An unusual public rift between the International Monetary Fund and the Bush administration deepened yesterday as the IMF's top official made it clear that he will not cooperate with any U.S. plan to label China as a currency manipulator.
Rodrigo de Rato, the IMF's managing director, said in an interview that "we don't see evidence" that China is violating the fund's rules against maintaining an artificially cheap currency. He also suggested that the U.S. Treasury is staking out a position on the issue that contradicts its previous stance.
Rato's comments were a defiant response to a demand by a senior administration official for the IMF to crack down on currency manipulation, and they appeared likely to inflame members of Congress and labor and industry groups that are pressing for tough action against China over the currency issue.
Beijing's critics complain that the exchange rate of the Chinese yuan, which has been held at slightly more than 8 yuan per dollar for years, is far out of line with market forces and gives Chinese manufacturers a major advantage in competing with foreign firms. Some lawmakers are threatening to enact legislation that would slap across-the-board tariffs on Chinese goods if Beijing fails to significantly raise the yuan's value.
Rato's remarks came in answer to questions about a speech Friday by Timothy D. Adams, the Treasury undersecretary for international affairs, who attacked the IMF for being "asleep at the wheel" in policing currency systems. Although Adams's speech did not mention China explicitly, its thrust was clearly aimed at prodding the IMF to take a much more aggressive approach in tackling the currency issue. He criticized the fund for seldom invoking its power to cite countries that are "manipulating exchange rates" to gain "unfair competitive advantage."
In the interview, Rato, a former Spanish finance minister, showed no sign of backing down in the confrontation between his institution and a top official of the U.S. government, which is the fund's largest shareholder and is sometimes described as the puppet master behind its policies.
On the contrary, the IMF chief went beyond comments he made Friday at the same conference addressed by Adams. Yesterday, Rato flatly disputed claims that China was violating IMF rules against currency manipulation for competitive gain. "My information here is strictly what the [IMF] staff has given me -- that there is no evidence," he said. "There is a strong argument by the Chinese authorities that their main objective" in keeping the yuan steady against the dollar "is the stability of the economy."
Rato asserted that the IMF has been, if anything, well ahead of the curve compared with other governments and economists in urging China to allow its currency to move upward. In a pointed barb, he noted that the Treasury itself has refrained from tagging China for manipulation in its own semiannual reports on foreign exchange policies. "Up to now, we have had the same position as the U.S. Treasury," he said.
That comment suggested that Rato thinks the Treasury is changing its position for political reasons. The IMF chief declined to elaborate, but the view is widespread among the fund staff that Adams's broadside was designed to appease lawmakers such as Sens. Charles E. Schumer (D-N.Y.) and Lindsey O. Graham (R-S.C.), co-sponsors of the leading bill that would penalize China for failing to raise the yuan.
Rato's statements would appear to undercut any hope by the Treasury of using the IMF to batter the Chinese. Some economists argue that strong pressure from an international body like the IMF is much more likely to be effective with the Chinese than bilateral threats and would reduce the risks of a tit-for-tat trade war between the United States and China.
A senior Treasury official, asked for a comment on Rato's comments, said, "This is the beginning of the conversation, not the end" on what the IMF's priorities should be.
"At the end of the day, the shareholders, the board [of the IMF] set the priorities, and the agenda," added the official, who spoke on condition of anonymity because he did not want to intensify the dispute. The reaction to Adams's speech by officials of other countries, he said, has been "pretty positive."
The speech, he said, "was not about the managing director . . . it was more focused at the institution. . . . We hope to take more of a leadership role in setting the agenda and direction for the institution."