'Foreign exchange management must not distort competitiveness'

'Foreign exchange management must not distort competitiveness'

Dow Jones, Phuket, Thailand

International Monetary Fund (IMF) Managing Director Horst Koehler doesn't oppose a certain degree of exchange rate management as long as it doesn't distort competitiveness in the market.

In separate interviews with Thai dailies Bangkok Post and the Nation published on Saturday, Koehler took a midway stance between the U.S. and China on the need for greater currency flexibility.

"If you are using the foreign exchange regime to improve competitiveness, it would lead to competitive devaluation which is an irresponsible act," he told the Bangkok Post.

"We need to find a win-win approach which creates a strong growth path, but not one at the expense of the rest of the world," he said.

Koehler was speaking after attending two days of intense talks among finance ministers from the Asia Pacific Economic Cooperation forum on process toward exchange rate reform.

APEC ministers rebuffed a U.S. push for them to call for flexible exchange rate regimes in the region, which effectively would be a signal to China to loosen its tight grip on the yuan.

A statement, fudging differing views among participants, vaguely called for "appropriate exchange rate policies" but merely noted the U.S. view that a flexible exchange rate management promotes greater economic growth and financial stability.

Asian central banks have adopted varying degrees of exchange rate management since the 1997 financial crisis to protect their currencies from speck countries deliberately depreciating their currencies to boost growth leads to increased trade protectionism. He said that sound fiscal policies are a better way to counter currency volatility, once a more flexible exchange rate system is adopted.

But he also shared China's view that no single currency regime is best for all countries.

"I don't oppose the idea of having a management element in a way that acts against the market," he told the Nation. "(But) any time you act against underlying market trends, you put at risk your own reputation, because the market might fear that something is hidden."