Reforms likely to change International Monetary Fund, U.S. says
Regional-USA, Economics, 4/15/2005

Reform proposals aimed at making the International Monetary Fund (IMF) better able to face modern financial challenges would substantially change the way the so-called lender of last resort operates, a U.S. Treasury Department official says.

Outgoing Under Secretary John Taylor said that one of the most important proposals to be discussed at the April 16-17 sessions of the IMF and World Bank policymaking bodies would allow the IMF to assess the economic policies of countries that do not need the fund's resources.

U.S. officials have said that such a proposed monitoring arrangement would allow the IMF to signal its approval or disapproval of, and provide markets with a clearer view of, a country's economic policies.

Taylor said that this arrangement -- combined with other reforms such as the inclusion of collective action clauses in sovereign bond issues and 100 percent debt forgiveness for the most impoverished countries -- would make the IMF more productive.

Speaking to reporters April 14, Taylor previewed international meetings taking place in Washington April 15-17 including the meeting of the Group of Seven (G7) countries' finance ministers and central bank governors. The G7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

He said he believes that progress will be made on several issues, including debt forgiveness for poor countries.

"You'll see financial diplomacy at its best," he said.

Taylor said that the U.S. proposal for 100 percent debt forgiveness for the most impoverished countries -- known as the enhanced heavily indebted poor countries (HIPC) initiative -- is gaining international support.Ê But he said that discussions among IMF and World Bank members continue on which countries to include in an enhanced HIPC or a similar plan and on qualifying criteria.Ê Taylor said that the goal is to reach agreement in principle before the July summit of the Group of Eight (G8) countries in Scotland so that participating head of states can make a final decision. The G8 includes the G7 countries plus Russia.

On another issue, Taylor said that China has largely completed the preparations necessary to move to a flexible exchange rate. Its currency is currently tied at a fixed rate to the U.S. dollar.

"We've stressed that they can begin to have a flexible exchange rate right now," Taylor said.

Taylor said that the U.S. view on China's currency is supported by other G7 countries and the IMF.Ê He said that also some Chinese leaders believe the country is technically ready. However, he refused to speculate on if and when they will act.

Some U.S. lawmakers are trying to enact legislation that would impose tariffs on U.S. imports from China unless that country makes its currency regime more flexible. The U.S. manufacturing sector has been pressing the Bush administration and Congress for action, arguing that Chinese goods helped by the undervalued Chinese currency gain an unfair competitive advantage over U.S.-manufactured products.

Taylor said that G7 ministers also will be discussing sluggish growth in some developed countries, energy prices, global current account imbalances and a number of other issues.

He also said that global economic expansion is so solid that high oil prices will not derail it.

Treasury Secretary John Snow, in addition to participating in those discussions, will have a series of bilateral meetings with officials from Brazil, Canada, France, India, Iraq, Japan, Mexico, Russia, the United Kingdom and the Palestinian Authority, the Treasury Department announced.Ê He also will participate in a roundtable discussion with African leaders.

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