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International Monetary Fund to Have Greater Role in Managing Global Economy


The International Monetary Fund is trying to assert more authority in dealing with global economic and financial problems. Member nations endorsed the move during a meeting in Washington D.C. over the weekend.

The call for new IMF power stems from frustration that nothing has happened to correct the growing trade and financial imbalances that distort global economic activity. The heart of the imbalance is America's huge trade deficit and China's corresponding surplus.

Peter Kenen, economics professor at Princeton University, is a leading authority on global finance. "For precisely the reason that people believe such a large imbalance could lead to a crisis, it could at some point trigger a crisis. You could have a flight from the dollar."

To maintain confidence in the dollar and head off what it fears could be an eventual uncontrolled decline, the IMF proposes to be more involved in some issues, for example, persuading China to allow its currency to gradually rise against the dollar.

Bill Cline is a researcher at Washington's Institute for International Economics says,

"There's growing conflict about the Chinese currency being undervalued. And we need an honest broker who can tell the United States to get rid of its fiscal deficit, who can tell China and other Asian countries to allow their currencies to appreciate."

IMF chief Rodrigo de Rato of Spain won support during the Washington meeting for his plan to give the Fund a greater role in mediating economic disputes. He also wants China to have a larger voice within the IMF. Princeton professor Kenen calls that a sensible tradeoff if the IMF is pushing China on currency reform.

"I think the Chinese feel this very deeply. If they're being the target of criticism. They say if we're being called on to make major changes, if they're being called on to listen to world opinion, (they say) we need the voice (increased votes) to influence world opinion."

The reform plan will be debated over the next few months. It won't become operational at least until September.