William Pesek: IMF should roll up its sleeves for action

TOKYO - After years of marginalisation and soul-searching, the International Monetary Fund (IMF) seems to be finding its voice again.

That may be the upshot of its tit-for-tat dispute with a US Treasury that likes to have its economics both ways. No, the reference here isn't to the Bush Administration credo that there's no trade-off between big spending and big tax cuts. Rather, it's to China's currency policy.

Treasury officials want the IMF to support US claims that China is a currency manipulator. Odd thing, since even the US hasn't formally branded Asia's No 2 economy as such.

IMF managing director Rodrigo de Rato isn't about to do the US' dirty work - and bravo for him.

"We don't see evidence" that China was violating the IMF's rules against maintaining an artificially cheap currency, De Rato told the Washington Post this week.

De Rato's comments were in response to ones made days earlier by Tim Adams, US Treasury undersecretary for international affairs. Adams accused the IMF of being "asleep at the wheel" on monitoring currencies. While he didn't mention China, it doesn't take a genius to conclude the reference was to a nation US politicians say gets an unfair advantage by keeping the yuan low.

It's been a rough few years for the IMF. First was its bull-in-the-china-shop response to the 1997 Asian crisis. That was followed by futile efforts to stabilise Argentina ahead of its 2001 default on US$100 billion of debt.

Since then, calm in the global economy and developing nations' increased use of capital markets for credit raised big questions about the IMF's relevance.

If there were ever a need for the IMF to reassert itself, it's now. Rarely has there been a greater need for what Paul O'Neill likes to call an "honest broker" in the global financial system.

You may remember O'Neill, US President George W. Bush's first Treasury secretary. O'Neill was shown the door in December 2002 for lacking enthusiasm for Bush's tax cuts, which he felt would widen the US Budget deficit. Never mind that that's what happened; O'Neill dared to deviate from the Bush script.

Since then, under O'Neill's successor, John Snow, the Treasury's clout has waned domestically and globally. It's become more about economic dogma than sound policies. Asian leaders have noticed.

The US' policy in Asia is to call on China, a developing nation, to let its currency rise to help wealthy Americans preserve industries that are no longer competitive. It's as if US leaders are unaware of the fact that American economic imbalances have grown so much that the country has lost the moral high ground to lecture Asia on open economies and letting markets decide currency values.

A revitalised IMF might help. De Rato is already planting the seeds of an IMF revival in Asia, a region in which it's still viewed with great suspicion. He's doing that, at least for the moment, by displaying autonomy. An IMF perceived as more independent from the US would have more clout to be an honest broker in Asia.

The IMF needs to spread its message around the world in the midst of what might be called the "Hot Potato Syndrome". That's a situation in which policymakers are all too keen to pass their problems to others so they won't get burned.

It's hard to miss the blame game unfolding around the globe.

The US, with its record current account and Budget deficits, points to China. If only China would let its currency rise, all would be well again.

Europe, with its weak demand and worsening fiscal positions, blames Asia's central banks. Supposedly, their vast US dollar purchases are depriving Europe of the foreign capital it needs, hurting people from Athens to Dublin. Europeans also blame a Bush Administration that pretends all's well in the US economy.

Asia says it's all the West's fault, charging that it has created a system that forces Asians to fund the US' way of life. People here like to complain it's Washington's fault that they have to park so much of their savings in US Treasuries. And the IMF can blame the buildup in Asian currency reserves for its waning influence in the region.

All this amounts to a dangerous pattern of denial. Left untreated, these imbalances will only grow bigger and more dangerous. It's here that the IMF could play a vital role in policing governments and shining a spotlight on their failures.

Let's hope the IMF is rolling up its sleeves to do just that.

Tough times

The IMF has had a rough few years.

First was its heavy-handed response to the 1997 Asian crisis.

Then came futile efforts to stabilise Argentina ahead of its 2001 default on US$100 billion of debt.

Now developing nations' increased use of capital markets for credit has raised questions about its relevance.

- BLOOMBERG