Worry about the dollar, not the yuan, Chinese central banker says

Section:

By Lesley Wroughton and Sumeet Desai
Reuters
Saturday, August 22, 2006

http://today.reuters.co.uk/news/newsArticle.aspx?
type=topNews&storyID=2006-04-22T215117Z_01_N22245674_RTRUKOC_0_UK-
GROUP-IMF.xml

WASHINGTON -- The International Monetary Fund won new powers to
police the world economy after its 184 member countries endorsed a
new framework to monitor how the economic policies of one country
affects others.

The countries, represented by finance ministers or central bank
governors, also agreed that some emerging economies needed more say
in IMF decision-making, and a proposal for ad hoc increases in their
voting shares could become a reality by the next IMF meetings in
September.

"We resolve to make the IMF more fit for purpose in a global economy
and more able to address challenges that are quite different from
those of 1945, when the IMF was created," Chancellor Gordon Brown,
who also chairs the IMF's policy-setting committee, told a news
conference.

"The IMF should be more able to address global questions with
multilateral surveillance," Brown said.

The International Monetary and Financial Committee, or IMFC, said
IMF surveillance would focus on spillovers and links between
countries' economic policies and reaffirm their monetary, fiscal and
exchange rates frameworks.

IMF Managing Director Rodrigo Rato will have the authority to bring
nations together on an ad hoc basis to thrash out any economic
misalignments based on IMF analyses.

Officials said this would create a new forum that better reflected
the rise of Asia in the global economy and could possibly replace
bodies like the Group of Seven industrial countries, which some say
can no longer call all the shots.

One of the problems facing the G7 is that major economic players
like China are not part of the club.

Member countries welcomed enhanced IMF monitoring of exchange rates
that will be extended to include major emerging markets, but several
remarked they were hesitant about the IMF publishing analyses on
theoretical fair value currency rates because it was market
sensitive.

China, whose tightly managed currency is a concern to the G7, said
this did not mean the IMF should interfere in how countries manage
their exchange rates.

"Fund surveillance should comply with the objective of promoting
exchange and financial stability and respect the autonomy as to
exchange rate systems that is granted to all (IMF) members," China's
Governor Zhou Xiaochuan told the IMF committee.

Addressing reporters, the IMF's Rato said the committee gave him a
clear mandate to propose changes to the voting shares, or quotas, of
some countries by September.

"I have spoken several times about the need for increases in voting
power for some countries, including a number of emerging market
economies, to ensure they have a role in the fund's decision-making
process that accords with their increased importance in the world
economy," he said.

A proposal he submitted to the IMFC would give ad hoc increases to a
small number of countries like China, South Korea, Mexico and
Turkey. Other nations that could also possibly qualify include
Malaysia, Thailand and Singapore.

But tensions remain between industrial and developing countries over
how to reallocate voting power beyond initial increases in the
quotas for some emerging nations.

The Group of 24 finance ministers for developing countries from
Asia, Africa and Latin America on Friday called for a more
comprehensive package with timelines to greater representation,
fearing changes could stall after any initial increases.

They said it was "imperative" that a concrete proposal for changes
be worked out by the next IMF meeting in Singapore in September,
which should include a new formula to calculate quotas based on
purchasing power parity of a country and not gross domestic product
as is currently the case.

U.S. Treasury Secretary John Snow said on Saturday he would support
the ad hoc increase "if it is credibly linked as a down payment on
near-term fundamental reform," like those to increase the fund's
watchdog role on currency issues.

Although it is generally recognised that China's quotas do not
properly reflect its global economic weight, an increase in its
voting share may be controversial in light of proposed U.S.
legislation threatening a veto of such a move in the absence of
Chinese currency reforms.

German Finance Minister Peer Steinbrueck called for "equal
treatment," saying some European countries -- like Germany -- were
also underrepresented according to quota calculations.

According to calculations of the current quota system countries like
Britain, Ireland, Spain, the Netherlands, and Sweden are also
underrepresented.

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