Washington: The International Monetary Fund (IMF) needs to strengthen and modernize its currency exchange rate monitoring policies to ensure their effectiveness as globalization spreads, world finance officials agreed on 14 April.
Gordon Brown, Britain’s finance minister and the head of the IMF’s policy steering committee, said the quality and the candor of the surveillance process need to be improved to preserve global economic stability.
Speaking at the end of a day-long session during spring meetings of the IMF and its sister institution, the World Bank, Brown said the change should be made in a way that adds “no new obligations” to IMF member countries.
The call echoed an earlier one by the administration of President George W. Bush--a demand that reflects U.S. frustration with China’s slow pace of financial reform.
While seeking new ways to pressure Beijing, Treasury Secretary Henry Paulson also advocated “bold action” to overhaul the IMF. The organization founded 62 years ago to foster economic stability “no longer looks like the economic world in which we live,” he said.
Meanwhile, a planned demonstration by World Bank employees to demand the resignation of President Paul Wolfowitz over his involvement in a huge pay increase awarded to a female friend failed to happen. But protesters from aid advocacy and other groups marched outside the bank’s headquarters calling for his firing.
Wolfowitz has said he made a mistake and has apologized for his role in Shaha Riza’s promotion. The executive board of the 185-nation bank, whose mission is to fight poverty and improve living standards for the poor, is looking into the matter.
The IMF communique said on 14 April that ministers welcomed the “continued strong, broad-based expansion of the global economy,” which is becoming regionally more balanced “and is expected to continue in 2007 and 2008.”
They agreed that resolving global imbalances, trade deficits and mirroring currency surpluses, particularly in Asian countries is a shared responsibility, and agreed to resume talks on the issue when warranted.
The head of the IMF, Rodrigo de Rato, drew attention to the section of the communique that calls for China to improve its exchange rate mechanism in a gradual manner.
“ Exchange rate flexibility will gradually increase, with attention paid to the value of a basket of currencies,” de Rato said. “Efforts will be made to cultivate the foreign exchange market and deepen reform of foreign exchange administration.”
China’s currency system keeps the yuan artificially low against the dollar, giving Chinese companies price advantages over U.S. producers.
Perhaps miffed by the continued pressure on currency reform, China sent deputies instead of the finance minister and central bank chief to the weekend meetings.
“Let us be clear: exercising firm surveillance over members’ exchange rate policies is a core function of the institution,” Paulson said.
He said the IMF is working on revising its guidelines on foreign exchange monitoring. Any changes, he added, should clarify the IMF’s role but not create new obligations for members.
“This should enable firmer surveillance in areas where market forces are not the prevailing paradigm, such as insufficiently flexible exchange rate regimes, or areas where macroeconomic policies and performance are poor even if the exchange rate freely floats,” Paulson said.
Finance ministers from Latin America and Europe endorsed Paulson’s position on currency surveillance at a meeting of the IMF’s policy-steering committee.
Ministers from Argentina, the Netherlands and Russia supported changes in currency surveillance provided they do not impose new burdens.
Argentina’s finance minister, Felisa Miceli, said changes in the governance structure so far, allowing a greater voice for South Korea, China, Turkey and Mexico -- amount to a “cosmetic change that could eventually be marketed as a milestone in improving the funds legitimacy.”
Miceli said it would be self-defeating for the fund to give more votes to a few emerging economy countries that no longer need IMF loans “at the expense of other developing countries that remain to be potential borrowers.