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IMF, Lagarde Offer China Mixed Messages on Yuan

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IMF, Lagarde Offer China Mixed Messages on Yuan
June 9, 2011 (Source: Wall Street Journal) -- Top officials at the International Monetary Fund pressed China to be more aggressive with the appreciation of its currency, even as the leading candidate to run the fund praised Beijing for the yuan's rise during a trip aimed at rallying Chinese support for her candidacy.

At a press conference held Thursday by the IMF on its latest assessment of China's economy, Nigel Chalk, the fund's China mission chief, reiterated its view that the yuan "hasn't moved very much in the past several years," though he declined to specify a preferable value.

Also on Thursday, French Finance Minister Christine Lagarde, the front-runner for the IMF top job, complimented the appreciation of the Chinese currency so far and said she hopes the yuan will continue to rise, a French official told Dow Jones Newswires. Ms. Lagarde made the remarks during a two-day visit to China, the world's No. 2 economy and a key player in the jockeying for the top job.

The subtle difference in tones underscores the persistent controversy surrounding China's exchange-rate policy as well as the growing clout of China in the world stage.

To be sure, Ms. Lagarde--whose candidacy enjoys strong backing in Europe--doesn't need Beijing's vote to get the job. But China's support would lend more legitimacy to her position should she become its next managing director. The IMF has been criticized by emerging-market nations for under-representing them. Traditionally, a European fills the top spot at the fund, with an American in the No. 2 position.

The yuan has risen about 5% against the dollar since China ended a two-year peg to the U.S. currency a year ago. However, the yuan's effective exchange-rate, as measured against a basket of trading partners' currencies, has fallen over that period.

IMF officials have said for some time that China's currency continues to be significantly undervalued. At the fund's press briefing Thursday, John Lipsky, acting managing director of the fund, said a stronger and fully convertible yuan can help China realize its goal of shifting its economic growth pattern.

After years of breathtaking economic growth fueled by exports and investments, China is now seeking to transform its economic model toward one that is focusing on domestic consumption. "The reform and liberalization of the financial system," including a strengthened currency that would help empower the Chinese to spend more, could help China realize that goal, Mr. Lipsky said.

The IMF's latest findings on China's economy show that it continues to be a "bright spot" for global growth but that China still has "a propensity for property bubbles" driven by high savings and cheap financing, among other factors. The fund maintained its 9.5% growth forecast for China's economy for both 2011 and next year. It expects inflation in China to slow to around 4% by year-end.

China's growing economic clout also is set to elevate its standing within the IMF.

If China's economy keeps growing, its representation at the IMF should further expand, too, Ms. Lagarde told reporters during her two-day visit. She added that it would be "fully appropriate" for Zhu Min, a former deputy central banker and current special adviser to the IMF's managing director, to play a key role in the top management of the organization.

Ms. Lagarde said that she was "very satisfied" with her visit but that it is up to Beijing to decide whether it supports her bid to lead the IMF. China on Thursday reaffirmed its support for an open, transparent and merit-based IMF leadership-selection process but didn't endorse anyone. Ms. Lagarde also said she agrees with Chinese leaders that the organization must continue to overhaul its governance and its ability to represent a broad array of nations.

Ms. Lagarde is headed to Lisbon on Friday, where she will meet African countries' representatives at an African Development Bank meeting. She will then visit the Saudi Arabian city of Jeddah on Saturday and Cairo on Sunday, she said


Don't you just love politicians.

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