By Tim Ahmann
Reuters
Wednesday, September 29, 2004
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=6366960 [1]
WASHINGTON -- The International Monetary Fund on
Wednesday called on China to drop the yuan currency's
tight peg to the dollar to help keep domestic inflation
under control and bring more balance to the global
economy.
Just days before a meeting between top Chinese
economic officials and their counterparts from the Group
of Seven rich nations, the global lender said the time
was ripe for greater currency flexibility in Asia.
"From both an external and a domestic perspective, the
strong regional and global recovery, combined with
buoyant export growth, would seem to provide
near-ideal conditions for such a move," the IMF said
its twice-yearly assessment of the global economy.
The call for currency reform steps up pressure on
China to move away from its policy of holding the
value of the yuan at 8.28 to the dollar, a peg U.S.
manufacturers and labor groups have charged gives
Chinese producers an unfair advantage.
In its World Economic Outlook, the IMF said
dropping the peg could help keep inflation from
knocking China's fast-growing economy off the rail.
"Risks of overheating have not yet abated," the fund
warned. "Further monetary tightening is likely to be
needed, which would be aided ... by greater
exchange rate flexibility."
The IMF said increased currency flexibility in Asia
was one of three steps needed to improve the global
economy's health. "Little progress has been made,"
it said.
Chinese Premier Wen Jiabao pledged on Tuesday
to push ahead with efforts to make the yuan more
flexibile, but his comments left analysts guessing
as to how quickly Beijing might move.
China has repeatedly said its first focus needs to
be on cleaning up its banking sector, turning around
ailing state-run companies, and creating jobs.
Chinese Finance Minister Jin Renqing and central
bank Governor Zhou Xiaochuan are expected to
defend that go-slow approach when they meet with
G7 finance officials in Washington on Friday. A
Finance Ministry official who declined to be identified
said China was unlikely to announce any policy
changes.
The meeting, a recognition of China's growing
economic clout, will follow a formal gathering of
officials from the G7 -- the United States, Britain,
Canada, France, Germany, Italy, and Japan.
Early this year the G7 called for greater foreign
exchange flexibility in Asia. A German delegation
source said last week the G7 would likely reiterate
that call on Friday.
The case for flexibility has been pushed with
special vigor by the United States and U.S. Treasury
Secretary John Snow has said he plans to press it
again this weekend.
The U.S. Treasury has said, however, Snow is not
planning to hold a bilateral session with the Chinese
officials.
While raising the prospect of an economic overheating
in China, the IMF said "a soft landing, which would
maintain underlying growth momentum, appears
achievable."
It said the Chinese economy was likely to grow 9
percent this year, just a touch below last year's pace,
and slow further to register a 7.5 percent advance in
2005. In April the fund had forecast growth of 8.5
percent this year and 8 percent in 2005.
The lender noted that economic growth had moderated
in the second quarter in response to tighter monetary
policy, but said activity remained strong and noted that
business investment picked up again in June and July.
Although it warned on inflation risks, it said consumer
prices should advance just 3 percent next year, after a
4 percent rise this year.
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----------------------------------------------------
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