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APEC Refuses to Back US Proposal to Loosen Currency Controls - 2003-09-05

Asia-Pacific finance ministers meeting in Thailand have refused to back a United States call for more flexibility in foreign exchange policies throughout the region, preferring to emphasize the need for "structural reform" of their economies instead.

Meeting on the Thai island of Phuket, the finance ministers of the 21-member Asia Pacific Economic Cooperation forum refused to bow to U.S. calls for region-wide adjustments in exchange rate policies, noting that no single exchange rate regime suits all economies all the time.

In the closing statement after the two-day meeting, the ministers acknowledged the need for economic and monetary reforms to promote sustainable growth, but backed only by what they termed "appropriate exchange rate policies."

In a concession to the U.S. position, the statement did note the call for more flexible exchange rate management.

U.S. Treasury Secretary John Snow, who was in China earlier in the week pressing the Chinese to loosen the peg between the dollar and the yuan, nevertheless called the Phuket meeting an important first step toward the universal acceptance of market-based freely floating currencies.

Mr. Snow had had no more luck in Beijing, where Chinese leaders reaffirmed a long-standing intention to loosen their currency from a narrow trading band against the dollar, but only at the appropriate time. China's currency, the yuan, is pegged at about 8.3 to the dollar, which helps make Chinese goods cheap when sold abroad.

Richard Duncan, a funds manager and author of the book The Dollar Crisis, says it appears Mr. Snow failed to convince Asia-Pacific governments to allow key currencies to rise against the U.S. dollar, which some say would ease the U.S. trade and balance of payments deficits.

"It seems the governments of these countries have not agreed to what the Treasury Secretary hoped they would agree to, that is allowing their currencies to appreciate against the dollar," he said. "So I believe this is going to be quite an issue for the Bush Administration."

The United States' deficits with the world are forecast to rise to $600 billion this year.

The Bush Administration is under increasing pressure from labor unions and U.S. manufacturers to bring about revaluation of Chinese and other currencies, claiming that cheap goods from China are causing job losses and a fall in U.S. profits.

But China, facing serious imbalances in its own economy, needs to maintain a high rate of economic growth to ensure employment and increase business output. Raising the value of the yuan and making Chinese goods more expensive would likely reduce the growth of the nation's economy. Other Asian central banks have also favored a slow appreciation of their currencies in order to maintain export competitiveness, on which so many economies in the region depend.