Who Really Controls the World's Marketplace?

September 30, 2004
I.M.F. Asks China to Free Its Currency From Dollar
By ELIZABETH BECKER

WASHINGTON, Sept. 29 - The International Monetary Fund added its voice on Wednesday to the growing calls for China to float its currency immediately, a move that supporters say would help reduce the United States trade deficit and strengthen the global economy.

On the eve of annual meetings here with the World Bank, Rodrigo de Rato, the managing director of the I.M.F., said that it would be to China's advantage to uncouple the yuan from the dollar.

The tight link to the United States currency has been blamed for making foreign goods too costly in China and Chinese exports unfairly inexpensive.

"There should be more flexible currencies, not only for China but the whole of Asia," Mr. de Rato said to a group of 10 journalists at his headquarters.

China is expected to make some concession on currency when its finance minister and central bank governor attend their first meeting with representatives of the Group of 7 wealthy industrialized countries at a dinner here on Friday.

The meeting is a sign of China's growing economic power, and with that acknowledgement has come even stronger pressure to float or revalue the currency, which is pegged at 8.28 yuan to the dollar.

In its World Economic Outlook released on Wednesday, the I.M.F. argued that a more flexible currency would not only help the world economy but would also help tame inflation in China and cool its fast-growing economy. "Risks of overheating have not yet abated," said the report, which said that further monetary tightening would be aided "by greater exchange flexibility."

The United States Treasury secretary, John W. Snow, has promised to use the dinner on Friday to press China on its currency. But a group of Democratic lawmakers, with the encouragement of American manufacturers and labor unions, have said they do not trust the administration to win concessions from China and have said they will file a petition on Thursday, seeking to force China to alter its currency.

The petition will ask the administration to sue China at the World Trade Organization, saying it has violated trade laws by failing to revalue its currency. At least five senators and a dozen members of the House signed the measure because they said that they saw no evidence that China was planning any immediate change in its currency rate.

"One year ago Treasury Secretary John Snow said he was encouraged China was moving towards a flexible rate," said Representative Sander M. Levin, Democrat of Michigan. "Today he's still encouraged. But I'm just so tired of the administration thinking that this rhetoric is a substitute for real action."

On another critical matter, Mr. de Rato has joined with James D. Wolfensohn, president of the World Bank, in support of debt relief for the world's poorest nations, as long as rich countries promise an increase in aid for all programs.

In an interview in his office before the beginning of this week's meetings, Mr. Wolfensohn said he worried that the poor who did not live in Iraq or Afghanistan were being forgotten.

"There is more than the war on terror," he said. "The imbalance in the world is greater than ever before; it is more obscured and permanent, and that leads to despair, hopelessness, a lack of development."

Support for debt relief has grown since Britain announced on Sunday that it would pay off 10 percent of the total owed by poor countries to international agencies and challenged other wealthy nations to follow suit. Governments, aid agencies and relief groups have long asserted that developing countries would never climb out of their poverty if they were required to pay more to service debts incurred by irresponsible former governments than they can spend to improve health, education and other basic services.

Both debt relief and currency exchange rates will be important issues at the meetings to be held throughout the weekend.

In a departure from previous meetings, few demonstrators are expected this year. Protestors seem far more concerned about the war in Iraq and the American presidential campaign than loan conditions and debt relief. Security will still be tight outside the two agencies' headquarters, which are near the White House. About 100 people are expected at an all-night vigil on Friday to promote debt relief.

The United States has its own plan for debt relief, drawn up after the administration was unable to persuade the rest of the Group of 7 to agree on debt relief for Iraq, a country that is too wealthy for standard debt forgiveness.

Britain has argued that the debt owed to the I.M.F. could be cut by revaluation of the fund's gold stocks. At the current value of $40 an ounce, the stocks are worth $8.5 billion, but the market price for gold is now over $400 an ounce.

Salih Booker, executive director of Africa Action, praised Gordon Brown, Britain's chancellor of the exchequer, and said in a statement that "the massive gold reserve of the I.M.F. can comfortably finance the cancellation of debt without affecting the financial status of any government or institution.

"After years of devastation," he added, "the boards of these institutions can give people in impoverished countries something to celebrate."

In Zambia, for instance, the government is spending more on debt repayments than on education, according to a report to be released on Friday by Oxfam International and V.S.O., an international charity. In order to meet conditions imposed by the I.M.F. to keep inflation down, the government has put a ceiling on hiring new teachers, the report said.

Roy Mwaba, the general secretary of the Zambian National Union of Teachers, traveled here to use the report to try to persuade the I.M.F. to provide debt relief. He said in an interview "that the scenario is quite gloomy without debt relief."

"All of this is having adverse impact on education in Zambia," he said.



Copyright 2004 The New York Times Company