IMF told to toughen scrutiny of rich powers

Emerging powers won a battle on Saturday for heightened IMF scrutiny of rich countries' economic policies as world financial leaders sought to defuse mounting tensions over currencies.

The International Monetary Fund's 187 member countries gave voice to long-running frustrations of emerging economies, which say the Fund has traditionally not been tough enough on its biggest shareholders, led by the United States.

Now, with the United States and Europe in the doldrums, and emerging economies providing the major growth engine for the world, the tables appear to be turning.

"Stronger and even-handed surveillance to uncover vulnerabilities in large advanced economies is a priority," the IMF's steering committee said in a communique.

The statement reflected the arguments of developing countries that weak finances and sluggish growth in the United States are a fundamental cause of imbalances in the global economy, with U.S. policies fueling the dollar weakness that is causing strains for many emerging market currencies.

This view was driven home by Chinese Central Bank Governor Zhou Xiaochuan on Saturday and won broader support.

"The IMF is no longer the institution designed to look after the developing countries solely," said Thailand's finance minister, Korn Chatikavanij. "Its role needs to be more broad-based, and it needs to realize that mistakes in the larger economies have global impact."

The United States, in contrast, has pointed its finger at China, saying its huge current account surplus and undervalued yuan currency are partly to blame for the imbalances that have caused the dollar to fall and raised concerns about a "currency war."

No Deal on Currencies

The finance leaders struck no deal on currencies but their IMF communique sought to defuse these escalating tensions by acknowledging both sides' points of view. Not only did it underline the need for scrutiny of rich countries, it added language sought by Washington for the IMF to speak with greater "candor" in advising countries on economic policy, potentially giving the Fund more clout when dealing with China's yuan.

But it laid out no concrete actions for addressing the problems of unbalanced global growth that underlies the mounting stress in foreign exchange markets.

U.S. Treasury Secretary Timothy Geithner said there is a direct link between planned reforms at the IMF designed to give emerging powers a greater voice and foreign exchange rate policies, and said if emerging markets want more influence they must release their grip on tightly managed currencies.

IMF chief Dominique Strauss-Kahn put it slightly differently: "You cannot be at the center and be a free rider."

Strauss-Kahn said he hoped to get an agreement possibly within weeks on giving emerging countries more IMF voting power, which would be in time to meet a deadline of the Group of 20 summit next month in Seoul.

[Source: By Lesley Wroughton and Emily Kaiser, Reuters, Washington, 09Oct10]

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