ANNUAL REPORT 2008 - Polymer Bank Notes of the World

contributing to the discussions on these issuesas appropriate.Following the introduction of a new decisionon bilateral surveillance over members’policies in mid-2007, the Fund focused onits implementation in the regular Article IVconsultations with its member countries. Thisnew decision aims to ensure that greater attentionis paid to cross-country spillovers by employingthe concept of external stability as the organisingprinciple for surveillance. External stabilityis defined with reference to the exchange rate,the analysis of which consequently becomes akey component of the surveillance process. InOctober the Fund adopted its first “Statement ofsurveillance priorities”, which is to guide IMFsurveillance until 2011. This statement identifiesfour key priorities for Fund surveillance: toresolve financial market stress, to strengthenthe global financial system, to adjust to sharpchanges in commodity prices and to promotethe orderly reduction of global imbalances. Insupport of these priorities, the Fund intendsto improve its early warnings of risks andvulnerabilities, among other things through theanalysis of macro-financial linkages, and toextend its vulnerability exercise to advancedeconomies. The Fund also continued to focuson financial sector issues and related policylessons and to improve its collaboration with theFinancial Stability Forum.In addition, the Board of Governors of the IMFagreed on a comprehensive quota and voicereform package, which mainly provides for anew quota formula; a second round of ad hocquota increases based on the new formula; atripling of basic votes to increase the voiceof low-income countries; and an additionalAlternate Executive Director for the two Africanchairs on the Executive Board. The two keyobjectives of the reform were to realign quotashares with members’ relative weight and rolein the global economy and to enhance the voiceand participation of low-income countries inthe IMF. Work on the Fund’s governance willcontinue on the basis of, among other things, the2008 report of the IMF’s Independent EvaluationOffice and the report of the committee ofeminent persons on IMF governance reform, tobe released by spring 2009.The Board of Governors of the IMF also agreedon measures to put the institution on a sounderfinancial footing. On the income side, the Fundwill rely in the future on broader and moresustainable income sources. This includes abroadening of the Fund’s investment authorityand the establishment of an endowmentfunded by the profits from a strictly limitedsale of gold consistent with the Central BankGold Agreement. On the expenditure side,consideration of the Fund’s core mandate andcareful priority-setting guide a new expenditureframework, entailing substantial budgetreductions. Moreover, in the context of thefinancial turmoil, discussions are ongoing withregard to the adequacy of IMF resources.An important contribution to strengtheningthe resilience of the global financial systemwas made by the Financial Stability Forum,which facilitated the coordination of variousnational and international initiatives andoversaw their timely implementation. It alsoissued, and reviewed the implementation of,recommendations in five key areas, namelyprudential oversight, transparency and valuation,credit ratings, the authorities’ responsiveness torisks and arrangements for dealing with stress inthe financial system.The agenda of the international financialcommunity also continued to feature thepromotion of mechanisms for crisis preventionand orderly crisis resolution. In this context,further progress was made in the implementationof the principles for stable capital flows andfair debt restructuring in emerging markets,which were endorsed by G20 finance ministersand central bank governors in 2004. The aimof these principles, which are market-basedand voluntary, is to provide guidelines forthe behaviour of sovereign issuers and theirprivate creditors regarding information-sharing,dialogue and close cooperation. An increasingnumber of financial institutions and issuingECBAnnual Report2008179