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Monday, May 23, 2011

For more effective multilateral surveillance


By KUMIHARU SHIGEHARA
Special to The Japan Times

PARIS — As the Organization for Economic Cooperation and Development celebrates its 50th anniversary, one of its biggest challenges is to adapt its frameworks for surveillance to the new reality of the global economy.

The OECD stands out from other international organizations for the variety of its committees and subsidiary bodies specialized in structural, as well as macroeconomic, policy areas.

These are regularly attended by officials from capitals, bringing members of the OECD secretariat and national policymakers and experts into close contact. Multidisciplinary activities involving various OECD directorates and Committees help to bridge differences between government departments in capitals.

In this way, the OECD contributes positively to the design and implementation of coherent macroeconomic and structural policies.

When Group of 20 leaders called at their Seoul Summit in November 2010 for enhanced economic surveillance, they specifically urged the IMF "to focus on systemic risks and vulnerabilities wherever they may lie."

At the International Monetary Fund, it is meetings of the Executive Board where surveillance is conducted. The board comprises 24 members and they are all residents of Washington, D.C. They are not directly involved in policymaking in their capitals.

For years, compared with the IMF, the OECD had the advantage of smaller size and relative homogeneity of membership. In recent years, it has become larger and more diverse, but its weight in the world economy has declined. In 1975, OECD countries represented 65 percent of world GDP. By 2015, the OECD share of world GDP is projected to decline to 50 percent.

The G20, by contrast, represents 85 percent of world GDP, with the same number of members as the OECD when it was first created. It includes countries in the Asia-Pacific region, the Middle East, Africa and Latin America, but not many of the European countries that are members of the OECD.

Emerging economies have become significant players in the global economy, and the OECD needs to take this into account.

Closer cooperation among the IMF, the OECD and the G20 would make enhanced surveillance even more effective — provided that the OECD can succeed in strengthening its surveillance process.

To achieve that, it will need to ensure a higher level of participation in many of its meetings, based on a streamlined approach to participation.

The OECD's Working Party No. 3 on Policies for the Promotion of Better International Payments Equilibrium, or WP3 — traditionally the most important peer review group for international macroeconomic cooperation — is a case in point.

WP3 was particularly active in influencing international policymaking during the first quarter century of its existence. Policy issues related to sterling crises under the Bretton Woods system, the demise of the system and the start of generalized floating of major currencies, the first oil crisis and recycling of oil money, the emergence of persistent current account imbalances between the United States as a deficit country and Japan and Germany as surplus countries after the second oil shock, and the Latin American debt crisis that occurred in the early 1980s were subjects of heated debate at the WP3 under their chairmanship.

Interesting descriptions about the period when Emile van Lennep was WP3 chairman (1961-1969) are found in his book "Working for the World Economy." He wrote that at a dinner hosted by Pierre-Paul Schweitzer as the IMF managing director (1963-1973) in honor of Van Lennep on his first working visit to the IMF as OECD secretary general, Schweitzer gave a speech in which he said the OECD "had done for years the work that the IMF should have done, particularly in Working Party 3."

Today, WP3 continues to operate as an exclusive club whose meetings are attended by deputy finance ministers and deputy central governors involved in macroeconomic policymaking in capitals. But its membership remains essentially G10-based, with heavy representation of European countries.

To allow the WP3 to retain its effectiveness, its structure should be streamlined to keep the total number of participants within single figures.

Similar subsidiary bodies in which participation is limited to a small number of key players should be envisaged in other areas.

Such an approach would contribute to the efficient functioning of plenary Committee meetings and make the entire process of OECD multilateral surveillance more effective.

In 1998, as deputy secretary general responsible for OECD relationships with nonmember economies, I wrote to China's finance minister and central bank governor inviting them to send their deputies from time to time to WP3 meetings. Since then, China has attended WP3 meetings on several occasions.

Now the time has come to open these meetings to other key non-OECD countries.

The OECD has a strong secretariat equipped with professional staff of high quality versed in the interplay of macroeconomic and structural forces and policies.

It could, if G20 leaders so desire, perform a similar function for the G20. But only the strong political will of key players at global leadership levels will succeed in carrying through the radical reform of international institutions that is needed to make them more relevant to new global circumstances.

Kumiharu Shigehara was deputy secretary general of the OECD from 1997 to 1999. Prior to that, he served in the OECD's Economics Department in various capacities during the 1970s and 1980s before taking up the post of chief economist for the Bank of Japan in 1989. From 1992 to 1997, he was chief economist and head of the Economics Department at the OECD.


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