International Monetary Fund

5.3.1 International Monetary Fund

The IMF, which was established in 1944 under the Bretton Woods Agreement, currently has 184 Member States. Its main tasks are to foster global monetary cooperation, secure exchange rate stability, facilitate international trade and promote economic growth. The scope of its mandate places the IMF at the centre of the international monetary and financial system.

In view of the importance of member countries’ economic policies to the stability of the global economic system, surveillance lies at the heart of the IMF’s activities. IMF surveillance consists in monitoring and assessing economic and financial developments and policies of member countries as part of consultations with member countries under Article IV of the IMF’s Articles of Agreement (known as Article IV consultations). Surveillance also comprises an assessment of the global implications of national policies in an increasingly integrated world economic and financial system (multilateral surveillance).

O b s e r ve r s t a t u s o f t h e E C B

Given the respective mandates of the IMF and the ECB, it was considered essential for the ECB to be represented at the IMF on those issues which fall within the ECB’s fields of competence. On 21 December 1998 the IMF Executive Board decided to grant observer status to the ECB. This was a pragmatic solution that avoided the need to amend the IMF’s Articles of Agreement, which restrict membership to countries. The arrangement extends a standing invitation to the ECB to participate as an observer in all IMF Executive Board meetings where issues of direct relevance to the ECB are to be discussed. These issues are the following agenda items:

• Article IV consultations on euro area policies; • Article IV consultations with individual euro area countries; • the role of the euro in the international monetary system; • multilateral surveillance, i.e. the biannual discussion of the IMF’s World

Economic Outlook and the Global Financial Stability Report and regular discussions on world economic and market developments.

In all these discussions of the IMF Executive Board, as far as the monetary policy of the euro area is concerned, the ECB Observer presents the policy positions of the European Community. On exchange rate matters, the Executive Director representing the Eurogroup Presidency and the ECB Observer both present the

Community position, reflecting the regular exchange of views which takes place at the euro area level, for example at Eurogroup meetings (see Section 4.3.2).

In addition to the standing invitation, the ECB Observer may also be invited to attend meetings on an ad hoc basis for agenda items which both the ECB and the IMF consider to be of mutual interest for the performance of their respective mandates. It has now become common practice for the ECB Observer to be invited to attend Article IV discussions concerning EU Member States that have not yet adopted the euro, given that the ECB is involved in monetary policy coordination procedures with the NCBs of these countries. Likewise, the ECB Observer attends annual Article IV consultation discussions on the United States and Japan.

Also under the observer arrangements, the President of the ECB is invited to attend, as an observer, meetings of the International Monetary and Financial Committee (IMFC). The IMFC meets twice a year alongside the IMF’s spring and annual meetings to advise and report to the IMF Board of Governors on the supervision of the international monetary and financial system. It also provides guidance on the policy work of the IMF Executive Board.

Article IV consultations with the ECB and euro area countries

Since the introduction of the euro, Article IV consultations with euro area member countries have been split into two distinct parts: one part of the Article

IV process concerns mainly monetary and exchange rate issues in the euro area; the other deals with individual euro area countries and all economic policies apart from monetary and exchange rate policies (e.g. fiscal or structural policies). This two-pronged approach reflects the adaptation of IMF procedures which was made necessary by the division of competences within the euro area.

An IMF delegation visits the ECB twice a year to discuss recent developments and matters relevant to monetary and exchange rate policy in the euro area. In this context, the IMF mission also holds discussions with European Community bodies that have a coordinating role for national policies (e.g. in the framework of the Broad Economic Policy Guidelines and the Stability and Growth Pact), such as the European Commission, the Economic and Financial Committee and the Eurogroup. These discussions focus on economic developments and policies (e.g. fiscal and structural policies) in the euro area as a whole which are of relevance for monetary policy and exchange rate developments.

In the second part of the Article IV process, which concerns the economic policies of individual member countries, the IMF visits the individual countries to meet the national policy-makers.

Other fields of cooperation

The ECB is also involved in a number of IMF initiatives to strengthen the international financial architecture. This was the case for the Code of Good Practices on Transparency in Monetary and Financial Policies, which contains broad principles for the transparency and accountability of authorities in the field of monetary policy and related central bank tasks. These cover payment systems and supervision, the guidelines on the management of foreign exchange reserves The ECB is also involved in a number of IMF initiatives to strengthen the international financial architecture. This was the case for the Code of Good Practices on Transparency in Monetary and Financial Policies, which contains broad principles for the transparency and accountability of authorities in the field of monetary policy and related central bank tasks. These cover payment systems and supervision, the guidelines on the management of foreign exchange reserves

The ECB has also developed working relationships with the IMF in other areas. In particular, the ECB actively participates in the application and development of international statistical standards – such as those laid down in the IMF’s Balance of Payments Manual (fifth edition) – as part of the revised System of National Accounts (SNA 93). Working relationships have also been developed in the framework of the Special Data Dissemination Standard (SDDS), which was established in 1996 to ensure that member countries provide timely, reliable and comprehensive data to both the public and the IMF for surveillance purposes. Likewise the ECB is regularly involved in IMF technical assistance activities.

Finally, since November 2000, the ECB is a prescribed holder of special drawing rights (SDRs) and is thus able to participate in voluntary transactions with IMF member countries and other prescribed SDR holders. To this effect, in April 2001, the ECB and the IMF concluded a SDR selling and buying arrangement. This arrangement allows the IMF to initiate SDR transactions between the ECB and other holders of SDRs, thereby contributing to the smooth management of the IMF’s SDR department. 2

5 . 3 . 2 O r g a n i s a t i o n f o r E c o n o m i c C o - o p e r a t i o n a n d D eve l o p m e n t

The OECD is an intergovernmental organisation which currently has 30 member countries and links with 70 others. It provides a forum for its members to consult each other, compare experiences and cooperate in order to achieve the highest possible sustainable growth and improve economic and social well-being in line with the principles of a market economy. The OECD covers all areas of public policy, including monetary and other economic policies. The ECB takes part in all OECD activities related to the tasks of the Eurosystem.

Although OECD membership is restricted to countries, the European Community is permanently represented at the OECD, and takes part in relevant work. This arrangement is based on Supplementary Protocol No. 1 to Article 13 of the OECD Convention of 14 December 1960. Since 1999 the ECB has participated in all relevant OECD meetings alongside the European Commission as part of the delegation of the European Community, whereby both the ECB and the Commission express their own views within their respective fields of competence.

The OECD Committees and Working Parties in which the ECB participates include the following:

• the Economic and Development Review Committee; • the Economic Policy Committee and its Working Parties; • the Committee on Financial Markets.

2 See ECB (2002), Annual Report 2001, Chapter V, Section 2.

The Economic and Development Review Committee (EDRC), which was established in 1961, is responsible for conducting regular reviews of the economic situation and policies of each OECD member country. It publishes economic surveys based on these reviews, which include a number of policy recommendations. Member countries may decide to take these recommendations into account in their policy-making processes. In 2001, the EDRC also started conducting an annual review of the euro area.

The Economic Policy Committee (EPC) focuses on the global economic situation, in particular the implications of developments in three major OECD regions (the euro area, the United States and Japan). It examines a wide range of issues related to both economic outlooks and policy requirements in the OECD area and thus provides OECD members with a comprehensive assessment of the situation. The EPC is supported by a number of Working Parties:

i. Working Party No. 1 deals with economic issues and policies of a more structural nature (e.g. the links between policies and long-term growth, the criteria for the surveillance of public expenditure and the role of automatic stabilisers).

ii. Working Party No. 3 monitors and assesses major macroeconomic developments (e.g. exchange rate developments, imbalances in the external and/or budget positions, and systemic financial risks).

iii. The Working Party on Short-Term Economic Prospects (STEP) assists the EPC in formulating economic projections.

Finally, the Committee on Financial Markets examines structural developments in OECD financial markets.

5 . 4 E C B PA R T I C I PAT I O N I N I N F O R M A L F O R A F O R F I N A N C E M I N I S T E R S A N D C E N T R A L B A N K G OV E R N O R S

5 . 4 . 1 G 7 f i n a n c e m i n i s t e r s a n d c e n t r a l b a n k g ove r n o r s

As part of the broader framework of cooperation within the Group of Seven countries 3 (G7), finance ministers and central bank governors meet regularly to discuss key international economic and financial issues. Their meetings are mainly concerned with economic and financial developments and prospects in their respective countries, exchange rate issues and the global economy. In addition, they address issues of common interest related to international monetary and financial policy. These informal exchanges of views may help participants to achieve a greater understanding of the different issues involved, and may also be of use in the discussion and decision-making processes of

3 Canada, France, Germany, Italy, Japan, the United Kingdom and the United States form the Group of Seven (G7) and with Russia the Group of Eight (G8). Heads of State or Government

and foreign ministers meet in the G8 composition and finance ministers in the G7 composition.

international organisations such as the IMF, the World Bank or the OECD, providing possible guidance or political impetus for their work.

Up to the start of Stage Three of EMU, participation in the meetings of G7 finance ministers and central bank governors was restricted to the respective national authorities of the G7 countries. With the transfer of monetary and exchange rate policy from the national to the Community level, arrangements in the euro area were adapted to take account of the new allocation of competences. As a result, both the President of the ECB and the President of the Eurogroup participate in those parts of the meetings that deal with macroeconomic surveillance and exchange rate issues. The three central bank governors of the euro area G7 countries (France, Germany and Italy) do not participate in this part of the meetings. However, they continue to take part when the G7 discusses other issues, e.g. the international financial architecture and debt initiatives for poor countries.

In terms of actual roles and responsibilities, the ECB President presents the views of the Eurosystem on monetary policy in the euro area and the President of the Eurogroup participates in the discussions on other economic developments and policies in the euro area. Given that the ECB and the EU Council share responsibility for exchange rate matters, the views presented at the G7 reflect prior consultations between them.

5 . 4 . 2 G 1 0 f i n a n c e m i n i s t e r s a n d c e n t r a l b a n k g ove r n o r s

The work of the Group of Ten 4 (G10) ministers and governors is closely linked to the activities of the IMF. It dates back to the creation of the General Arrangements to Borrow (GAB), which were established in 1962 to complement the IMF’s ordinary resources. In recent years, the main focus of the G10 has been on preventing and managing international financial crises.

The President of the ECB participates as an observer in the annual meetings of ministers and governors, which are organised alongside the IMF’s annual meeting. Meetings are complemented by ad hoc meetings at the deputy level, which the ECB also attends as an observer.

5 . 4 . 3 G 2 0 f i n a n c e m i n i s t e r s a n d c e n t r a l b a n k g ove r n o r s

The Group of 20 5 (G20) is an informal forum of finance ministers and central bank governors set up in 1999 to involve key emerging market countries in the

4 The G10 comprises Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, the United Kingdom and the United States. Switzerland is an associate member of the G10.

5 The members of the Group of 20 are the finance ministers and central bank governors of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan,

Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States. Another member is the European Community, represented by the President of the EU Council and the President of the ECB. The managing director of the IMF and the President of the World Bank, plus the chairpersons of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in the talks as ex officio members.

dialogue on international economic and financial policy issues. It aims to facilitate an open exchange of views on those matters and thus promote consensus-building on issues discussed by the relevant decision-making bodies, such as the IMF and the World Bank.

The ECB and the EU Presidency are members of the G20. Both participate in the meetings of G20 ministers and governors as well as in the preparatory meetings at the deputy level. The participation of both the ECB and the EU Presidency makes it possible to bring a euro area-wide perspective to the issues under consideration. The contributions of the ECB and/or the EU Presidency to the G20 discussions are coordinated, to the extent appropriate, in line with the allocation of competences provided for by the Treaty.