Leading by Design: Asian Lessons for Monitoring Global Financial Stability
The Global Financial Safety Net (GFSN) has been dramatically reshaped since 2000. While the International Monetary Fund (IMF) is still the world’s largest and most capable provider of emergency liquidity, as well as the only one that operates at a global level, it is now flanked by multiple regional financial arrangements (RFAs) whose combined lending capacity equals that of the IMF. RFAs have become indispensable actors, even though their geographic coverage is incomplete, and their resources vary enormously.
To effectively manage international financial crises in regions where RFAs operate, it is essential to understand how they work. RFAs generally concentrate on the interests and preferences of regional economies rather than reflecting the interests of the world’s largest economies. Developing independent surveillance functions is also essential to any RFA that is not content to rely on the IMF for surveillance.
In 2011, the ASEAN+3 Macroeconomic Research Office (AMRO) was established to serve as the surveillance arm of the ASEAN+3 countries, and in 2016, it was formally established by treaty as an international organization. Despite AMRO’s relatively recent vintage, it is one of the most capable RFA surveillance units. Moreover, since 2017, it has publicly released most of its own surveillance products, allowing better visibility into its practices than any other RFA, and has been ambitious in building cooperation both with the IMF and other RFAs.
In a new report, the Task Force on Regional Surveillance presents the first comprehensive study of economic surveillance by AMRO, outlining the benefits of its regional surveillance activities and drawing lessons for other RFAs. It also provides guidance on the trade-offs that RFAs must consider as they build up their surveillance capacity. Composed of 12 scholars and practitioners from East Asia, North America and Europe, the Task Force engaged directly with AMRO while also drawing on comparisons from other international and regional organizations and applying scholarly insights from political science and economics in its work.
The authors identify some common aspects that RFAs can consider when seeking to develop such capabilities. Primary among them is the importance of objective information. If surveillance operations are dictated by the political concerns of either the economies being examined or of dominant RFA members, surveillance will not be able to provide effective warning of potential threats or to provide an effective guide to the size, terms and conditions of emergency lending if it becomes necessary. Another aspect is organizational capacity, as surveillance requires a high level of technical expertise and professionalism. Additionally, the need for consistency and objectivity requires the methodology, the personnel and procedures to be standardized. As such, the development of surveillance capabilities can be an important element in the institutionalization of an RFA.
In addition to these broadly applicable aspects, this report identifies five key lessons from this assessment of AMRO’s development of surveillance capacity for its member countries:
- There are significant benefits for RFAs to develop an independent surveillance function.
- Cooperation in surveillance offers a low-risk, high reward area for the IMF to engage with RFAs.
- For most RFAs, the comparative advantage of regional expertise is a potential as opposed to a reality.
- RFAs should strive to complement the work of other surveillance bodies by developing different surveillance focus areas or methods.
- Emerging issues in the areas of health, climate shocks and international conflict require unique and diverse expertise, and that should be a key focus area of capacity development at RFAs.
Beyond these key lessons, many decisions about surveillance design involve a series of overlapping trade-offs. AMRO’s experience demonstrates one effective approach to managing these trade-offs. Other RFAs may weigh values differently and therefore decide to make different choices. Key trade-offs for RFA surveillance include external credibility versus complete information, complementarity versus substitution, autonomy versus collaboration and others.Read the Report