Auditor finds IMF was pressured by U.S. to fault China

Washington, DCInternational Monetary Fund, at the urging of United States, shaped a very recent research to pressure China over its economic policies, according to study released Wednesday by the fund’s in-house watchdog. The report by the IMF’s Independent Evaluation Office provides an unusual look at how political priorities of the fund’s major members can influence what is ostensibly objective analysis by apolitical organization. Divisions within IMF, between industrialized countries and influential group of the developing nations including China and Brazil, have been heightened since the 2008 financial crisis spilled across the world out of the U.S. housing market. (source: Howard Schneider – The Washington Post – 20/12/2012)

More recently, IMF efforts to aid Europe were criticized by some emerging-market officials as more generous than programs established in response to financial crises in Asia and Latin America. In this case, the evaluation office concluded, fund’s staff opened a new line of research on the accumulation of foreign reserves around the world in “response to frustration” among “influential shareholders” that China was not allowing its exchange rate to fluctuate more freely. A steady rise in foreign reserves, a country’s holdings of dollars, yen or other major world currencies, can be the result of large trade surpluses. But it can also stem from an undervalued exchange rate, something that the United States has long accused China of maintaining to give its products more attractive price on world markets. The findings of that research showed China with perhaps double the recommended level of foreign currency holdings, its roughly $3 trillion stash is the largest in the world, IMF officials suggested that excessive reserve holdings were a risk to global financial stability. But fund’s work was “not persuasive,” evaluation office concluded, and characterized it as “addressing symptom rather than the cause”. The audit report said IMF staff overlooked some of the reasons for countries to accumulate reserves, and ignored related threats to financial stability that stemmed more from policies in United States and other developed countries. In particular, China and Brazil have both argued that loose monetary policy in the United States has created a global glut of dollars that has distorted markets worldwide.

The fund “should have placed greater emphasis on more pressing issues than reserves, for example growth in global liquidity and capital flow volatility,” the evaluation office concluded. IMF staff and Managing Director Christine Lagarde in separate written responses criticized the findings, arguing that the IEO singled out one strand of research that was part of a broader look at how to strengthen international financial system. Other recent studies, for example, acknowledged that limits on movement of capital into and out of a country can be a useful tool for a nation to protect itself, a point long argued by developing nations and now validated by the IMF. The research on reserves, however, seemed to strike a particularly political note and was seen as a “stalking horse” for the United States to press China on its currency policy, said Amar Bhattacharya, head of the Group of 24, a consortium of developing nations that monitors the IMF. The United States is the fund’s largest shareholder and has an effective veto over major decisions on IMF board. In aftermath of the crisis, Treasury Secretary Timothy Geithner and other U.S. officials were pressing China directly to float its currency. Treasury officials had no comment on the report. While the IMF reports on China frequently mention its misaligned exchange rate, and evaluation office complimented fund’s bilateral analysis of that country’s economy, sudden focus on the reserve accumulation was seen to aid U.S. efforts to spotlight China’s “imbalances” rather than address an urgent concern. 

Acerca de ignaciocovelo
Consultor Internacional

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