Nested Outgrowth: Complementing Regional Surveillance Under Limited Capacity

The rise of regional financial arrangements (RFAs) over the last two decades has significantly reshaped the Global Financial Security Net (GFSN), which was previously almost the sole purview of the International Monetary Fund (IMF). While the rise in regionally based financial resources has been widely noted, as have the challenges of coordinating IMF and RFA funding and conditionality in the event of a crisis, there has to date been very little empirical analysis of the surveillance activities of RFAs, which is extremely important to the work of RFAs. Surveillance is essential to the tasks of early warning and crisis management and represents perhaps the most important organizational capacity that RFAs must develop. 

A new working paper by Yaechan Lee, William N. Kring and William Grimes conducts a detailed comparative analysis of the surveillance outputs of the IMF and the ASEAN+3 Macroeconomic Research Office (AMRO), which supports East Asia’s $240 billion Chiang Mai Initiative Multilateralization (CMIM). They assess across three dimensions (referencing, policy recommendations and analytical approach) and demonstrate that AMRO has achieved a ‘nested outgrowth’ from the IMF, as it remains nested within the IMF in terms of its policy directions and data reference but also demonstrates important differences in how it approaches and interprets key policy issues. 

The authors contend that such an outgrowth comes from differences in the IMF and AMRO’s institutional design that allows for the development of complementarities. The institutions’ foundational agreements that provide the legal basis for conducting surveillance activities lead to differences in how each institution incorporates the policy opinions of member states in bilateral consultation reports. Such characteristics are also reflected in the annual regional reports, where they take a more case-based approach to assessing the regional economy. Hence, despite the current institutional nesting of AMRO under the IMF, fundamental differences in institutional foundations can lead to complementary divergences as such differences put institutions on dissimilar developmental paths. In this respect, the authors argue that understanding the differences in institutional features is essential to understanding how RFAs relate to the IMF and define the GFSN.