IMF urges more exchange rate flexibility in China, Asia

IMF urges more exchange rate flexibility in China, Asia

Deutsche Presse-Agentur, Singapore

A more flexible exchange rate regime in China would prompt other Asian countries to follow, an International Monetary Fund (IMF) official said as the World Economic Forum's East Asia summit swung into its second day on Monday.

Deputy managing director Shigemitsu Sugisaki noted external imbalances - which include the US$500 billion-plus U.S. current account deficit, and large counterpart surpluses in Japan, China and other Asian countries - are a "major concern" for the global economy.

They are "unsustainable", he stressed.

More than 800 business and political figures from 32 countries are attending the three-day annual summit held this year in Singapore.

Greater currency flexibility in Asia is part of the solution to the problem of widening global external imbalances, Sugisaki said.

The administration of U.S. President George W. Bush has been pressing for China in particular to revalue the exchange rate of the Chinese currency, which has been fixed to the U.S. dollar since 1994.

Japan has also been complaining of a flood of cheap imports from China and has called on Beijing to revalue its currency, the yuan.

China's adoption of a more flexible exchange rate would encourage other countries in the region to move in the same direction.

India, Indonesia, South Korea, Singapore and Thailand are among the Asian countries which permit some exchange rate flexibility, while Malaysia, Hong Kong and China fix their currencies to the U.S. dollar.

The IMF recommends a "phased approach to flexibility" which would not pose a major risk to China's economy," Sugisaki said.

Advanced countries must also tackle their structural problems, he said, citing the need for labor and product market deregulation in Europe, corporate and financial reforms in Japan and a "credible medium-term fiscal framework" in the U.S.