IMF-WB meet ends, currency issue remains unresolved

Last Updated 10 October 2010, 06:53 IST

The currency issue was the most discussed topic at the meet after the governance reform.

IMF Managing Director Dominique Strauss-Kahn said one of the reasons for currency dominating the meet is that global economic recovery is so uneven. He said some parts of the world are having high growth, while others have low growth and large capital is flowing to regions which have growth.

In response to a question, he said rebalancing growth is the "real way, in the medium term to avoid this kind of currency question".

"There is no way to believe that global growth could be rebalanced without changing some currency value because it is clear that we are going to have high growth in one part of the world and low growth in another part of the world."

The rebalancing goes also through revaluation of  the part of the world where you have high growth," Strauss-Kahn, said.

At the centre of the currency issue is that the US want exchange rates based on market fundamentals and want Chinese yaun to appreciate. On other hand, China,  the fastest growing large economy in the world, oppose the exchange rate of yuan being determined by market forces.

Indian Finance Minister Pranab Mukherjee voiced his opposition to any move towards building a currency war, and called for "engaging" the concerned countries.

"My approach is that we should try to engage the countries into negotiations and build up a consensus through which the matter could be resolved.'It cannot be resolved through confrontation, but  through consensus it could be possible, and we should engage in the process of building up consensus," Mukherjee said.

The IMF Chairman Youssef Boutros-Ghali, who is also the Egyptian Finance Minister, said members did agree that the IMF should play a major role in addressing currency disputes, even though the global finance leaders could not agree on a new strategy.

A communiqué´ issued at the conclusion of the meeting said the IMF pledges to "deepen its work" in areas including global imbalances and exchange rate movements.

The World Bank chief Robert Zoellick said he is not worried that the debates of these meetings will overshadow talk of development at next month's G-20 gathering in Seoul, South Korea.

"The big story is the emerging markets are driving the growth, and these are the developing countries.  So, I think the key point about development is that it is not only a category to be put to the side -- it's one of  the driving engines to have a successful international growth prospect and recovery," he said in response to a question.

Led by the US, Western countries during the two-day meeting increased pressure to reform how it values the yuan, which is pegged to the dollar.

Officials from the US, Canada and Britain argued that economies with undervalued currencies -- namely China -- should allow them to rise in value to support the global economic recovery.

"Our initial achievements are at risk of being undermined by the limited extent of progress toward more domestic demand-led growth in countries running external surpluses and by the extent of foreign exchange intervention as countries with undervalued currencies lean against appreciation," the US Treasury Secretary Timothy Geithner said.

"These are the critical challenges of this period, and we must work collectively and through our multilateral forums, such as these meetings, to address them cohesively," Geithner said.

The United States received backing from Canadian Finance Minister Jim Flaherty who called China’s refusal to let the yuan appreciate a "protectionist" policy, as it benefits Chinese goods at the expense of Western exports.

(Published 10 October 2010, 06:53 IST)

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