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Message from ADB's President Contributors Acknowledgements Executive Summary and Recommendations Jeffrey D. Sachs, Masahiro Kawai, Jong-Wha Lee, and Wing Thye Woo Paper Summaries (full papers downloadable) International Monetary Advisory Group Global Financial Crisis, its Impact on India and the Policy Response Nirupam Bajpai To What Extent Should Capital Flows be Regulated? Maria Socorro Gochoco-Bautista The Case for a Further Global Coordinated Fiscal Stimulus Willem Buiter Managing a Multiple Reserve Currency World Barry Eichengreen From the Chiang Mai Initiative to an Asian Monetary Fund Masahiro Kawai An Asian Currency Unit for Asian Monetary Integration Masahiro Kawai The International Monetary System at a Crossroad Felipe Larrain B. Towards a New Global Reserve System Joseph Stiglitz A Realistic Vision of Asian Economic Integration Wing Thye Woo An Asian Monetary Unit? Charles Wyplosz Will US fiscal Deficits Undermine the Role of the Dollar as Global Reserve Currency? If So, Should US Fiscal Policy be geared to Preserving the International Role of the Dollar? Yongding Yu International Monetary Working Group International Reserves and Swap Lines: the Recent Experience Joshua Aizenman, Donghyun Park and Yothin Jinjarak The Future of the Global Reserve System Daniel Gros, Cinzia Alcidi, Anton Brender, and Florence Pisani Renminbi Policy and the Global Currency System Yiping Huang Will the Renminbi Emerge as an International Reserve Currency? Jong-Wha Lee Asia's Sovereign Wealth Funds and Reform of the Global Reserve System Donghyun Park and Andrew Rozanov Reforming International Monetary System Kanhaiya Singh Designing a Regional Surveillance Mechanism for East Asia: Lessons from IMF Surveillance Shinji Takagi

18. Designing a Regional Surveillance Mechanism for East Asia: Lessons from IMF Surveillance

Shinji Takagi

The process is underway in East Asia to establish an independent surveillance unit to support decision-making in the Chiang Mai Initiative Multilateralization (CMIM). The paper reviews the principles of surveillance, discusses how they have applied to IMF surveillance in practice, and draws lessons for designing an effective regional surveillance mechanism. The need for such a mechanism in East Asia is both immediate and evolving. For the immediate need, surveillance must meet the operational requirements of the CMIM. At the same time, it must also respond to East Asia’s evolving need for a formal framework of policy dialogue and cooperation.

A review of the rich literature on IMF surveillance has identified at least five organizing principles for an effective regional surveillance mechanism, including: (i) clearly define the purpose of surveillance, (ii) centralize surveillance activities in a single organizational unit, (iii) use objective indicators to inform analysis, (iv) design the governance structure to ensure independence, and (v) provide analysis and recommendations directly to senior policymakers in order to exploit peer pressure.

Of these, defining the purpose of surveillance may be the most fundamental requirement for effective surveillance because agreement on the purpose presupposes the surrender by member governments of part of national sovereignty essential for successful policy cooperation. Peer pressure as the primary channel of influence does not preclude active engagement with the public because it is after all through the political process that policymakers are motivated to take action. The surveillance unit should therefore operate with the presumption that it makes a full and complete disclosure of any analysis, view, or information it possesses to the public except when privileged information is involved. To the extent that the quality of the people ultimately determines the quality of the outputs, it is paramount to staff the unit with competent professionals on the basis of merits alone.