IMF warns countries against currency wars

AP News
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Posted: Oct 08, 2010 7:24 PM
IMF warns countries against currency wars

The head of the International Monetary Fund on Friday urged global finance ministers to stop trying to manipulate their currencies for economic advantage and instead to join to save a fragile recovery.

The global economy is struggling to emerge from the worst recession since the end of World War II, said IMF Managing Director Dominique Strauss-Kahn. Unless the pace of job growth quickens, he said, "we really face the risk of a lost generation" of young people unable to get work.

Strauss-Kahn's remarks came as finance ministers from around the world gathered for the annual meetings of the 187-nation IMF and its sister lending organization, the World Bank.

"We are gathering at a pivotal moment facing a very uncertain future," Strauss-Kahn told the delegates.

"Growth is coming back but we all know that it is fragile and uneven," he said.

Strauss-Kahn said he saw a particular threat to the recovery from a breakdown in cooperation among nations, emphasized by growing talk of currency wars.

In recent days, the Obama administration has increased pressure on China to allow its currency to rise in value against the dollar as a way to boost U.S. exports.

Various other nations, including Japan, Brazil and South Korea, also have taken steps to keep their currencies weaker in an effort to increase their exports.

In comments on Friday, Treasury Secretary Timothy Geithner said that progress in combatting the global recession was being put in jeopardy by China's resistance to a faster appreciation of the yuan.

"Our initial achievements are at risk of being undermined" by countries that are relying on exports for growth instead of building up their domestic demand, Geithner said.

Canadian Finance Minister James Flaherty told reporters that the global economy would be the loser if nations followed "beggar-thy-neighbor" currency policies where one country tries to get an advantage over another by lowering its currency, making its exports cheaper.

The consequences of such actions "are bad for a world economic recovery that is fragile," Flaherty said Friday night before a dinner of finance officials from the Group of Seven wealthy industrial countries.

Geithner called on the IMF to play a greater role in monitoring economic actions in its member countries, saying such surveillance could be critical in preventing the next crisis.

But Chinese officials continued to insist that their efforts to revalue their currency gradually was the best approach.

"China will move the exchange rate gradually," Zhou Xiaochuan, head of China's central bank, said during a panel discussion Friday sponsored by the BBC. "We will do it in a gradual way rather than shock therapy."

China in June announced that it would introduce more flexibility into its currency system but since that time the yuan has risen in value by only 2 percent against the dollar when American manufacturers contend the yuan is undervalued by as much as 40 percent.

China's gradual pace prompted the U.S. House to vote last month for legislation that would give the administration the power to impose stiff trade sanctions on countries found to be manipulating their currency to gain trade advantages.

The measure faces an uncertain fate in the Senate but Democrats wanted a House vote before November elections where the weak economy and high unemployment are expected to be uppermost in voters' minds. The government reported Friday that the U.S. unemployment rate remained stuck at 9.6 percent in September.

Strauss-Kahn said without greater cooperation the global economy will continue to struggle and job creation will remain weak. He noted that since the recession began in 2007, more than 30 million jobs have been lost around the world.

Strauss-Kahn spoke as the IMF and World Bank began two days of talks in Washington. Besides those meetings, the finance ministers from the Group of 20 major economies also met. This group includes traditional economic powers such as the United States, Germany and Japan, joined by major emerging countries including China, India and Brazil.

In a statement to the annual meetings, Indian Finance Minister Pranab Mukherjee said that the economic slowdown that hit many nations beginning late last spring had dampened optimism about the recovery.

"The impact of the crisis is going to last for decades," said Mukherjee. "It is a great cause for concern that an additional 64 million people have been pushed into poverty."