Over the past year, against the background of a relatively benign global economic environment, the IMF continued to strengthen the effectiveness of its operations and better define its priorities to meet the evolving needs of its members. As part of these efforts, IMF Managing Director Rodrigo de Rato launched a review of the Fund’s strategic direction to explore a variety of issues and their implications for the work of the Fund, including global financial flows, regional integration, poverty reduction efforts, and the IMF’s own governance.
After global economic growth rose to slightly above 5 percent in 2004—its highest rate in three decades—it has moderated in 2005 toward its trend rate of around 4¼ percent. Generally, inflation has remained subdued, and there has been a marked absence of serious financial crises. Yet the going was not entirely smooth over the past year: oil prices rose sharply and substantially, geopolitical uncertainties continued, global payments imbalances widened further, and many of the IMF’s member countries continued to grapple with significant social and economic problems.
Surveillance. In its review of member countries’ economic policies, the IMF continued to strengthen its surveillance operations. Following up on recommendations of a 2004 biennial review, the IMF aimed to sharpen the focus of its analysis and advice, including by deepening coverage of exchange rate and financial sector issues, and better integrating analysis of debt sustainability, balance sheet vulnerabilities, and regional and global spillovers. It also sought to improve the policy dialogue with member countries, communicate more effectively with the public, and assess more systematically the effectiveness of surveillance.
Lending. In a review of the conditions the IMF attaches to its financial support for member countries’ policy programs, the organization took a thorough look at program design and the application of the 2002 Guidelines on Conditionality. The review found that work on program design needs to continue in five broad areas: capital flows and capital account crises, including the role of the financial sector; low-income country issues; growth and structural reforms; fiscal issues; and precautionary arrangements.
To ensure a flexible response to the needs of low-income countries, the IMF continued to enhance the design of programs supported by its Poverty Reduction and Growth Facility, contribute to the refinement of the Poverty Reduction Strategy process, and strengthen IMF instruments for engaging with low-income members. It is in the process of establishing a monitoring arrangement for low-income countries that desire a close policy dialogue with the IMF but do not want or need its financial assistance. The Fund is also continuing efforts to provide low-income member countries with debt relief and help them maintain debt sustainability, and is following through on the Group of Eight proposal to cancel all outstanding debt owed by Heavily Indebted Poor Countries to the IMF, the World Bank, and the African Development Bank.
Technicalassistance. Technical assistance remains a vital complement to IMF policy advice, facilitating the implementation of better policies and governance practices, including through help with institution building. Efforts have focused on introducing a more medium-term perspective for technical assistance strategies and priorities, strengthening the evaluation of results and enhancing country ownership, and making regional assistance centers more effective.