It is in this context that Fund surveillance could help members to be more informed of the implications of such risks, and to assist members, through Fund policy advice, on how best to prepare. In this respect, I have a view that the Fund could do more in three areas. First, it should step up its surveillance of the major economies by providing frank and independent assessments. Also, the briefings, papers, and analyses that the Fund prepares on G7 economies and meetings could be shared more widely with other Fund members. Second, in the area of financial markets surveillance, a few things could also be done. The Fund could produce and circulate monthly report on global financial markets to members focusing on the key financial flows to keep members informed of what the Fund sees as the current trends and risks in financial markets. Important in this context is the monitoring of activities or position-takings of large institutional players and hedge funds. Also, it would be useful for members if the Fund could develop its own in-house view of a benchmark risk scenario which then can be used, or shared with members, in stress-testing the vulnerabilities of economies to capital flow reversals. And third, in addition to the debt sustainability framework, the central focus of the Fund’s surveillance in emerging markets should be the analyses of capital flows and capital account sustainability.
And on capital account liberalization, I agree with my ASEAN colleagues that it would be more useful for the Fund to concentrate on managing the process of capital account liberalization of its members instead of discussing whether to make capital account liberalization an explicit purpose or mandate of the Fund. Finally, the third point I want to make today is that I see strong merits in separating lending and surveillance. At present, crisis resolution is done as an extension of surveillance by the area departments using the approach they see fit. Separating these two functions in terms of duties, responsibilities, and decision-making would provide clear accountability within the IMF on role and responsibilities over these two issues. Moreover, since crisis prevention and crisis resolution require different sets of skills and expertise, separating the two would allow the Fund to pool resources and the special skills on a Fund-wide basis, thereby strengthening the overall institution’s capabilities to deal with crisis resolution. Finally, with the work on crisis resolution becoming more centralized, the Fund’s program design could be more uniformly structured to reflect a common set of guiding principles in relation to absolute limits of access to IMF financing, the use of standstills on debt repayment, the role of the Fund in debt restructuring, and the extent of the involvement of the private sector.