by Edwin M. Truman, Peterson Institute for International Economics
The central challenge facing the global economy and financial system today is the failure of countries to limit the negative effects of their policies on other countries and on global economic and financial stability. The most prominent manifestations of this challenge are the balance-of-payments adjustment process and the notorious asymmetry therein, spillovers from other countries' financial-sector policies such as those involved in the crisis of 2007–10, and the prospect of sustained unbalanced growth in the global economy with some countries overheating and others facing substantial excess capacity.
Truman proposes an approach to strengthen International Monetary Fund (IMF) surveillance over the economic and financial policies of its member countries—an approach that builds on members' IMF obligations with a view to producing significant promise of affecting their policy choices. His proposed approach has five integrated components: (1) updated obligations of IMF membership, (2) development of a set of norms to guide members in meeting those obligations, (3) a process to apply judgment in monitoring compliance with those obligations via the use of the norms, (4) accountability in the application of such judgment based on transparency, and (5) potential consequences for member countries that are judged not to have complied with their obligations. The crux of the approach is to enhance IMF members' obligations to contribute to global economic and financial stability and to strengthen IMF surveillance of those obligations through the use of norms and a transparent peer review process that leads to improved policies and outcomes.
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