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IMF Finance Chiefs to Focus on Growing Trade Imbalances

Worries about exchange rate misalignments and trade imbalances will be at the forefront when world finance officials meet April 13-15 in Washington at the International Monetary Fund. VOA's Barry Wood has this preview of the meetings.

While the global economy continues to perform well, there are concerns about the risks posed by mounting trade imbalances. China, the world's fastest growing big economy, has almost doubled its trade surplus in the past year. Numerous critics say China should reduce the surplus by allowing its currency, the renminbi, to rise in value. The belief is that the Chinese are holding down the value of the renminbi to obtain an export advantage.

Rodrigo de Rato, the former Spanish finance minister who heads the IMF, rejects complaints that the Fund has been negligent in not insisting that China revalue the renminbi.

"We are of the opinion that the Chinese are losing opportunities without applying a more flexible exchange rate that should be measured not just against the [US] dollar but also all other currencies so that there is a trade-weighted measurement," said Rodrigo de Rato. "We are convinced of that. We've been saying that."

Morris Goldstein, a former IMF official now at Washington's Peterson Institute of International Economics, says by not speaking out more forcefully the IMF is violating its own charter to promote monetary stability. Goldstein says there is no doubt that the Chinese are manipulating their currency's exchange rate.

"The real effective exchange rate of the renminbi [over the past three years] has depreciated, notwithstanding the five or six percent appreciation of the renminbi dollar rate," said Morris Goldstein. "And contrary to the pledges they made in July 2005, China is still intervening in the market to the tune of $20 to $25 billion per month [to hold down the renminbi]."

The fear is that the currency and trade imbalances will eventually trigger a reaction where stock markets fall and the dollar goes into a tailspin that could lead to recession.

For the time being, however, the IMF, in a report released Tuesday, dismisses risks of global instability stemming from current weakness in the U.S. home and mortgage markets.