WASHINGTON – The International Monetary Fund must do a better job monitoring countries' currency policies, the Bush administration said Saturday, a demand reflecting U.S. frustration with China's slow pace of financial reform.
While seeking new ways to pressure Beijing, Treasury Secretary Henry Paulson also advocated "bold action" to overhaul the IMF. The organization founded 62 years ago to foster economic stability "no longer looks like the economic world in which we live," he said.
Paulson spoke at the spring meetings of the IMF and World Bank, which were overshadowed by controversy surrounding the bank's president, Paul Wolfowitz, and his involvement in a huge pay raise awarded to a close female friend.
A demonstration that bank employees planned to urge his resignation failed to materialize. But protesters from aid advocacy groups and other organizations marched in a park outside the bank headquarters and called for his ouster. Wolfowitz, a former deputy defense secretary and one of the architects of the administration's Iraq war strategy, has said he made a mistake and has apologized for his role in Shaha Riza's promotion.
The executive board of the 185-nation bank, whose mission is to fight poverty and improve living standards for the poor, is looking into the matter. The White House says President Bush has confidence in Wolfowitz and Paulson has called him a dedicated public servant.
Some African officials attending the meetings also expressed support, saying Wolfowitz has made the continent a greater priority at the bank.
"We have seen visionary leadership, steadfast progress under Mr. Wolfowitz," said Liberia's finance minister, Antoinette Sayeh.
Finance ministers from Latin America and Europe endorsed Paulson's position on currency surveillance at a meeting of the IMF's policy-steering committee.
"Let us be clear: exercising firm surveillance over members' exchange rate policies is a core function of the institution," Paulson said.
He said the IMF is working on revising its guidelines on foreign exchange monitoring. Any changes, he added, should clarify the IMF's role but not create new obligations for members.
"This should enable firmer surveillance in areas where market forces are not the prevailing paradigm, such as insufficiently flexible exchange rate regimes, or areas where macroeconomic policies and performance are poor even if the exchange rate freely floats," Paulson said.
Paulson advocated greater exchange rate flexibility in emerging Asian economies, especially China.
Critics of administration policies contend the White House must take a tougher approach against unfair practices such as China's currency system, which keeps the yuan artificially low against the dollar, giving Chinese companies price advantages over U.S. producers.
The U.S. trade deficit with China declined by 13.3 percent to $18.4 billion in February, the smallest gap since last May. Still, it is 25 percent above the pace set at the beginning of 2006, when the imbalance for the entire year was $232.5 billion. That was the largest deficit the U.S. has ever recorded with a single country.
The United States and other industrialized nations have called on China to do more to introduce flexibility into its currency system.
Perhaps miffed by the continued pressure on currency reform, China sent deputies instead of the finance minister and central bank chief to the weekend meetings.
Ministers from Argentina, the Netherlands and Russia supported changes in currency surveillance provided they do not impose new burdens.
Argentina's finance minister, Felisa Miceli, speaking on behalf of some South American countries, said "if surveillance rather than lending will turn out to be the most prominent role of the fund, then its governance structure should extend more to the logic of its regulatory role and less to that than a club of creditors."
She said changes in the governance structure so far — allowing a greater voice for South Korea, China, Turkey and Mexico — amount to a "cosmetic change that could eventually be marketed as a milestone in improving the fund's 'legitimacy."'
Miceli said it would be self-defeating for the fund to give more votes to a few emerging economy countries that no longer need IMF loans "at the expense of other developing countries that remain to be potential borrowers.
Also Saturday, Paulson said prospects for the U.S. economy, the world's largest, are good, although activity has slowed. Growth is projected to slow to 2.2 percent this year; Paulson said it should rebound to 3 percent by year's end.