Banque de France Bulletin no. 220: Article 7 The role of international organisations in the monitoring and coordination of structural reforms

By Bussière Matthieu, Cabrillac Bruno, Drumetz Françoise, Genre Véronique, Lecat Rémy, Meunier Baptiste

Thematic: Macroeconomics, microeconomics and structures

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Since the financial crisis, international organisations such as the OECD and the IMF have reinforced and expanded their monitoring and, to a certain extent, coordination of structural reforms, as national structural reforms have clear spillovers to partner countries. In the European Union, this coordination was also enhanced in response to excessive imbalances that developed notably within the euro area. As for the G20, a coordinated structural reform implementation effort has become its primary instrument for achieving the goal of “strong, sustainable and balanced growth” adopted in 2009. These initiatives reflect the need to compare national experiences and to assess their macroeconomic effects, as well as the need for peer pressure to push through reforms at the national level and for international coordination. For France, the recommendations of international bodies are largely convergent and progress has been made on their implementation, even if work remains unfinished particularly in terms of competition and the effectiveness of public sector action.

Multilateral dialogue on structural reforms initially responded to a need to share best practices aimed at promoting long-term growth and macroeconomic and financial stability. This sharing, within the framework of the bilateral surveillance of the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD), entails recognition by the international community of “best practices”, known as the “Washington Consensus”. National government authorities have often used this surveillance to support their reform efforts. Particular pressure is exerted by the international community and peers when a country requires external financing in the event of a balance of payments crisis. In return for this financing and, beyond that, the support of the international financial community, an adjustment programme, negotiated with the IMF and more recently also involving for European countries, European organisations, is imposed. The importance of structural reforms within these programmes has significantly increased over the years.

Furthermore, globalisation has amplified interdependencies between countries through trade and financial openness and integration on the one hand and, on the other, the convergence of standards and practices that have intensified competitiveness effects and therefore the spillover effects of national economic policies and also structural reforms. Recognition of this phenomenon and of the weaknesses in multilateral coordination was hastened by the great financial crisis of 2008. After the height of the crisis – globally and then within the euro area – macroeconomic policy coordination became more difficult as economic cycles fell out of sync and fiscal policy leeway diverged, resulting in asymmetric adjustments worldwide as well as in the euro area, and persistent global imbalances. Within the Group of Twenty (G20), like in Europe, efforts to coordinate structural reforms were fuelled by both its greater relevance as a result of interdependencies and the stalled macroeconomic policy coordination as countries exited the crisis at different times, albeit slowly across the board. Although the results of this embryonic coordination were questionable, it produced two notable developments: it established the idea of mutual benefits from national structural reforms; and it strengthened consensus on the assessment of the macroeconomic effects of structural reforms and therefore on the definition of the related best practices.

1 Monitoring and coordinating national structural reforms: a necessity

The findings in the available research encourage the simultaneous and coordinated implementation of structural reforms, particularly in a monetary union. With regard to the G20, introducing structural reforms in one of the Group’s countries has positive…