Yuan Revaluation Won't Occur `Very Rapidly'

IMF Chief Says Yuan Revaluation Won't Occur `Very Rapidly'

By Timothy R. Homan

The revaluation of China’s currency won’t happen quickly or fix all the global economy’s imbalances, International Monetary Fund Managing Director Dominique Strauss- Kahn said.

“I do not expect that things are going to change very rapidly,” Strauss-Kahn told reporters today in Washington. “It will take time for the renminbi to reach its normal market value,” he said, using another term for the yuan.

China indicated on June 19 that it was scrapping the yuan’s two-year-old peg to the dollar and reiterated the aim June 26 in Toronto during a meeting of the Group of 20 advanced and emerging economies. While the G-20 did not mention the yuan in its final statement yesterday, the group called for “greater exchange-rate flexibility in some emerging markets.”

The yuan today earlier traded at 6.796 per dollar, an appreciation of 0.4 percent from its level June 18. The IMF chief made his remarks a day after President Barack Obama indicated the U.S. expects more yuan strength in coming months.

“We do expect that as more and more market forces come to bear, that given the enormous surpluses that China has accumulated, that the renminbi is going to go up and it’s going to go up significantly,” Obama said at a news conference.

U.S. Treasury Secretary Timothy F. Geithner and other finance ministers have called on China to pursue policies that help contribute to a more even global recovery.

Imbalances

Restraints on the value of the yuan in recent years helped make China the world’s largest exporter, a shift that U.S. lawmakers such as Senator Charles Schumer, a Democrat from New York, have argued is unfair and harmful to American workers.

The U.S. trade deficit with China was $227 billion last year, accounting for 45 percent of the country’s total trade gap in 2009, according to Commerce Department figures.

Strauss-Kahn, 61, took issue with a suggestion that China’s currency alone is the major reason for lopsided trade and investment flows.

“Even a very strong revaluation, won’t solve all the imbalances -- far from that,” Strauss-Kahn said. “Those believing that all the imbalances are coming from that the renminbi is undervalued are probably wrong.”

The rebound in Asian economies such as South Korea following the worst global recession in the postwar era has been “impressive,” Strauss-Kahn said. At the same time, the rate of growth also means “it’s time to progressively go back to normal” by withdrawing stimulus measures in Asia’s fourth- largest economy, he said.

Strauss-Kahn also praised India’s economy as doing “very well,” even though he has “some concerns about inflation,” particularly for food prices.

Pakistan

The economy in neighboring Pakistan is “not out of the woods,” he said. The IMF has concerns about the country’s planned implementation of a value-added tax, which will be imposed at a flat rate of 15 percent on Oct. 1, replacing the general sales tax.

On Japan, Strauss-Kahn said he “doesn’t see any kind of immediate risk for Japanese public finances.” The country has the world’s biggest public debt.

The head of the IMF, which has rescued economies from Iceland to Pakistan since the beginning of the global financial crisis, spoke ahead of the “Asia 21 Conference” scheduled for July 12-13 in Daejeon, South Korea.

The meeting will be co-hosted by the IMF and the South Korean government and focus on repairing relations between the Washington-based lender and member states more than a decade after the Asian financial crisis.

The aim of next month’s meeting is “to take stock of what has happened in the past, rightly or wrongly” and “to see how the fund can be useful” to Asian countries, Strauss-Kahn said.

Asia Crisis

The Asian financial crisis in 1997 resulted in IMF approval of loans totaling about $35 billion to Indonesia, South Korea and Thailand. IMF austerity measures in those nations caused public unrest, and in the case of Indonesia, contributed to the 1998 ouster of the country’s dictator, Suharto.

“We need to rebuild a new kind of relationship, and I think that’s under way,” he said. “The fund has already done this with Latin America and Africa. Asia is probably more complicated because the memories and stigma are stronger in Asia than in the rest of the world.”