U.S. to Support More IMF Votes for China

The Bush administration's decision risks angering those who say China should be punished for undervaluing its currency at a cost of U.S. jobs. (Associated Press)

China will get U.S. backing for a modest increase in its voting power at the International Monetary Fund, a disappointment to people who argue that Beijing ought to be punished for maintaining an unfair currency system.

Timothy D. Adams, the Treasury undersecretary for international affairs, said yesterday that the Bush administration will support giving China and several other countries greater voting power on the IMF board, reflecting their growing clout in the global economy. The initiative is scheduled to come before the IMF's policymaking body at its annual meeting in Singapore on Sept. 18-19.

Adams's comments came in an interview in which he spelled out the administration's broad objectives for "fundamental reform" of the IMF, which he said offers the best hope for dealing with such problems as China's currency situation.

The IMF, he said, needs to update its rules so it can aggressively confront countries whose currencies are so undervalued as to give their exporters an unfair advantage. China's critics contend that it is such a country, because its currency, the yuan, has been kept at an exchange rate of about eight per U.S. dollar for more than a decade. Many economists say that rate makes Chinese products excessively cheap and costs U.S. jobs.

But to effectively tackle such situations, Adams added, the fund must give greater representation to nations that complain that their voting power lags behind their economic power. China's economy is twice the size of those of Belgium and the Netherlands combined, yet Belgium and the Netherlands have 1.5 times as many votes.

"We need to fix it, if this is going to be the institution leading the charge on currency regimes and so forth," Adams said. "This institution needs to be seen as credible so all participants feel that it truly represents them."

At the Singapore meeting, he said, "hopefully we'll be able to bless" a deal that will give China, South Korea, Mexico and Turkey "a down payment -- almost a symbolic down payment" of a modest increase in voting power, and perhaps agreement on a more far-reaching vote reallocation later.

That stance risks angering lawmakers who contend that the administration needs to threaten China with sanctions, including blocking Beijing's quest for more IMF votes. Under a bill unveiled last March by Sens. Charles E. Grassley (R-Iowa) and Max Baucus (D-Mont.), the administration would be obliged to use U.S. veto power against an increase in the IMF votes of any country with a "misaligned" currency. That bill has yet to move toward passage; nor has a tougher bill that would slap tariffs on Chinese goods.

"The Chinese are acting irresponsibly, and the U.S. is saying it's okay," said Morris Goldstein, a senior fellow at the Institute for International Economics. "Yes, China deserves an increase" in its IMF voting power. "But not if it keeps the currency where it is."

Treasury officials, however, assert that a threat to block an increase in China's IMF voting power would backfire, because Beijing would only dig its heels in further on the currency issue.

More important, Adams said, is to change the IMF's cumbersome, 30-year-old rules governing currencies, so objective guidelines can determine if a country's exchange rate is out of line.

"This is a very unique opportunity that we haven't witnessed in a long time," he said. "It may take a couple of years. But we can have an institution that is more relevant and more credible."