PUNE, India, Jan 21 - The International Monetary Fund does not expect global economic growth to be affected by the U.S. dollar's weakness, Anne Krueger, the Fund's first deputy managing director, said on Wednesday. In fact, she hinted that the IMF might revise its forecast for global growth. In September, it had forecast global growth for 2004 at 4.1 percent. "The global economy will expand better than we had expected. Our formal review will be done in April," Krueger said. Asked by reporters whether she saw the current spell of weakness in the dollar affecting global growth, the IMF's top policy maker said: "I don't think we see it as such." On the sidelines of a seminar in Pune, south of Bombay, Krueger told reporters: "The U.S. economy has been the strength of the world economy and we will argue that to some extent, we have not been getting enough growth in Europe and Japan." "Given that, if you see possibly faster growth in the world, it will probably reverse the dollar's depreciation." She said the real rate between the dollar and euro was around its long term average, or the average rate between 1970 and 2000. The U.S. dollar has fallen by 0.69 percent against Europe's single currency this year after a 20.4 percent slide in 2003.
Broadly speaking, Krueger said the downside risks to global economic growth had diminished in recent months. "However, a rider to the optimistic global outlook is that while I said that downside risks have been reduced, they have not been totally eliminated," she added. Protectionism and the failure of the World Trade Organisation's Doha round of talks posed serious risks to global growth, Krueger said. The United States had worked out a plan to cut its fiscal deficit and with economic activity picking up, she said the current account deficit should also come down. Regarding China, Krueger believed the country should opt for a more flexible exchange rate. China's yuan is pegged to the falling U.S. dollar. "In the case of China, we believe in increasing the flexibility of their exchange rate," she said. "It is not the same as going to a floating rate, but nevertheless, increasing flexibility."//