert future economic and financial crises.
The G30 called for a new IMF Council to replace the existing International Monetary and Finance Committee (IMFC). The new council should take over executive power from the IMF Board rather than being merely an advisory body like the IMFC said Guillermo Ortiz, chairman of the Bank for International Settlements (BIS), at the briefing.
Ortiz, who is also governor of the Bank of Mexico, said that the structure of the IMF needs to better reflect changing global economies realities and relationships.
The G30 added that its recommendations aim at correcting imbalances in IMF quotas, improving IMF decision making, empowering the IMF at the political level and achieving a more efficient division of labour between the executive board and [IMF] management.