Macroeconomic Surveillance for Monetary Policy Management in the SEACEN Countries

Effective monetary policy management requires a competent surveillance system capable of analysing the macroeconomic developments, making more accurate projections, and proposing appropriate policy measures. However, the development of macroeconomic surveillance systems for monetary policy management in the SEACEN region has not been uniform. Among the 14 SEACEN countries covered in this study, the surveillance systems of Singapore, Korea, ROC(Taiwan), Malaysia, Thailand, Indonesia and the Philippines are relatively more developed compared with the systems in Fiji, Sri Lanka, Vietnam, Cambodia, Papua New Guinea, Nepal, and Myanmar. Availability, frequency, coverage, timeliness and quality of data have been the major challenges commonly faced in the macroeconomic surveillance process particularly in the SEACEN economies with comparatively less developed surveillance systems. In some of these countries, absence of proper institutional setup, lack of technical expertise, lack of coordination between concerned agencies and lack of the knowledge on advanced surveillance methods and models also limit the effectiveness of macroeconomic surveillance. Significant gap between the target of monetary policy and actual target achievement in most of these countries is also an indicator of the lesser effectiveness of their macroeconomic surveillance. In the case of countries employing comparatively developed surveillance systems, there is little or no gap between monetary policy target and actual target achievement. In order to enhance the effectiveness and credibility of monetary policy, SEACEN members with less advanced macroeconomic surveillance sytem need to put in place proper institutional set-ups, develop human resources with required technical expertise, enhance the availability, frequency and quality of data; and develop and employ effective surveillance methods and models to strengthen their macroeconomic surveillance. Several new surveillance frameworks have been developed recently to detect the symptoms of a looming crisis so that the crisis can be prevented or the impact of such crisis can be lessened by implementing appropriate measures preemptively. These newly developed frameworks among others include the early warning system (EWS) and balance sheet approach (BSA). Some of the SEACEN countries have already employed or are in the process of employing these frameworks in their surveillance systems. The utilization of these frameworks by all the member countries would be helpful in detecting problems in the SEACEN economies beforehand so that a potential crisis can be averted in the region. As mentioned above, the current macroeconomic surveillance systems of almost half of the SEACEN member countries are fairly developed while those of the other half are relatively less developed. In the process of strengthening their surveillance systems for monetary policy management, the SEACEN members can benefit by sharing their experiences among themselves. The countries with comparatively strong macroeconomic surveillance systems can help to develop and strengthen the surveillance system of other member countries through technical assistance and sharing of experiences. In this regard, The SEACEN Centre can provide a forum to develop necessary skills and share experiences. The new frameworks developed for the macroeconomic surveillance focus on the known type of currency and financial crises. Recently, a new type of financial crisis has surfaced in USA in August 2007 originating from the problems in the subprime mortgage lending. The agencies monitoring the economy in the national and international levels employing highly advanced surveillance systems, such as the Federal Reserve, IMF, market participants and credit rating agencies could not read the vulnerabilities present in the market that led to the aforementioned crisis. Because of the increasingly integrated global financial markets and development of uncountable types of new financial products, the global economy may face new types of market vulnerabilities not experienced before. Therefore, SEACEN countries also need to restructure and further strengthen their macroeconomic surveillance systems by taking into consideration the recent developments in the financial markets. There have been several initiatives to establish regional surveillance mechanisms in Asia and the Pacific. However, there is still lack of a permanent mechanism to conduct such regional surveillance effectively on a regular and integrated basis. In this context, instead of increasing the number of initiatives, some of the existing mechanisms can be revived and strengthened. The SEACEN Expert Group on Capital Flows (SEG) may be one such framework which can be utilized more effectively in the regional surveillance.