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CHAPTER: 1
INTRODUCTION OF IMF

1.1 Meaning

Just as the United Nations (U.N.) was created in direct response to the human
atrocities and
International conflict of World War II, the International Monetary Fund (IMF) was
created to help
Repair the decimation that was experienced by the developed nations that became
involved in the
War. While both organizations have seemingly similar objectives (i. e., post-war
reconstruction and
Creation of an environment for lasting peace), the Articles of Agreement of the IMF,
however,
Contains no explicit mention of human rights.
After the reparation of the former Axis powers was accomplished, the IMF was left
somewhat
without purpose. Subsequently, the institution became involved in the financial
matters of the
Developing nations as a regulator of fiscal policy, as well as delving into other
domestic matters.
Thus, one might say, the IMF became a sort of development agency.
The IMF is a U.N. specialized agency. As a result, Sigurn Skogly has argued that the
IMF would
Be obligated to act in accordance with the U.N. Charter. More specifically, it might be
suggested that
The IMF should adhere to human rights standards of protection

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1.2 Definition:

The International Monetary Fund is an organization of 189 member countries. It

stabilizes the global economy in three ways. First, it monitors global conditions and
identifies risks. Second, it advises its members on how to improve their economies.
Third, it provides technical assistance and short-term loans to prevent financial crises.
The IMF's goal is to prevent these disasters by guiding its members
.
The World Bank promotes long-term economic development and
Poverty reduction by providing technical and financial support to help countries
reform certain
Sectors or implement specific projectssuch as building schools and health centres,
providing
water and electricity, fighting disease, and protecting the environment. World Bank
assistance
is generally long term and is funded both by member country contributions and
through bond issuance. World Bank staff are often specialists on particular issues,
sectors, or techniques.

1.3 Disadvantages of IMF

Though IMF funds are helpful in many ways, there are certain areas where the IMF
fails to address the member nations. The disadvantages of IMF are discussed briefly
below.
1. Passive approach by IMF
The IMF has been passive in its approach and not been effective in promoting
exchange stability and maintaining orderly exchange arrangements. This is considered
as one of the major disadvantages of IMF. The original fund agreement permits
fluctuations of exchange rate within limits. It can fluctuate within a range of one per
cent above or one per cent below the official price. This is called adjustable peg
system. The exchange rate of currency was fixed in terms of golden dollar. Over
years, U.S gold stock declined and U.S balance of payments suffered. It led to the
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collapse of Bretton Wood System in August 1971 when U.S refused convertibility of
dollars into currency. Member countries were also following diverse exchange
policies. These events simply prove that IMF was not able to maintain a uniform
international exchange system which is a big disadvantage.

2. Unsound policy for fixation of exchange rate by IMF

The unsound policy for fixation of exchange rate is one of the disadvantages of IMF.
Some of the provisions of IMF are unsound. For example, devaluation is justified
when international inflation causes fundamental disequilibrium. If inflation persists,
devaluation of currency cannot be effective. Appropriate adjustments are desired only
through internal economic policy changes. Further, member countries have changed
the par value of currencies with impunity. In 1949, about 23 countries devalued their
currencies in total disregard to the IMF rule. The IMF could not contain the situation
and remained ineffective.

3. Non-removal of foreign exchange restrictions by IMF

One of the important objectives of the IMF has been to remove foreign exchange
restrictions which retard the growth of global trade. Still, member countries follow
unhealthy practices of exchange controls and multiple exchange rates. Consequently,
the international business is adversely affected.

4. Inadequate resources
The resources at the disposal of the IMF are not adequate to cater to the needs of
member countries which is a setback of IMF. Uncertain capital inflows into the
international financial system necessitates the strengthening of the fund resources.
The resources of the fund may be enhanced by raising the quota. But developed
countries are reluctant to increase the quota of the fund.

5. High interest rates by IMF

High interest rates charged on its advances are considered one of the major
disadvantages of IMF. So, the debt servicing for the less developed countries is
difficult. For example, since 1982 the interest charged for loans out of the ordinary
resources of the fund is 6.6 per cent. The interest rates payable on the loans made out

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of borrowed funds is as high as 14.56 per cent. So, developing countries experience a
lot of difficulties in redeeming their loans borrowed from the IMF.

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1.4 OBJECTIVE OF THE STUDY

IMF Agenda

Facilitate global monetary exchange

Promote exchange stability

Organize exchange arrangements foster economic growth

Enhance higher employment

Provide temporary financial assistance

Provide training & advice for balance of payment issues

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1.5 SCOPE OF THE STUDY

The IMF was founded more than 60 years ago toward the end of
the World War II. The founders aimed to build a framework for
economic co-operation that would avoid a repetition of the
disastrous economic policies that had contributed to the Great
Depression of the 1930s and the global conflict that followed.

Since then the world has changed dramatically, bringing extensive

prosperity and lifting millions out of poverty, especially in Asia. In
many ways the IMFs main purpose to provide the global public
good of financial stability

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1.6 Research methodology

Primary tasks of IMF

Surveillance
Monitoring financial & economic activities to develop
policies, strategies & recommendation for proactive
crisis prevention.

Lending
Funding for short-term, low interest loans for
macroeconomic issues related to political & economic
stability

Technical Assistance
Training & consultation for loan application, policy
reforms and the interpretation of data

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1.7 Limitations of the study

The transmission mechanisms between gender inequality and inter-

household income inequality are not as clear as in the OECD study-

the GII does not include the wage gap and the employment gap, but
rather the labour force participation gap
Attempts to deal with problem of direction of causality using legal
restrictions on women's economic participation as instrument
However, this variable, along with all the others, may be jointly
determined by a process of capital accumulation that both leads to
weakening of these restrictions, at the same time as weakening
protections for workers, a process that has as a central dynamic ,
educating more women, drawing more women into paid employment,
but exerting downward pressure on the returns to paid employment for
both women and men

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CHAPTER: 2

THE HISTORY OF IMF

2.1 Bretton wood system

The International Monetary Fund was founded in 1945 as the agency charged with
overseeing the so-called
Bretton Woods system (named after the town in New Hampshire where the summit
establishing it was
Held), as well as promoting post-war global economic growth more generally.
Common economic wisdom
held at the time that a series of competitive currency devaluations was a signi_cant
contributor to the
international contagion of the Great Depression (though later Depression scholarship
has raised doubt about
the importance of this factor). The Bretton Woods plan, by which the US would return
to the gold standard
and other participating countries would peg their currencies to the dollar, was meant
to prevent such \beggar-
thy-neighbor" policies. In addition to its oversight and international coordination
roles, the IMF also served
as an international lender of last resort: any member country facing a balance of
payments crisis could apply
for a loan that would allow it to repay its sovereign debt on time (from a pool of funds
backed by capital
contributed by all the member countries).
In the 1970s, rapid US ination (brought about primarily by the Vietnam War) made
the gold standard
unsustainable, as the supply of dollars rapidly outstripped the Federal Reserve's
ability to maintain enough
gold reserves to back them. The combination of the end of dollar-gold convertibility
and the rapid increase

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in dollar supply (causing unexpected monetary-policy e_ects in the countries that

pegged to the dollar) led
to the abandonment of the Bretton Woods system. The IMF continues to serve as a
\global credit union"

as well as an organization for research and international economic cooperation.

The IMF was originally laid out as a part of the Bretton Woods system exchange
agreement in 1944. During the Great Depression, countries sharply raised barriers to
trade in an attempt to improve their failing economies. This led to the devaluation of
national currencies and a decline in world trade.

The Gold Room within the Mount Washington Hotel where the Bretton
Woods Conference attendees signed the agreements creating the IMF and World
Bank

This breakdown in international monetary co-operation created a need for oversight.

The representatives of 45 governments met at the Bretton Woods Conference in the
Mount Washington Hotel in Bretton Woods, New Hampshire, in the United States, to
discuss a framework for postwar international economic co-operation and how to
rebuild Europe.

There were two views on the role the IMF should assume as a global economic
institution. American delegate Harry Dexter White foresaw an IMF that functioned
more like a bank, making sure that borrowing states could repay their debts on
time.Most of White's plan was incorporated into the final acts adopted at Bretton
Woods. British economist John Maynard Keynes imagined that the IMF would be a
cooperative fund upon which member states could draw to maintain economic activity
and employment through periodic crises. This view suggested an IMF that helped
governments and to act as the United States government had during the New Deal in
response to World War II.

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First page of the Articles of Agreement of the International Monetary Fund, 1 March
1946. Finnish Ministry of Foreign Affairs archives

The IMF formally came into existence on 27 December 1945, when the first 29
countries ratified its Articles of Agreement.By the end of 1946 the IMF had grown to
39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May
France became the first country to borrow from it.

Plaque Commemorating the Formation of the IMF in July 1944 at the Bretton Woods
Conference

The IMF was one of the key organisations of the international economic system; its
design allowed the system to balance the rebuilding of international capitalism with
the maximisation of national economic sovereignty and human welfare, also known
as embedded liberalism.The IMF's influence in the global economy steadily increased
as it accumulated more members. The increase reflected in particular the attainment
of political independence by many African countries and more recently the
1991 dissolution of the Soviet Union because most countries in the Soviet sphere of
influence did not join the IMF.

The Bretton Woods system prevailed until 1971, when the United States government
suspended the convertibility of the US$ (and dollar reserves held by other
governments) into gold. This is known as the Nixon Shock. The changes to the IMF
articles of agreement reflecting these changes were ratified by the 1976 Jamaica
Accords.

Since 2000

In May 2010, the IMF participated, in 3:11 proportion, in the first Greek bailout that
totalled 110 billion, to address the great accumulation of public debt, caused by
continuing large public sector deficits. As part of the bailout, the Greek government
agreed to adopt austerity measures that would reduce the deficit from 11% in 2009 to
"well below 3%" in 2014. The bailout did not include debt restructuring measures
such as a haircut, to the chagrin of the Swiss, Brazilian, Indian, Russian, and
Argentinean Directors of the IMF, with the Greek authorities themselves (at the time,
PM George Papandreou and Finance Minister GiorgosPapakonstantinou) ruling out a
haircut.
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A second bailout package of more than 100 billion was agreed over the course of a
few months from October 2011, during which time Papandreou was forced from
office. The so-called Troika, of which the IMF is part, are joint managers of this
programme, which was approved by the Executive Directors of the IMF on 15March
2012 for SDR23.8 billion, and which saw private bondholders take a haircut of
upwards of 50%. In the interval between May 2010 and February 2012 the private
banks of Holland, France and Germany reduced exposure to Greek debt from
122 billion to 66 billion.

As of January 2012, the largest borrowers from the IMF in order were Greece,
Portugal, Ireland, Romania, and Ukraine.

On 25 March 2013, a 10 billion international bailout of Cyprus was agreed by

the Troika, at the cost to the Cypriots of its agreement: to close the country's second-
largest bank; to impose a one-time bank deposit levy on Bank of Cyprus uninsured
deposits. No insured deposit of 100k or less were to be affected under the terms of a
novel bail-in scheme.

The topic of sovereign debt restructuring was taken up by the IMF in April 2013 for
the first time since 2005, in a report entitled "Sovereign Debt Restructuring: Recent
Developments and Implications for the Funds Legal and Policy Framework. The
paper, which was discussed by the board on 20 May, summarised the recent
experiences in Greece, St Kitts and Nevis, Belize, and Jamaica. An explanatory
interview with Deputy Director Hugh Bredenkamp was published a few days later, as
was a deconstruction by MatinaStevis of the Wall Street Journal.

In the October 2013 Fiscal Monitor publication, the IMF suggested that a capital
levy capable of reducing Euro-area government debt ratios to "end-2007 levels"
would require a very high tax rate of about 10%.

The Fiscal Affairs department of the IMF, headed at the time by Acting Director
Sanjeev Gupta, produced a January 2014 report entitled "Fiscal Policy and Income
Inequality" that stated that "Some taxes levied on wealth, especially on immovable
property, are also an option for economies seeking more progressive taxation ...
Property taxes are equitable and efficient, but underutilized in many economies ...
There is considerable scope to exploit this tax more fully, both as a revenue source
and as a redistributive instrument."
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At the end of March 2014, the IMF secured an $18 billion bailout fund for the
provisional government of Ukraine in the aftermath of the 2014 Ukrainian revolution

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CHAPTER: 3

FRAMEWORK OF IMF

The International Monetary Fund (IMF) has approved a new reform of its exceptional
access framework. The key step made on 29 January 2016 is to remove the systemic
exemption clause. This is the clause that has made IMF participation in the mega
bailout of private creditors in Greece possible. It created the situation that Greece is
now indebted mainly to official creditors, while banks and other creditors have
recovered most of their money. However, the reform is no guarantee that publicly
funded bailouts will no longer happen. It just transfers the task from the IMF to other
official creditors, in Europe to the European Stability Mechanism (ESM).

The huge Troika-funded bailout of Greeces private creditors caused a lot of outrage:
European citizens complained that they were being held liable for the huge loan
packages with which the EU and their new financing instruments now called the
ESM funded the bailout. Greek citizens complained about the harsh conditionalities
that creditors attached to these loans, in a desperate attempt to make them pay off an
unsustainable debt burden. IMF Member States from emerging and developing
countries whose banks were not exposed in Greece, and thus did not benefit from
the bailout complained that a large chunk of IMF resources has been used for the
benefit of rich countries, and that IMF rules have been bent to make this happen.

Rules made by rich countries for the benefit of richer countries

banks

The systemic exemption was introduced back in 2010 when it became clear that
Greece would either need to default on its debt largely bonds held by private
investors or would need huge bailout loans from the IMF to finance debt service, far
beyond what Greeces IMF quota would permit to borrow. Given that Greeces debt
burden was already assessed as unsustainable at that time, IMF rules had implied that

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debt due to private creditors needed to be reduced, and that private and bilateral
official creditors needed to take a haircut before the IMF could lend.

However, many argued that a debt restructuring in the midst of the financial crisis
could have destabilised the European and perhaps global banking system. So the
IMF introduced the systemic exemption, which made borrowing an exceptionally
high amount of IMF monies possible, without requiring an upfront debt restructuring
operation of the debts due to private creditors.

Obviously, political reasons in combination with the IMFs unbalanced governance

structure have played a key role in this decision. The foreign banks most exposed to
Greece were French, German and British banks thus from three of the five countries
that hold the largest share of voting rights at the IMF. The French citizen Dominique
Strauss-Kahn, who was planning to run for presidential elections back home, held the
post of IMFs Managing Director. The USA, the IMFs only veto power, was
indirectly affected as US banks were insurers of European banks loans, through
credit default swaps.

IMF members from non-EU, emerging and developing countries protested early
against the systemic exemption, as it was essentially a rule made by rich countries for
the benefit of rich countries, or more precisely for those countries banks and
creditors: Very few developing countries and their banks would be considered so
important that a systemic exemption would be institutionalised for them. Given the
IMFs governance model, which benefits richer countries, executive directors from
developing countries would have little power to even activate an existing clause for
their benefit.
The IMF has now finally reacted to the criticism and has removed the systemic
exemption, which was controversial in the Funds rank and file too. They also
acknowledged that the clause did not fix the problem the unsustainable debt burden
but that the bailouts had delayed a solution. Moreover, that it causes moral hazards
when private creditors can assume that they are always going to be bailed out.

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3.1 The IMF bails out, but will this stop the bailouts?

However, the reform does not mean that huge private creditor bailouts will no longer
happen. The IMFs main motivation seems to be to reduce the risk that a crisis
country cannot repay IMF loans. A high default risk is the quite logical consequence
of the IMFs practice of lending into an unsustainable debt situation that the systemic
exemption clause has triggered. Greece was pretty close to defaulting on IMF
loans back in June 2015, before the Eurogroup released the third package of EU
bailout loans, which were eventually used to refinance payments due to the IMF (i.e.
bailed out the IMF).

The IMFs Board members have now decided that the IMF bail outs form the current
bailout practice. However, they also decided that a country with an unsustainable debt
burden can still benefit from exceptional access to IMF loans without an upfront debt
restructuring operation, as long as other official creditors provide loans on sufficiently
concessional terms to make the debt sustainable. In clearer terms, when other official
creditors fund the private creditor bailout, the IMF remains ready to lend generously.
This approach is already used in Europe, where the banks bailouts are funded by the
ESM.

3.2 Back to the drawing board

The latest reform should be considered a distraction from fundamental problems

related to sovereign debt crises management. It is part of the IMFs second-best
strategy that became necessary when back in 2013 some directors on the IMF Board
vetoed IMF staff plans to create a statutory debt resolution framework. What followed
since then is a series of piecemeal reforms to address problems that have occurred due
to the absence of such a state insolvency framework. In particular there is the problem
that once a debtor country needs to reduce its debt burden it has no chance of doing
this in a speedy process and distributing the burden fairly on all its different creditors,
in a binding manner. Neither does the IMF have the chance to do that, so what they
did instead is the following:
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October 2014: Endorse enhanced collective action clauses (CACs) that the
International Capital Market Association had developed in an opaque process, and
eventually called on sovereign borrowers to include them in new bond issues.
December 2015: Change its lending into arrears policy to enable it to lend to
countries whose official creditors refuse to participate in a debt restructuring
operation, which most recently happened in the case of Ukrainian loans due to
Russia.

Lastly, as part of the 29 January reform package, to Introduce debt reprofiling

(i.e.the extension of maturities that allows for a temporary freeze on debt payments)
as an interim third way between debt restructuring (i.e. the reduction of the debt
burden through an actual haircut on the principle owed) and a full creditor bailout.

Even taken together, these reforms cannot ensure a speedy and comprehensive
solution to a debt crisis. The mentioned CACs are for bonds only, while most
countries have a mixed debt portfolio that, as well as bonds, also includes loans due to
both private and official creditors. There is no way to enforce the participation of
official creditors. The December reform of the lending into arrears policy just enabled
the IMF to lend even if they dont actually do so meaning more debt to over-
indebted countries, not less. The removal of the systemic exemption protects the
IMFs resources but not those of a debtor country and its citizens.

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CHAPTER: 4

THE PRESENT WORKING CONDITION OF IMF

The work of the IMF is of three main types. Surveillance involves the monitoring of
economic and financial developments, and the provision of policy advice, aimed
especially at crisis-prevention. The IMF also lends to countries with balance of
payments difficulties, to provide temporary financing and to support policies aimed
at correcting the underlying problems; loans to low-income countries are also aimed
especially at poverty reduction. Third, the IMF provides countries with technical
assistance and training in its areas of expertise. Supporting all three of these activities
is IMF work in economic research and statistics.
In recent years, as part of its efforts to strengthen the international financial system,
and to enhance its effectiveness at preventing and resolving crises, the IMF has
applied both its surveillance and technical assistance work to the development
of standards and codesof good practice in its areas of responsibility, and to the
strengthening of financial sectors.
The IMF also plays an important role in the fight against money-laundering and
terrorism
Strengthening the
International Financial System
Transparency

Transparency at the IMF -- A Factsheet

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4.1Standards and Codes

Standards and Codes - Internationally recognized standards and codes in 12 areas

Data Standards Established to guide countries in the provision of their economic and
financial data to the public

Fiscal Transparency Facilitates surveillance of economic policies by country

authorities, financial markets, and international institutions. How Does the IMF
Encourage Greater Fiscal Transparency? -- A Factsheet

Transparency in Monetary & Financial Policies Principles related to

transparency for monetary and financial policies that central banks and
financial agencies should seek to achieve

Reports on the Observance of Standards and Codes (ROSCs) Summarize

the extent to which countries observe certain internationally recognized
standards and codes

4.2 Financial Sector

Financial Sector Assessment Program (FSAP)

Assessments of Offshore Financial Centres (OFCs)

Anti-Money Laundering

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4.3 Crisis Resolution

How the IMF Helps to Resolve Economic Crises

A Factsheet

Trade Finance in Financial Crises: Assessment of Key Issues

The IMF and the WTO work together on many levels, with the aim of ensuring
greater coherence in global economic policymaking. A cooperation
agreementbetween the two organizations, covering various aspects of their
relationship, was signed shortly after the creation of the WTO.

Regular consultation: The IMF has observer status in certain WTO bodies, and may
participate in meetings of certain WTO committees and working groups. The WTO
Secretariat attends meetings of the IMF Executive Board or the Board Committee on
Liaison with the World Bank and other International Organizations on matters of
common interest. Macro-critical trade issues may feature in
Fund surveillance activities and can be addressed in the context of IMF-
supported programs, when needed, to meet the programs objectives. Equally,
IMF surveillance reports are important inputs to the WTOs periodic reports on
member countries trade policies (Trade Policy Reviews).

The WTO Agreements require that it consult the IMF when it deals with issues
concerning monetary reserves, balance of payments, and foreign exchange
arrangements. For example, these agreements allow countries to apply trade
restrictions in the event of balance of payments difficulties. The WTOs Balance of
Payments Committee bases its assessments of restrictions in considerable part on the
IMFs determination of a members balance of payments situation.

Informal consultation between IMF staff and the WTO Secretariat takes place
regularly regarding trade policy and global economic developments, as well as on
advice for individual countries. Examples of consultations include visits by senior
IMF staff to the WTO, and vice versa, to make presentations and attend discussions
on issues of common interest. The IMF, the WTO, and the World Bank hold a regular
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conference to further facilitate the exchange of views among academics, civil society,
and staff of the three organizations on current trade issues. The inaugural IMF/World
Bank/WTO Joint Trade Workshop was held in December 2011; the second
conference took place in June 2013, while the third was hosted by the IMF in
November 2014, the fourth was hosted by the WTO in June 2015, and the fifth was
hosted by the World Bank in November 2016.

Technical assistance and training: The IMF, the WTO, and other international
organizations and donors often work together to help countries improve their ability to
trade. The Enhanced Integrated Framework (EIF) for trade-related technical
assistance to Least Developed Countries (LDCs) supports LDCs to be more active
players in the global trading system by helping them tackle supply-side constraints to
trade.

Fund assistance for trade liberalization: The Trade Integration Mechanism (TIM),
established in April 2004, is available to all Fund member countries whose balance of
payments positions might suffer, albeit temporarily, as a result of multilateral trade
liberalization. It is not a lending facility, but rather a policy aimed at making Fund
resources more predictably available under existing IMF facilities.

High-level coordination: The Managing Director of the IMF and the Director
General of the WTO consult regularly on a range of trade-related issues. The First
Deputy Managing Director attended the December 2005 WTO Ministerial Conference
in Hong Kong, China, and the November 2007 WTO General Council Meeting in
Geneva. Management participated in the Fourth Global Review of Aid for Trade,
hosted by the WTO in July 2013. Finally, management of both institutions frequently
participate in the annual IMF/World Bank/WTO Joint Trade Workshops.

Looking forward, cooperation and consultation between the IMF and WTO will
continue to be key, given the increased areas of mutual support and responsibilities
between the two institutions. Potential areas of heightened interaction include
financial services and trade facilitation. The IMF strongly supports the role of the
WTO in ensuring openness, transparency, and stability in the global trading system,
including its role in enforcing trade rules.

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The International Monetary Fund (IMF) is an international organization of

189 member countries that works to ensure the stability of the international monetary
and financial system. The IMFs mandate includes facilitating the expansion and
balanced growth of international trade, promoting exchange stability, and providing
the opportunity for the orderly correction of countries balance of payments problems.
The IMF was established in 1945.

The World Trade Organization (WTO) is an international organization of

164 members that deals with the rules of trade between nations. With Russias
accession in August 2012, the WTO encompasses all major trading economies. The
WTO works to help international trade flow smoothly, predictably, and freely, and
provides countries with a constructive and fair outlet for dealing with disputes over
trade issues. The WTO came into being in 1995, succeeding the General Agreement
on Tariffs and Trade (GATT) that was established in 1947.

The work of the IMF and the WTO is complementary. A sound international financial
system is needed to support vibrant international trade, while smoothly flowing trade
helps reduce the risk of payments imbalances and financial crisis. The two institutions
work together to ensure a strong system of international trade and payments that is
open to all countries. Such a system is critical for enabling economic growth, raising
living standards, and reducing poverty around the globe.

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CHAPTER: 5

OVERVIEW OF IMF

The period from May 2012 through April 2013the IMFs financial year 20131
saw the world dealing with the prolonged effects of a global crisis that had persisted
well beyond initial expectations in an atmosphere of heightened global change. With
economic activity remaining weak and the potential for renewed stresses still high,
efforts to advance global stability and a secure future were as essential as ever.

In her Global Policy Agenda, the IMFs Managing Director charted a set of actions
needed across the membership to secure the recovery and to lay the foundation for a
more robust global financial architecture, and detailed the institutions role in
assisting the membership with these formidable tasks.

Through assessments in its various multilateral and bilateral surveillance products and
active engagement with its 188 member countries via policy and financial support and
capacity develop-ment, the IMF continued to assist members in identifying systemic
risks and designing strong policies to respond to threats to domestic and global
stability.

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5.1 THE GLOBAL ECONOMY

Although economic activity showed signs of stabilizing in advanced economies

during the year and even accelerated somewhat in emerging market economies, it was
clear that

continued turbulence was likely, at least in the near term. Serious threats to global
recovery during the yearfaltering market confidence in Europe, the looming fiscal
cliff in the United Stateswere averted, and financial stability grew stronger, but
growth prospects remained stubbornly low, and a multiple- speed recovery emerged
that threatened global recovery in an increasingly interconnected world.

5.2 SURVEILLANCE

Following its comprehensive Triennial Surveillance Review in 2011, the IMF took
steps during the year to reform its surveillance along the lines of the priorities
identified in that review. It published a pilot report on the external sector, presenting a
combination of multilateral and bilateral perspectives. Perhaps most significantly, the
institution adopted a Decision on Bilateral and Multilateral Surveillance with the
objective of better integrat-ing IMF monitoring of the global economy with its
oversight over individual countries. It also adopted a strategy for financial
surveillance aimed at improving risk identification, developing better instruments to
support integrated policy response to risks, and increasing engagement with
stakeholders to improve impact.

5.3 FINANCING

With the ongoing crisis, financing remained an important mode of IMF support for its
members. The Executive Board approved five arrangements under the IMFs no
concessional financing facilities during the year, two fewer than in the previous year.
Successor arrangements under the Flexible Credit Line for Mexico and Poland

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accounted for the vast majority of the amount committed, and a sizable percentage of
the amount disbursed went to three euro area countries with IMF programs.

The IMF continued its support to low-income member countries under the Poverty
Reduction and Growth Trust (PRGT), with 9 new or augmented arrangements
approved during the year, down from 20 the year before. The total number of
countries supported under the PRGT changed little, however, with 62 countries
(compared with the prior years 64) having outstanding concessional financing as of
the end of the year

5.4 POLICY AGENDA

With endorsement from the International Monetary and Finan-cial Committee

(IMFC), the institutions policy work for the year reflected the priority areas
identified in the Managing Directors Global Policy Agenda. In addition to short-term
policy actions required to move the global economy from stabilization to growth, the
focus of policy priorities needed over the medium term was on four areas. In the area
of jobs and growth, analytical and operational considerations for the IMF, as well as
fiscal policy and employment in advanced and emerging market economies, were
examined. Work regarding debt sustainability spanned

countries at all income levels. A review of the IMFs framework for assessing debt
sustainability recommended changes to promote more uniform outcomes. A new
Guidance Note on Public Debt Sustainability Analysis for Market Access Countries
introduced a differentiated risk-based approach. Work toward strengtheningfinancial
systems included assessing work on the key attributes ofeffective resolution regimes
and revising the IMFs Guidelines for Foreign Exchange Reserve Management.
Finally, in the area of global analysis and spillovers, the IMF followed the previous
years pilot Spillover Reports for five systemic economies with a consolidated report
on these same economies. It also approved an institutional view on liberalization and
management of capital flows that will inform both its policy advice and its
assessments of member policies

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5.5 CAPACITY DEVELOPMENT

As the year began, two existing IMF units were merged into the new Institute for
Capacity Development, as part of a strategic approach to this core area of IMF
activity. Significant accomplishments in the institutes first year included an agree-
ment to establish a regional training center in Mauritius, key preparatory work for the
opening of a new regional technical assistance center in West Africa, and a seminar
celebrating the twentieth anniversary of the Joint Vienna Institute. The major-ity of
technical assistance continued to be provided to the IMFs low- and middle-income
members. Demand for IMF training programs, supported by external donors and
training partners, remained robust, with the IMFs middle-income members the
primary beneficiaries.

5.6 RESOURCES

Ensuring adequate resources to support members financing needs has been a priority
since the onset of the crisis. During the year, the Executive Board approved the
modalities for bilateral borrowing from member countries to supplement quota
resources and the institutions standing borrowing arrange-ments; as of the end of
April 2013, 38 countries had made commitments to provide resources through this
avenue, and 25 bilateral agreements had been approved by the Executive Board.
Fourteen members had signed separate bilateral borrow-ing agreements specifically to
support the IMFs concessional financing. To alleviate concerns that concessional
financing needs might exceed capacity, the institution took steps to make that
financing more sustainable over the long haul. The Board approved the use of the
remaining portion of the windfall profits from the IMFs 200910 gold sales to bolster
PRGT subsidy resources. It also endorsed a three-pillar strategy for PRGT
sustainability that includes a base envelope of resources, contingent measures to cover
needs that exceed that envelope, to the concessional financing architecture.

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5.7 A CHANGING IMF

Efforts have been underway for some time to ensure that the IMF remains responsive
to the changing needs of its members and reflects the rapid evolution of the global
economy in the aftermath of the crisis. A change in the institutions quota and
governance structure agreed to in December 2010 awaits completion by the
membership of the necessary steps for implementation; it would double quotas and
shift quota shares substantially in the direction of emerging market economies and
developing countries, and institute an all-elected Executive Board. In addition, as part
of these reforms, a comprehensive review of the formula for calculat-ing members
quotas was undertaken during the year, and its outcome was reported to the Board of
Governors.

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CHAPTER: 6

GLOBAL ECONOMIC AND FINANCIAL

DEVELOPMENTS

As FY2013 came to a close, financial conditions had improved, but the road to a
comprehensive and robust global recovery was expected to remain bumpy. Policy
actions during the year addressed the gravest short-term risks, but growth prospects
were little changed by the end of April 2013, and the global economy was evolving at
different speedsin various parts of the world improved financial conditions had not
translated evenly into growth or other factors were acting as brakes.

Decisive policy actions had successfully defused the two most immediate threats to
the global recovery. One, strong actions by European policymakers had helped avert
major risks of a tail event in the euro area. Two, U.S. policymakers had been able to
avoid the fiscal cliff. In both instances, however, durable solutions would be needed
to combat underlying risks. At the same time, Japan had adopted more expansionary
macroeconomic policies, including ambitious changes to the monetary policy
framework. Also, policy easing in key emerging market economies helped support
internal demand.

Financial stability had strengthened, with the decline in market and liquidity risks.
Market volatility had subsided and asset prices rallied, posting strong gains in both
advanced and emerging market economies from mid -2012. Nevertheless, confidence
remained fragile, and markets tended to move ahead of the real economy. In this
regard, the recovery remained unbalanced moving at three speedsand global
growth prospects were little changed, highlighting key factors still weighing on
growth.

6.1 TURNING THE CORNER AT DIFFERENT SPEEDS

World growth hit a trough at about 2 percent in the second quarter of 2012, but
picked up steam in the second half of the year, reaching 2 percent, and in early
2013, leading indicators pointed to a further acceleration of activity. In the April 2013
World Economic Outlook, real GDP growth was forecast to reach3 percent in 2013,

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rising to 4 percent in 2014. However, these global averages masked considerable

variations between and even within groups of countries.

In the advanced economies, in particular, the recovery was expected to proceed at

different speeds, with the United States in the lead. Private demand in the United
States had shown signs of strength, although the larger-than-expected fiscal
adjustment was expected to keep real GDP growth at about 2 percent in 2013. The
euro area was projected to remain in recession in 2013, with many economies facing
continued fiscal adjustment, competitiveness problems, persistent differ-ences or
fragmentation in financial conditions, and deleverag-ing pressures stemming from
private sector debt overhang, including in the banking sector. Japan, by contrast,
would see a fiscal- and monetary-stimulus-driven rebound in 2013. Overall growth for
advanced economies in 2013 was forecast to be 1 percentno better than in 2012
although growth was expected to continue to gain momentum, reaching 2 percent in
2014.

In emerging market economies and developing countries, the expansion of output was
projected to become more broad based and accelerate steadily. After decelerating to
5.1 percent in 2012, activity was expected to reach 5.3 percent in 2013, before
rebounding to 5.7 percent in 2014. The return to stronger growth was driven by
resilient consumer demand, macroeconomic policy on hold, and exports reviving as
the advanced economies recov-ered. However, some economies in the Middle East
and North Africa were continuing to struggle with difficult internal transi-tions. In
contrast, the prospects for many dynamic low-income countries appeared stronger
thanks largely to sound policy frameworks and earlier structural reforms.

Although policy actions had helped ease near-term risks, old and new dangers still
clouded the outlook. In the euro area, the most immediate risks stemmed from
incomplete or stalled delivery of reform commitments, at both the euro area and
national levels. In the United States, near-term risks pertained to the possible sharper
fiscal contraction if the budget sequester were not reversed soon. Moreover, failure to
raise the U.S. debt ceiling by later in 2013 would be very damaging to global
economic and financial stability. Over the medium term, in Japan as well as the
United States, risks related to the absence of credible medium-term fiscal
consolidation plans. Other relevant risks concerned limited policy space, high private
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sector debt, and persistently weak activity. For example, larger or more persistent
adverse effects of public and private deleveraging, entrenched fragmentation, and
delayed structural reforms could lead to stagnation in the euro area. There was also
growing concern regarding the potential complications from easy and unconventional
monetary policy in many advanced economies, as well as rising challenges to
domestic financial stability in many emerging market economies and developing
countries.

6.2 ACHIEVING A FULL-SPEED GOBAL

ECONOMY

As FY2013 drew to an end, the imbalances in and risks to the global recovery
underscored the need for a proactive policy stance. Policymakers faced a difficult
balancing act in moving from financial stabilization to securing an enduring full-
speed global economy. Unless policies addressed the lingering risks, global activity
was likely to suffer periodic setbacks, and robust real growthand much-needed jobs
growthmight remain elusive. By the same token, a stronger-than-projected policy
response could also foster a stronger recovery in activity.

In the advanced economies, there was no silver bullet to address concerns about
demand and debt. Policymakers were advised to prudently use all available margins to
stimulate demand and growth, complemented with structural policies to boost
employ-ment and competitiveness. A comprehensive approach on all fronts that
managed well the underlying trade-offs would be needed to achieve a lasting and
robust recovery.

In emerging market economies and developing countries, the key objectives were to
strengthen policy buffers and guard against financial excesses. In this context, some
tightening of policies over the medium term was considered appropriate.
Wherefinancial stability was at risk, macroeconomic policy adjustment could be
supported by prudential measures, and in some circum-stances, capital flow
management measures could also be useful. As soon as conditions permitted,
policymakers were advised also to return fiscal balances to levels that provided ample
room to handle future shocks. Where structural problemssuch as infrastructure and
labour market bottlenecks or regulatory gaps held back growth, effort was required

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to remove these impediments. In many economies, especially low -income countries,

efforts needed also to continue to improve the targeting of subsidy regimes, diversify
the economy, and enhance social policies.

Developments over the course of the year provided reminders of the potential for
spillovers, including policy-related ones, in the increasingly interconnected global
economy. The likelihood of a bumpy recovery and the skewed macroeconomic policy
mix in advanced economies could complicate policymaking elsewhere, particularly in
emerging market economies. With short-term financial stability risks abating, bond
and equity flows to emerging market economies had resurged, increasing upward
pressure on their exchange rates and raising concerns of competitive devaluations. To
address currency worries it was recommended that all economies pursue policies that
would foster internal and external balance. In addition, concerted efforts continued to
be required to further reduce global imbalancesincluding stronger domestic demand
and exchange rate flexibility in surplus economies, and increased public saving and
structural reforms to boost competitiveness in deficit economies.

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CHAPTER: 7

ADAPTING TO A RAPIDLYCHANGING WORLD

7.1. MONITORING GLOBAL INTERCONNECTIONS

As recent experiences in world economic and financial markets have underscored,

countries have become more interconnected. Develop-ments in one country or region
can quickly spill across borders. In reviewing economic trends and developments that
affect the health of the international monetary and financial system, the IMF has
focused increasingly on the regional and international consequences of member
countries economic and financial policies.

Spillover Report

The IMF first prepared pilot Spillover Reports in 2011, to assess the impact of
economic policies in the worlds five largest systemic economiesChina, the euro
area, Japan, the United Kingdom, and the United Stateson economic partners. A
second pilot Spillover Report, now consolidated in one document, but covering the
same five systemic economies, was considered by the Executive Board in an informal
meeting in July 2012 and published later that month. 2

The consolidated report provides an added perspective to the policy assessments

developed in the Article IV discussions for each of the five economies (see Web Box
3.1) and serves as input to the IMFs broader multilateral surveillance. The topics
covered in the report reflect consultations with policymakers from the five economies
and from selected economic partners (Brazil, theCzech Republic, India, Korea,
Mexico, Poland, Russia, Saudi Arabia, Singapore, South Africa, and Turkey). Rather
than capturing all possible spillovers, the 2012 report builds on the previous years
findings, focusing on forward-looking issues.

Pilot External Sector Report

The Managing Directors 2011 Statement on Strengthening Surveil-lance included a

plan covering a range of efforts,3 including on external stability issues. In that context,

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the Executive Board discussed a Pilot External Sector Report in an informal meeting
in July 2012.

The pilot report analyzes the external positions of 28 systemic economies and the euro
area. It combines multilateral and bilateral perspectives in a single report and points to
potential policy responses. The analysis incorporates a new External Balance
Assessment developed by the IMF staff to assess external imbal-ances,
acknowledging the uncertainties inherent in such exercises.

By applying the same methodologies to all countries, the report ensures that
assessments for individual countries are multilater-ally consistent, promoting candor
and evenhandedness. At the same time, country teams provide in-depth knowledge of
country-specific factors, and an element of judgment, to identify elements not
captured by models.

With a view to refining these approaches to the IMFs external sector surveillance, the
IMF staff consulted with officials, academics, the private sector, civil society, and
others in mid-2013, and another Pilot External Sector Report was published in August
2013

7.2. POLICY ADVICE

In the course of supporting programs in member countries, helping countries

strengthen their institutions and capacities, monitoring member countries economies,
and overseeing the international

IMF engagement in Europe

The IMFs work in Europeproviding policy advice, technical assistance, and when
necessary, financingis conducted in close cooperation with European Union
countries, as well as European institutions, such as the European Commission and the
European Central Bank.

Since the start of the crisis, a number of European countries have requested IMF
financial support to help address fiscal and external imbalances. This includes
continued support to three members of the euro areaGreece, Ireland, and
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Portugalduring the most recent financial year. Cyprus also requested an

arrangement under the Extended Financing Facility during the year which was
approved by the Executive Board in May 2013. As of April 30, 2013, the IMF had
financial arrangements with eight countries in Europe;b commit-mentstotaled about
107 billion (US$140 billion). This means that of the IMFs total disbursing and
precautionary commitments, as of the end of the financial year, about 62 percent were
to Europe as a whole.

The IMF tailors its policy advice to individual members, and program design in
individual European countries varies accordingly. At the same time, its engagement at
the regional level in Europe has focused on structural reforms to boost economic
growth, such as product and services market reforms, as well as labor market and
pension reforms. It has also underscored the importance of adequate safety nets to
protect those most vulnerable during these difficult adjust-ments. In addition, at an
area-wide level, the IMF has consistently called for more determined steps toward a
complete monetary union, including a unified banking system and deeper fiscal
integration. In the 2012 Article IV consultation on euro area policies, for example,
monetary system, the IMF provides policy advice to member countries on a variety of
issues pertaining to economic stability.

Surveillance architecture

The IMF is mandated by its Articles of Agreement to oversee the international

monetary system and monitor the economic and financial policies of its 188 member
countries, an activity

the Executive Board stressed the importance of policymakers continuing to

demonstrate shared and unequivocal commitment with a clear, credible road map
to deeper integration. In addition to structural reforms in both deficit and surplus
countries, this requires action on two broad pillars: first, steps toward a banking
union, comprising a pan-European deposit guarantee scheme and a pan-European
bank resolution schemeboth backed with common resourcestogether with a
common supervisory framework; second, greater fiscal integration, with stronger
governance arrangements and risk sharing, balanced by appropriate safeguards.

Policy advice and assistance to Arab countries in transition

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The Arab countries in transitionEgypt, Jordan, Libya, Morocco, Tunisia, and

Yemencontinue to face difficult internal transitions. a A weak global economic
environment, together with limited exchange rate flexibility, has been eroding
international reserves, while substantial increases in public wages and subsidies, in
response to high social pressures, have diminished fiscal buffers sharply. This
underscores the urgent need to maintain macroeconomic stability. Continued political
uncertainty is also holding back growth. The moderate economic recovery expected
for these countries in 2013 will not be sufficient to generate the jobs needed to tackle
the regions substantial unemployment. These problems are considerably aggravated
by the tragic conflict in Syria, which has deteriorated into a major humanitarian crisis
with growing economic and social spillovers to neighboring countries.

In view of low fiscal and reserve buffers, fiscal consolidation and greater exchange
rate flexibility, while finding more efficient ways to protect the poor, are short-term
policy challenges. In this context, greater transparency and accountability in the use of
public resources could reinforce the credibility and durability of measures. It is also
important for policymakers to move quickly on designing and implementing effective
structural reforms tobuild dynamic and inclusive economies that generate more jobs.
Promoting private sector growth and international trade, as well as attracting foreign
direct investment inflows, will be key components of success. The international
community can support positive change by providing better trade access for the
regions products and services, financing, and policy advice.

The IMFs key instruments of multilateral surveillance are the World Economic
Outlook, Global Financial Stability Report, andFiscal Monitor. These twice-yearly
publications, along with Regional Economic Outlook reports constitute the IMFs
examination of economic and financial developments among the broader membership.
Updates for the World Economic Outlook are issued twice a year.

In July 2012, the Executive Board took a significant step toward modernizing IMF
surveillance and addressing the priorities of the 2011 Triennial Surveillance Review,
adopting a Decision on Bilateral and Multilateral Surveillanceknown as the
Integrated Surveillance Decision. The decision provides a basis for the IMF to engage
more effectively with members, strengthening IMF surveillance in a number of ways:

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It provides a conceptual link between the IMFs assessment of individual economies

and global stability and clarifies that surveillance should focus on economic and
financial stability both at the individual country and global levels.

It makes Article IV consultations a vehicle not only for bilateral but also for
multilateral surveillance, thus allowing for more comprehensive, integrated, and
consistent spillover analysis. In particular, it allows the IMF to discuss with a
member country the full range of spillovers from its policies when they may have a
significant impact on global stability. Although members have no obligation to
change policies as long as they promote their own stability, the decision encour-ages
countries to be mindful of the impact of their policies on global stability.

It promotes a more balanced treatment of domestic and exchange rate policies by

adding guidance on the conduct of member countries domestic policies, while
maintaining the existing principles for exchange rate policies. It also stresses the
contribution of the overall mix of policies to a countrys domestic and balance of
payments stability.

It defines, for the first time, the scope and modalities of multilateral surveillance,
including by laying out a framework for potential multilateral consultations.
.

Executive Directors underscored that increased attention to multilateral surveillance

should not come at the expense of the focus on issues relevant for the stability of
individual economies. They welcomed the clarification in the decision that, to the
extent that a member is promoting its own stability, it cannot be required to change its
policies to better support the effective operation of the international monetary system.
They emphasized that the

framework for multilateral surveillance set out in the decision should not be exercised
in a manner that leads to an excessive examination of a members domestic policies.

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Executive Directors considered it important to ensure the smooth implementation of

the decision and agreed that leaving six months between its adoption and entry into
force would allow sufficient time for both the IMF staff and country authorities to
become fully familiar with the new framework. The decision took effect in January
2013.

Progress implementing the priorities of the 2011 Triennial Surveillance Review

In a November 2012 discussion, Executive Directors welcomed progress made on the

priorities set at the time of the 2011 Triennial Surveillance Review. They noted that
many of the initiatives undertaken in the preceding year had already brought
significant improvements in the focus of surveillance on intercon-nections, risks,
financial stability, and external stability.

Interconnections.Executive Directors welcomed progress on theanalysis of

interconnections. They agreed that further strengthen-ing of this work was necessary
to improve the identification of risk transmission channels and to further leverage
spillover analysis and cross-country work in surveillance.

Financial stability. Executive Directors stressed the need to continue efforts to

integrate financial surveillance into Article IV consul-tations and multilateral
surveillance, as highlighted in the IMFs financial surveillance strategy (discussed
later in this section). They noted the progress on following up on Financial Sector
Assessment Program (FSAP) recommendations in Article IV staff reports, but
suggested more could be done to integrate assessments of macro-financial linkages in
surveillance.

Traction. Executive Directors emphasized the importance of the relevance and quality
of IMF surveillance in generating traction. They called for systematic follow-up on
issues raised in previous Article IV consultations and noted that enhanced
communication to policymakers on key messages and risks, including through the
Managing Directors Global Policy Agenda, could help.

Review of progress in members provision of data for surveillance purposes

Also in November 2012, the Executive Board considered a policy paper on the
provision of data to the IMF for surveillance purposes. In addition to reviewing recent
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trends in data provision, the paper discussed how initiatives to close data gaps could
help address the priority areas identified in the 2011 Triennial Surveillance Review. It
also proposed improving reporting of data deficiencies and strengthening the focus on
financial sector data. Finally, it discussed ensuring greater consistency among plans to
improve data in the context of the General Data Dissemination System technical
assistance, and data deficiencies identified in Article IV consultations.

Strategy for financial sector surveillance

Although financial deepening and globalization have brought important benefits, the
increased size and complexity of financial systems, coupled with the significant scale
and pace of capital flows, now inextricably link national economies to one another
and expose them to financial shocks. In September 2012 the Executive Board adopted
a strategy for financial surveillance, a key recommendation of the 2011 Triennial
Surveillance Review and the Managing Directors action plan for surveillance.

Executive Directors noted that the strategy is appropriately ambi-tious, but focused, to
ensure effective use of scarce resources, and they welcomed its prioritized activities
and specific time frames for further strengthening financial surveillance. They broadly
endorsed its three pillars: (1) improving risk identification and macro-financial policy
analysis, (2) upgrading the instruments and products of financial surveillance to foster
an integrated policy response to risks, and (3) increasing the traction and impact of
financial surveillance by engaging more actively with stakeholders.

Guidance Note for Surveillance under Article IV Consultations

In October 2012, the IMF issued a Guidance Note for Surveillance under Article IV
Consultations to assist IMF staff in conducting bilateral and multilateral surveillance
in the context of those consultations. The note emphasizes the operational priorities
from the 2011 Triennial Surveillance Review and the Integrated Surveillance
Decision. With regard to the latter, it confirmed the continued focus of surveillance on
members exchange rate policies while clarifying how the IMF can engage more
effectively with members on their domestic economic and financial policies. The note
also reflected the IMFs efforts to follow up on the 2011 Independent Evaluation
Office (IEO) report on performance in the run-up to the global crisis. The Executive
Board was briefed on the guidance note in an informal meeting in September 2012.
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Joint IMFFinancial Stability Board Early Warning Exercise

In 2009, the IMF introduced the Early Warning Exerciseto identify and assess low-
probability but high-impact risks to the global economyand has also developed
analytic frameworks to assess vulnerabilities and emerging risks in advanced
economies, emerging market economies, and low-income countries. The exercise is
typically conducted (in collaboration with the FSB) twice each year, and the
Executive Board was briefed on the results of the exercise in October 2012 and April
2013. Follow-ing discussions at the Board and with the FSB, the exercises findings
are presented to senior officials during the Spring and Annual Meetings.

Fiscal sustainability and structural reforms

Fiscal transparency, accountability, and risk

The last decade and a half has seen a concerted effort to develop a set of
internationally accepted standards for fiscal transparency and to monitor and promote
their implementation. This period has also witnessed a steady improvement in the
compre-hensiveness, quality, and timeliness of countries public financial reporting.
Nevertheless, understanding of govern-ments underlying fiscal positions and the
risks to those positions remains inadequate

based on the revised framework.

Macroeconomic and fiscal policy in resource-rich developing countries

Natural resource revenues have important implications for macroeconomic and fiscal
policy frameworks in resource-rich developing countries owing to the exhaustibility
and volatility of resource revenues. These countries face the challenge of transforming
resource wealth into other assets that support sustained development, while
maintaining mechanisms to avoid the boom-bust cycles that stem from revenue
volatility. Also, their distinct characteristicslow per capita incomes, scarce domestic
capital, and limited access to international capital marketsmake advice based on
traditional consumption-savings/investment theories inadequate. In this context,
increas-ing the revenue potential of extractive industries in resource-rich countries has
become an increasingly important element of IMF policy advice and technical
assistance.
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In an informal meeting in September 2012, the Executive Board considered two

policy papers addressing issues for resource-rich developing countries. The first paper
concerns macro-fiscal frameworks and policy analysis tools for these countries that
could enhance IMF policy advice.14 It puts forward five key innovations: (1) a fiscal
sustainability framework that accounts for the growth - and revenue-enhancing impact
of public investment, (2) a tool to support sustainable investment by analyzing the
fiscal and macroeconomic implications of saving/ investment scaling-up scenarios,
(3) a set of proposed fiscal indicators to measure savings from and use (consumption
orrules that smooth revenue volatility and assess long-term fiscal sustainability, and
(5) a framework that generates current account benchmarks to analyze external
sustainability in these countries.

Lessons and implications of energy subsidy reform

Energy subsidies impose substantial fiscal and economic costs in most regions, with a
commensurate adverse impact on fiscal balances and public debt. For many low- and
middle-income countries, the fiscal costs have been substantial and pose even greater
fiscal risks if international prices continue to increase.

In February 2013, the Executive Board was briefed informally on a policy paper
reviewing country experience with energy subsidies and exploring implications of
subsidy reform.16 Drawing on coun-tries experiences, the paper outlines key
elements of subsidy reform:

a comprehensive energy reform plan with clear long-term objectives, analysis of the
impact of reforms, and consultations with stakeholders;

an extensive communications strategy, supported by improve-ments in

transparency;

appropriately phased price increases, which can be sequenced differently across

energy products;

improving the efficiency of state-owned enterprises to reduce reliance on subsidies;

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targeted measures to protect the poor; and

institutional reforms that depoliticize energy pricing.

Capital flow management and macro-prudential policy

Executive Board discussions in the area of monetary policy during the year dealt with
capital flows and the interactions of monetary and macro-prudential policy.

Capital flows

Capital flows have important benefits for individual countries and for the global
economy, including by enhancing financial sector competitiveness, facilitating
productive investment, and easing the adjustment of imbalances. However, the size
and volatility of flows, as witnessed in recent years, also pose policy challenges. It is
therefore important that the IMF be in a position to provide clear and consistent
advice to members with respect to capital flows and policies related to them. In this
regard, in 2011 the IMFC requested work on a comprehensive, flexible, and
balanced approach for the management of capital flows, drawing on country
experiences.

Liberalization and management of capital flows

In two meetings in November 2012, the Executive Board concluded its discussions
regarding the liberalization and management of capital flows. 17 In the policy paper
that formed the basis for the Boards discussion, the IMF staff proposed an
institutional view that builds on countries experience in recent years, previous IMF
policy papers and Board discussions on capital flows, and recent analytical research.

Most Executive Directors agreed that the institutional view proposed in the paper
provided a good basis for IMF policy advice and, where relevant for bilateral and
multilateral surveil-lance, assessments on issues of liberalization and management of
capital flows. Many Executive Directors emphasized that the role of source countries
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in capital flows should be adequately integrated into the institutional view. Executive
Directors under-scored that the institutional view in no way alters members rights
and obligations under any international agreements, including the Articles of
Agreement.Executive Directors observed that a countrys net benefits from
liberalization, and therefore its appropriate degree of liberaliza-tion, would depend on
its specific circumstances, notably the stage of its institutional and financial
development. They agreed that there should be no presumption that full liberalization
is an appropriate goal for all countries at all times, although a worthy long-term goal
for all countries.

Guidance Note on Liberalization and Management of Capital Flows

Given the importance of providing operational clarity on the institutional view, a

Guidance Note on Liberalization and Management of Capital Flows was developed,
and the Executive Board was briefed on it in April 2013. 20 The guidance note explains
that the institutional view provides a basis for consistent advice and assessments when
relevant for surveillance, but there are no mandatory implications for IMF-supported
programs.

The guidance note advises that application of the institutional view will need to reflect
country circumstances. It encourages the IMF staff to incorporate in staff reports, and
find ways to disseminate among the staff, policy lessons from country cases,
interactions with authorities, and new analysis on capital flow liberalization and
management.

Interaction of monetary and macro-prudential policies

The global crisis showed that price stability does not guarantee macroeconomic
stability. Including financial stability as an addi-tional objective thus requires macro-
prudential tools that can target specific sources of financial imbalances. Effective
macro-prudential policies (which include a range of constraints on leverage and the
composition of balance sheets) can then potentially limit risks ex ante and help build
buffers to absorb shocks ex post.

Additionally, the paper observes that interaction between monetary and macro-
prudential policies has implications for institutional design, while acknowledging that

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the policy inter-actions are not fully known, institutions are imperfect, and political
economy and other constraints can arise. Nevertheless, policy coordination can
improve outcomes, making it advanta-geous to assign both policies to the central
bank. However, concentrating multiple objectives in one institution can muddy its
mandate, complicate accountability, and reduce credibility. Thus, safeguards are
needed to distinguish between the two policy functions through separate decision
making, accountability, and communication structures.

7.3 LOW-INCOME COUNTRIES

Throughout the global crisis, the IMF has remained committed to meeting the
changing needs of low-income countries. In addition to increasing the financial
support available to these countries, other reforms have included overhauling the
institutions lending framework, streamlining loan conditionality, and reduc-ing to
zero the interest charges on concessional IMF loans for low-income countries through
the end of 2014.

Review of facilities for low-income countries and eligibility for concessional

financing

When the IMF reformed its facilities for low-income countries in 2009, the Executive
Board requested that experience with the new architecture be reviewed after three
years. Two Board discussions during the year provided an opportunity to conduct
such an assessment.

Review of facilities

At the first stage of the review, in September 2012, Executive Directors considered
that the 2009 reforms had been broadly successful in creating a streamlined
architecture of facilities better tailored to low-income countries needs. They noted
that the central challenge ahead would be to preserve the IMFs ability to provide
financial support to these countries in the face of a sharp prospec-tive drop in its
concessional financing capacity after 2014.

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Noting that access levels at the time of the discussion appeared broadly appropriate on
average, most Executive Directors saw merit in keeping access unchanged in special
drawing right (SDR) terms when the Fourteenth General Review of Quotas becomes
effective, which would imply a corresponding decrease in access in percentage of
quota.25 Executive Directors recognized that access would need to be raised in the
future as financing needs increased, based on a careful assessment of projected
financing needs and available resources. Although the terms of financing
arrangements through the PRGT appeared on aver-age to strike the right balance
between concessionality and financing capacity, most Executive Directors saw merit
in greater differentiation of financing terms, particularly through greater use of
blending of nonconcessional and concessional financing.

Review of eligibility for concessional financing

In April 2013, the Executive Board also reviewed the IMFs framework for
determining eligibility to use its concessional resources, including the criteria for
determining PRGT eligibility and the list of PRGT-eligible countries. Executive
Directors broadly supported the proposals, including transitional arrangements .

Vulnerability Exercise for Low-Income Countries

In 2011 the IMF developed an analytical framework to assess vulnerabilities and

emerging risks in low-income countries. Using this framework, the IMF conducts an
annual Vulnerability Exercise for Low-Income Countries.

They called on the staff to take concrete steps to incorporate these recommendations
into IMF surveillance, financing programs, and technical assistance.

Executive Directors encouraged low-income countries to continue to rebuild policy

buffers, while balancing adjustment against the need to maintain or raise growth and
preserve priority spending. They highlighted several broad priorities for stoking
domestic engines of growth to substitute for weaker global demand and reduce the
impact of external shocks: deepening financial sector development, developing
domestic debt markets, strengthening financial regulation and supervision, improving
the business climate, and better targeting investments in infrastructure to increase
productivity and long-term inclusive growth.

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Enhanced financial sector surveillance in low-income countries

The Executive Board considered a policy paper on enhanced financial sector

surveillance in low-income countries in an informal meeting in May 2012. The paper
advocates taking better account of the interplay between financial deepening and
macro-financial stability in IMF surveillance, as called for in the 2011 Triennial
Surveillance Review.The analysis identifies policy and institutional impediments in
low-income countries that have a bearing on the effectiveness of macroeconomic
policies, macro-financial stability, and growth, focusing on the role of policies in
facilitating sustainable financial deepening.

Heavily Indebted Poor Countries Initiative/

Multilateral Debt Relief Initiative

The IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC)
Initiative in 1996, as part of a comprehensive approach to debt reduction designed to
ensure that no poor country faces a debt burden it cannot manage. To be considered
for assistance under the initiative, a country must meet certain criteria. 33 Debt relief is
provided in a two-step process: interim debt relief in the initial stage, referred to as
the decision point, and when a country meets its commitments, full debt relief at the
completion point. No additional countries reached their decision points during the
year, and three countriesComoros, Cte dIvoire, and Guineareached their
completion points under the initiative.

In 2005, to help accelerate progress toward the UN Millennium Development Goals,

the HIPC Initiative was supplemented with the Multilateral Debt Relief Initiative
(MDRI). MDRI relief covers the full stock of debt owed to the IMF at the end of 2004
that remains outstanding at the time a country qualifies for such relief. The IMF has
provided debt relief of SDR 2.3 billion (US$3.4 billion) under the MDRI, including
debt relief to two nonheavily indebted poor countries. Although they reached the
completion point under the HIPC Initiative, Afghanistan, Comoros, Haiti, and Togo
had no MDRI-eligible debt with the IMF and therefore did not receive debt relief
from the IMF under this initiative. Additionally, Cte dIvoire and Guinea had fully
repaid their MDRI-eligible debt by the time they reached the completion point and
also did not receive debt relief from the IMF under the MDRI.
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7.4SMALL STATES

The IMFs smallest member countries share a number of intrinsic characteristics

that translate into a common set of development challenges. Because of their
small size, they have higher fixed and variable costs, with little scope to exploit
economies of scale. In the public sector, this results in higher costs and reduced
volumes of services provided; in the private sector, in concentrated market
structure and a lack of diversification; and in trade, in high transport costs (which
are exacerbated for the most remote small states). Small size also influences the
financial sector and how small states manage their exposure to natural disasters.
The Executive Board considered issues related to small statesthe first compre-
hensive examination since 2000in an informal briefing in December 2012 as
well as a formal discussion in March 2013.

Macroeconomic issues in small states and implications for IMF

engagement

At its March 2013 meeting, the Executive Board discussed a policy paper on
macroeconomic issues in small states and implications for IMF engagement.The
paper examines the macroeconomic challenges unique to microstates, reviews the
IMFs engagement in small states, and presents proposals to strengthen its
effectiveness.

Executive Directors recognized that small states had not matched the improved
economic performance of larger countries since the late 1990s. With slower and more
volatile growth than larger peers and higher public spending during this period, it was
observed, a number of small states faced high debt burdens and reduced policy
buffers. The ability of small states to manage economic shocks had also been
hampered by their weak financial systems. Microstates faced particular challenges,
marked by more volatile growth and external accounts and more costly banking
services.

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7.5 PROGRAM DESIGN

An IMF-supported program is a package of policy measures that, combined with

approved financing, is intended to accomplish specific objectives, such as orderly
external adjustment, broad-based inclusive growth, and poverty reduction. Programs
are formulated by countries in consultation with the IMF and in most cases are
supported by an Executive Boardapproved financing arrangement.

The Executive Board considered aspects of IMF program design on several

occasions during the year. In addition to the review of conditionality in IMF
programs, covered in the next subsection, the Board informally discussed crisis-
related IMF programs in July 2012 and also discussed the IMFs policy on debt
limits in IMF-supported programs

2011 review of conditionality

Conditionality covers both the design of IMF-supported programs that is, the
underlying macroeconomic and structural policiesand the specific methods used to
monitor progress toward the goals outlined by program countries. In addition, it helps
create safeguards for the temporary use of IMF resources. The IMF reviews condi-
tionality regularly as part of its effort to assess policies and adapt to a changing
environment..

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CHAPTER: 8

CONFRONTING THE ONGOING GLOBAL CRISIS

8.1 MANAGING DIRECTORS GLOBAL POLICY

AGENDA

In October 2012, the Managing Director presented her first Global Policy Agenda to
the IMFC during the Annual Meetings. The agenda outlined a set of actions needed
across the member-ship to secure recovery from the ongoing global crisis and to lay
the foundation for a more robust global financial architecture. It also detailed the
IMFs role in assisting the membership with these formidable tasks, building on
reforms to buttress the institutions framework.

The IMFCs communiqu welcomed the directions set out in the agenda, observing
that it shared the emphasis on the need to address the global crisis and build a strong
foundation for future growth. Policies for jobs and growth, debt sustainability, repair
of financial systems, and reducing global imbalances were identified as key priorities,
with progress implementing these measures to be reviewed at the committees next
meeting.

In reviewing progress at the Spring Meetings in April 2013, the IMFC welcomed the
Managing Directors April 2013 Global Policy Agenda. 41 That agenda urged
policymakers to continue to nurse the recovery, repair systems damaged by the crisis,
strengthen defences against a recurrence, and anticipate new challenges from
emerging global economic trends. The agenda cautioned that, in a world of
interconnections, lagging policy momentum in some corners would soon affect all.

Supporting jobs and growth

The Articles of Agreement commit the IMF to the promotion and maintenance of
high levels of employment and real income. In the wake of the global crisis,
unemployment has reached unprecedented levels in many countries, heightening the
need to generate conditions for job creation and inclusive growth.

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During the year, the Executive Board discussed the analytical and operational
considerations associated with the IMFs role in providing advice on jobs and growth,
as well as work on fiscal policy and employment in advanced and emerging market
economies.

Jobs and growth: Analytical and operational considerations

In March 2013, the Executive Board discussed informally a policy paper on the role
the IMF can play in helping countries devise strategies to meet the interconnected
challenges of generating jobs and growth. By reviewing the theoretical and

Balancing growth and fiscal consolidation

As the crisis has lingered on, twin problems of low growth and high debt levels have
become more pressing and increasingly interconnected. In this context, the pace of
fiscal adjustment has been a hot topic of policy debate, particularly for advanced
economies. The IMF has consistently emphasized that this is not a simple choice
between austerity and growth, but a matter of getting the balance right.

Many advanced economies have steadily lowered their fiscal deficits, and some have
come close to achieving primary surpluses that stabilize debt ratios. Even if stable,
large deficits and high debt reduce potential growth and leave economies vulnerable
to shocks. This has underscored the need for continued fiscal adjustment. At the same
time, the outlook for jobs and growth remains a concern.

Against this backdrop, the October 2012 World Economic Outlook examined past
episodes of high public debt, drawing three main conclusions. First, reducing public
debt takes time, especially in the context of a weak external environment. Second,
successful debt reduction requires fiscal consolidation and a policy mix that supports
growth. Third, fiscal consolidation must emphasize persistent structural reforms to
public finances over temporary or short-lived fiscal measures.

Following on from this, several broad principles have underpinned the IMFs policy
advice in this area:

The most important element is to commit to a clear and specific medium-term plan
to lower debt.

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The pace of adjustment needs to be calibrated on a country-by-country basismore

back-loaded if financing allows, more front-loaded if a country is under market
pressureto minimize the harm to growth.

The mix of expenditure and tax reforms is critical to minimize the burden for
the most vulnerable and ensure that fiscal policy is more supportive of growth
over the longer term.

Fiscal policy needs to be part of a comprehensive policy pack-age, including

monetary and structural policies, which can help bolster growth while deficits
adjust.

Reflecting these principles, the IMFs fiscal advice to member countries, including
those with IMF-supported programs, has been continually reviewed and adjusted as
needed. For example, in the 2012 Article IV consultation with Portugal, Executive
Directors considered the authorities fiscal objectives to be appropriate, provided that
economic developments remained as expected, but emphasized the importance of
striking the right balance between fiscal consolidation and measures supportive of
economic growth.d Such a pragmatic approach is essential to meeting the varying
needs of member countries and changes in circumstances over time, including where
the effects of consoli-dation may be worse in downturns.

The paper reviews IMF country and policy work and finds scope to improve analysis
and policy advice, where relevant and consistent with the IMFs mandate, in several
ways:

more systematic analysis of growth and employment challenges, and

identification of the most binding constraints on inclusive growth and jobs.

more systematic integration of policy advice on tax and expenditure policy

reforms to create conditions to encourage labor force participation, including

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among women; more robust job creation; more equity in income distribution;
and greater protection for the most vulnerable.

enhancing advice on labor market policies based on currently available

empirical evidence and greater collaboration with other international
institutions.

Fiscal policy and employment in advanced and emerging market

economies

The Executive Board discussed a policy paper on fiscal policy and employment in
advanced and emerging market economies in July 2012. 43 The paper identifies key
structural labor market weaknesses in these economies and discusses the impact of
fiscal policies on employment, providing a menu of tax and expenditure measures to
boost employment. In advanced economies, the paper observes, better-designed tax
and expenditure policies could significantly increase employment. In emerging
markets, it concludes, structural reforms in labor, capital, and product markets are
often more impor-tant than fiscal reforms for strengthening employment outcomes.

The effectiveness of reforms can vary considerably across econo-mies, according to

the paper, and will depend on labor market institutions, the nature of the
unemployment, and administrative capacity. Employment-promoting policies can at
times involve trade-offs with other public policy goals, the paper notes, and must be
judged relative to fiscal constraints

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Debt sustainability

Public debt has been on the rise since 2008, particularly in advanced economies,
where it has reached very high levels. The resulting debt overhang presents challenges
for financial stability and economic growth. Against this background, issues
associated with assessing debt sustainability and reducing vulnerabilities associated
with high debt were a major focus of the IMFs work during the year.

Review of the policy on debt limits in IMF-supported programs

In March 2013, the Executive Board reviewed the IMFs debt limits policy, adopted
in 2009, to ensure that IMF-supported

programs continue to help low-income countries strike the appropriate balance

between debt sustainability and space to borrow for productive investments to support
growth. Given the primary focus on low-income countries, this review left the debt
limits policy applying to the rest of the membership broadly unchanged. The policy
paper prepared for the Board meeting represented the first stage of the review, and a
second paper, with specific proposals, is expected in early 2014.

Leading global experts and practitioners on pension issues gathered in Tokyo with
policymakers from 16 Asian countries in January 2013 for a two-day conference,
Designing Fiscally Sustainable and Equitable Pension Systems in Asia in the Post-
crisis World. The conference was organized by the IMFs Fiscal Affairs Department
and Regional Office for Asia and the Pacific, with the support of the Japanese
government.

The challenge in advanced economies is to contain future increases in public pension

systems as populations age, whereas emerging market economies need to expand
pension coverage in a fiscally sustainable manner while their populations age rapidly.
The conference also focused on equity issues, particularly the effects of different
pension reform options on equity within generations and across generations.

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A key message was that pension systems need to provide adequate income support for
the elderly poor while remaining fiscally affordable and sustainable. Participants
discussed the merits of raising retirement ages, both to improve viability of pension
systems and to boost economic growth by raising labor supply. Particularly in
emerging Asia, it is also important to increase the share of the elderly population
receiving pensions and improve the management of private pension funds. For
pension reforms to be effective, there must be a perception that they are fair and that,
once implemented, they will not be reversed.

Guidance Note on Public Debt Sustainability Analysis for Market Access

Countries

Against the backdrop of increased concerns over public debt sustainability in

advanced economies, the Executive Board reviewed the IMFs framework for fiscal
policy and public debt sustainability analysis in market access countries in August
2011.45 The review identified a number of areas in which debt sustainability analyses
for market access countries could be improved, including realism of baseline
assumptions, risks associated with debt profile, analysis of macro- fiscal risks,
vulnerabilities related to level of public debt, and coverage of fiscal and public debt
aggregates.

regimes for financial institutions

In October 2012, the Executive Board was briefed informally on international efforts
to identify good practices in regard to resolution regimes for financial institutions.
The Key Attributes of Effective Resolution Regimes, adopted by the FSB and
endorsed by the G-20 as a nonbinding international standard, identify an effective
framework for the resolution of cross-border financial institutions. The key attributes
specify essential features that should be part of the resolution framework at both the
national and international levels, to make resolution feasible without severe systemic
disruption and without exposing taxpayers to loss. These features include a
comprehensive toolkit of resolution powers for national authorities to assume control

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of a financial institution from existing managers and owners; sell or merge the entity,
transfer its assets and liabilities to third parties, or restruc-ture its debt unilaterally;
and support the resolution through a temporary stay on the execution of early
termination rights under financial contracts. The policy paper provided to the Board
for the briefing notes that the IMF staff is participating actively in the FSBs work to
implement the key attributes and, when that

work is concluded, the staff will seek appropriate authorization under the IMFs
governance framework for the key attributes to be used as a new standard under
the Reports on the Observance of Standards and Codes program.

Revision of Guidelines for Foreign Exchange

Reserve Management

In February 2013, the Executive Board endorsed revised Guidelines for Foreign
Exchange Management developed by the IMF staff, supported by a small
working group of central banks and monetary authorities from a number of
countries, as well as the European Central Bank (ECB) and the Bank for
International Settlements (BIS). 48 The revision to the guidelines was motivated
by the observed underlying structural changes in reserve accumulation and
changes in reserve management practices in response to ongoing developments in
financial markets and the global crisis. It concentrates on reserve manage-ment
objectives and strategy, transparency and accountability, institutional and
organizational framework issues, and the risk management framework.

Application of the revised guidelines is expected to strengthen the international

financial architecture, promote policies and practices that contribute to stability
and transparency in the financial sector, and reduce member countries external
vulnerabilities. The revised guidelines will be used by the staff as a framework
for technical assistance and for discussions in the context of IMF surveillance .

Global imbalances and spillovers

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As noted in Chapter 3, the IMF is a forum for dialogue among member countries on
the regional and international consequences of their economic and financial policies.
Progress on the key elements of the IMFs work in this area during the yearfor
example, the Pilot External Sector Report and Spillover Report was covered earlier
in this report. Several of the priority areas identified in the 2011 Triennial
Surveillance Reviewin particular, interconnections, risks, and external stability
also have a direct bearing on global imbalances and spillovers.

The volatility of capital flows can pose important risks to stability, both for individual
countries and globally, and the issue of when, how much, and how fast to liberalize
capital flows has been one of the most contentious in the global economic policy
debate for decades. During the year, the Executive Board endorsed an institutional
view on the management of global capital flows to help give countries clear and
consistent policy advice

Work is ongoing in regard to implications of interconnectedness for both policy and

surveillance. In particular, building on therevamped surveillance framework, analysis
of multilateral policy consistency and cross-border spillovers has been enhanced.

8.2 FINANCING

Non-concessional financing activity during the year

The Executive Board approved five new arrangements under the IMFs no
concessional financing facilities during the year, totaling SDR 75.1 billion
(US$113.3 billion).54 More than 90 percent of the new gross commitments (SDR
69.3 billion, or US$104.6 billion) was for two successor arrangements under the
Flexible Credit Line for Mexico and Poland. Two Stand-By Arrangements were
also approved (for Jordan, and Bosnia and Herzegovina) amounting to SDR 1.7
billion (US$2.6 billion). In addition, a new SDR 4.1 billion (US$6.2 billion)
arrangement under the Precautionary and Liquidity Line for Morocco was
approved, which the authorities have treated as precautionary.

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8.3 ENGAGEMENT WITH OTHER ORGANIZATIONS

The IMF works collaboratively with a number of other organiza-tions that are also
involved in global economic issues, each with its unique areas of responsibility and
specialization.

European Commission and European Central Bank

IMF participation, early in the global crisis, in financing for EU members facing
balance of payments needs led to an extension of the IMFs collaboration with EU
institutions, in particular with the European Commission (EC) and the ECB, later in
the crisis, when euro area countries requested IMF support (see Box 3.1). This
enhanced cooperation among the IMF, the EC, and the ECB in program countries
hasbecome known as the Troika. Although the IMF coordinates closely with the
other members of the Troika, the institutions decisions on financing and policy
advice are ultimatelytaken by the Executive Board. The IMF also works closely with
the EC on issues affecting low-income countries, including on the financing of
capacity development.

Group of Twenty

The IMFs collaboration with the G-20 has increased since the onset of the global
crisis. At the request of G-20 leaders, the IMF provides technical analysis to
support the G-20s multilateral Mutual Assess-ment Process (MAP). The IMF
staffwith input from other international institutionswas tasked initially with
analyzing whether policies pursued by individual G-20 countries were
collectively consistent with the G-20s growth objectives. In recent years, the
staffhas also been asked to help develop indicative guidelines to identify and
evaluate large imbalances among members every two years. Collaborative work
with the G-20 has extended beyond the MAP into other areas, including the G-20
Data Gaps Initiative, which works on ways to address gaps in data revealed by the
global crisis.

The Executive Board was briefed informally by the Managing Director in November
2012 about the IMFs work with the G-20; it is also briefed regularly on IMF

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managements participation in G-20 meetings. The Board also receives periodic

briefings on the MAP and IMF participation in it.

Financial Stability Board

The FSB brings together government officials responsible for financial stability in the
major international financial centres, international standard-setting bodies,
committees of central bank experts, and international financial institutions.

The IMF formally accepted membership in the FSB in September 2010. Following
the FSBs recognition as an association under Swiss law in January 2013, the FSB
invited all of its members to join the new association, and the Executive Board
approved the IMFs acceptance of membership in the FSB as an association under
Swiss law in March 2013. Executive Directors noted that collaboration between the
IMF and the FSB would continue to be guided by each institutions mandate, with the
IMF taking the lead on surveillance of the global financial system and the FSB on
regulatory and supervisory matters. They noted that the IMFs participation in the
FSB as a member would not compromise the IMFs independence and that the IMF
would continue to be protected by its own privileges and immunities under Swiss law.
They also noted that the acceptance of membership in the association would not
create specific legal obligations for the IMF, although members must, of course, act in
good faith in their dealings with the association.

World Bank Group

The staffs of the IMF and World Bank collaborate closely on country assistance and
policy issues that are relevant for both. IMF assessments of a countrys general
economic situation and policies provide input to the World Banks assessments of
potential development projects or reforms. Similarly, World Bank advice on structural
and sectoral reforms is taken into account by the IMF in its policy advice. Under the
Joint Management Action Plan on World BankIMF Collaboration, IMF and World
Bank country teams discuss their country-level work programs, which identify macro-
critical sectoral issues, the division of labour, and the work needed from each
institution in the coming year.

United Nations

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The IMF has a Special Representative to the United Nations and maintains an office
in New York. Collaboration between the IMF and the United Nations covers areas of
mutual inter-est, including cooperation on tax issues and statistical services of the two
organizations, as well as reciprocal attendance and participation at regular meetings
and specific conferences and events. The IMF participated actively in the UN
Conference on Sustainable Development in Rio de Janeiro in June 2012. IMF staff
members are also part of a UN System Task Team established to provide technical
and analytical support to the member-driven process that has been launched to follow
up on the commitments made at the conference and define the Post-2015 UN
Development Agenda, including Sustainable Development Goals for the period after
the expiration of the current Millennium Development Goals.

Deauville Partnership

The IMF participates in the Deauville Partnership with Arab Countries in Transition,
launched in May 2011, which includesregional partner countries, the Group of Eight,
and regional and international financial institutions. Through a dedicated Deauville
Partnership coordination platform, the regional and international financial institutions
participating in the partner-ship ensure effective support for the partner countries;
facilitate information sharing, mutual understanding, and operational dialogue with
the partner countries; coordinate monitoring and reporting of joint actions in support
of the partnership; and identify opportunities for collaboration on financial assis-
tance, technical assistance, and policy and analytical work. In particular, Morocco and
Tunisia received technical assistance during the year, on developing local-currency
capital markets, delivered through collaboration between the African Develop-ment
Fund, Arab Monetary Fund, European Bank for Recon-struction and Development,
European Investment Bank, IMF, and World Bank.

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