Sept. 24 (Bloomberg) -- The U.S. and other governments should stop demanding changes to foreign currency controls to win votes at home, International Monetary Fund Managing Director Horst Koehler said four days after the Group of Seven industrialized nations called for more flexible exchange rates. Countries must ``stop their short-term games for domestic political reasons,'' Koehler said in a televised interview with Bloomberg News after the IMF annual meetings in Dubai. ``What we definitely don't need is finger-pointing, blaming others.'' G-7 finance ministers on Saturday said they would welcome less rigid exchange policies, a call targeting Asian countries such as China and Japan that sell their currencies for dollars to help keep their export prices low. U.S. Treasury Secretary John Snow had lobbied the other G-7 nations -- France, Germany, Canada, Japan, the U.K. and Italy -- to sign up to the statement. Mark Cliffe, global head of economics and strategy at ING Bank NV in London, said Koehler's comments are focused on the U.S., where Snow and President George W. Bush are under pressure from Democrat and Republican lawmakers, labor unions and groups representing American companies such as General Electric Co. and Nucor Corp.
They say the Chinese government's eight-year-old policy of pegging the yuan to the dollar and Japan's regular selling of the yen have contributed to 2.7 million job losses since January 2001 and a record current account deficit.
Political Pressure
``John Snow's campaign reflects political pressure because of the failure of unemployment to fall,'' said Cliffe. ``Manufacturers have been lobbying the Bush administration very hard to get countries to change currency regimes.'' During a trip to China earlier this month, Snow said the Bush administration wanted ``to make sure that we're heard on the subject of maintaining flexibility one exchange-rate regimes.'' On Sunday, he welcomed the G-7's statement as a ``milestone'' shift. The U.S. is the IMF's largest shareholder with a voting-stake of 17 percent. European central bankers also counselled against bullying. ``We should discuss it in a calm way with the Chinese,'' Nout Wellink, a member of European Central Bank Council, said in an interview. Koehler, speaking at the IMF's concluding press conference, warned against ``over-interpreting the first reactions of markets.'' The dollar fell to the lowest in almost three years yesterday as traders concluded the G-7 statement may stop Japan from selling yen. ``The market has, as so often, overdone it,'' the IMF head said in the interview. ``They will calm down.''
Dollar Weakens
The dollar weakened to $1.1477 per euro at 1:32 p.m. in Frankfurt from $1.1444 yesterday. It has fallen 2.8 percent against the euro in the past week. Koehler said he agreed shifts in exchange rates may help close imbalances, such as the U.S. trade deficit. Yet he advised governments to place more emphasis on encouraging each other to spur domestic growth than demanding the end of foreign exchange regimes. ``We are all in the same boat,'' Koehler said. China, the world's sixth-largest economy, has pegged the yuan at 8.3 to the dollar since 1995, helping its economy to grow an average annual rate of 8.3 percent over the past decade. The Bank of Japan sold a record 9.03 trillion yen ($80.5 billion) in the first seven months of the year and South Korea, Thailand, Indonesia and Taiwan have also sold their currencies to stem gains that would hurt exports. Global economic growth will accelerate to 4.1 percent in 2004 after 3.2 percent this year, the fund said in its semi-annual World Economic Outlook last week.
``The economy appears to be stronger and that's important,'' said World Bank President James Wolfensohn. Still, officials warned that countries should pursue structural reforms, increase trade and lower fiscal deficits as strategies to secure even stronger growth. ``This recovery remains fragile,'' said Kaspar Villiger, the Swiss finance minister and governor of the plenary sessions in Dubai. //www.bloomberg.com