IMF praises China in long-delayed review but criticizes currency policy
Wednesday, July 28, 2010
In a sign of the deepening cooperation between the International Monetary Fund and China, the agency issued a softly worded critique of the country's currency policies Tuesday night while praising its overall actions during the recent economic crisis.
It was the first public review of China's economic policies in three years, after what is typically an annual exercise was postponed over disagreements between Chinese and IMF officials.
During the interim period, the IMF has worked hard to account for China's growing importance to the world economy, appointing Chinese official Min Zhu as a special adviser to Dominique Strauss-Kahn, the fund's managing director, and moving forward with proposals to realign voting power on the IMF executive board to acknowledge the country's rising influence.
The board assessment published on Tuesday night focused on Beijing's response during the crisis as it put in place an extensive stimulus program that "helped mitigate the impact on the economy and ensured that China has led the global recovery."
That and other policies helped the country's economy grow by more than 9 percent, doing so by importing more commodities and capital goods -- a boost for its trading partners.
But the board also gingerly criticized the country's exchange-rate policy -- a source of contention between the United States and China. U.S. officials and many observers think China deliberately keeps its yuan, also known as the renminbi, undervalued to keep its goods cheaper on world markets and boost exports.
The IMF has consistently called for China to enact more flexible exchange-rate policies, and in Tuesday's notice the board "stressed that, over time, a stronger renminbi would help facilitate a shift from exports" -- something the IMF considers necessary for improving world economic stability.
But the note also acknowledged some dissent on the IMF board, a concession to China's argument that its trade surplus is driven by forces much larger than the value of its currency. The IMF's 24 board members include eight who represent individual countries -- including the United States and China -- while others represent groups of nations.
In discussing staff projections of the currency's value on the open market, some board members "disagreed with the staff's assessment of the level of the exchange rate, noting that it is based on uncertain forecasts."
The staff assessment -- a much more detailed document than the summary of the board discussion -- has not been released and would only be made public if China agreed.