The International Monetary Fund said today it would advise G20 countries on whether their economic policies promote balanced global growth, but would not consider that a part of its formal surveillance role.
The Group of 20 rich and developing economies agreed in September to work together to even out economic imbalances blamed for contributing to the financial crisis, and they asked the IMF for assistance.
At the heart of those imbalances is the gap between the heavily indebted United States and export-rich China, although other countries also play a role.
The G20 countries pledged to put forward economic policies that would help with rebalancing and assess the progress together. The IMF was given the task of analysing how national or regional policies fit together.
The Fund already conducts regular reviews of its 186 member countries and provides policy advice. Unlike that formal surveillance process, the IMF said it would offer the G20 "technical advice".
This has been a point of some disagreement both inside and outside the IMF. Some observers have expressed concern that the G20's rebalancing pledge lacked any mechanism for compelling member countries to make necessary changes in policy - particularly when those changes might be unpopular at home.
In a statement released on Friday, the IMF's executive board endorsed the idea of providing technical advice, but said "some directors" had objected and thought this should be considered part of the multilateral surveillance.
In a staff paper, also released Friday, the IMF said there were legal issues with considering the G20 review part of surveillance. In order for it to qualify, the IMF would have to initiate, design and control the process. In this case, the G20 has primary control.
The surveillance process, in particular the regular reviews released by the Fund's member economies, is closely watched by investors and ratings agencies for any indication that economic trouble may be brewing. The reports can carry significant weight with governments.
The IMF said G20 countries were expected to provide economic information by the end of January 2010. IMF staff will then review the information and construct two scenarios to determine whether domestic policies would promote more balanced global growth.
The IMF said it planned to provide a report to be discussed by finance ministers and central bankers at a meeting in April. IMF staff would then provide a more concrete analysis of how medium-term global prospects could be enhanced through collective policy actions.
It would then develop a menu of policy options for consideration by G20 officials at a June summit, and refine and update it for final consideration in November.
Reuters