September 2, 2003	Tuesday	Rajab 4, 1424

TOKYO, Sept 1: Visiting US Treasury Secretary John Snow outlined the view on Monday that global growth could come only from boosting economic fundamentals, not by keeping the currency of one’s country artificially low.

At a press conference in Tokyo following meetings with Japanese political and business leaders, Snow said he believed exchange rates should be flexible, determined by market forces, implicitly rejecting government intervention, or a currency peg.

“My long-held view on that subject is that a well-functioning international financial system is one that’s based on flexible exchange rates determined in competitive markets.”

Snow did not mention Japan or China by name but his next stop en route to the upcoming Asia-Pacific Economic Cooperation (APEC) finance ministers’ meeting in Thailand this week is China on Tuesday.

“We want to make sure ... that we are heard on the subject of maintaining flexibility in exchange rate regimes as well so that American manufacturers and American firms are not disadvantaged,” Snow said.

The yuan is pegged at around 8.28 to the dollar, which some analysts estimate means it is undervalued by at least 15 per cent.

US exporters and lawmakers have complained that the undervalued yuan makes American goods too expensive for Chinese markets and simultaneously makes Chinese exports unfairly cheap in US markets.

Snow called exchange rates a barometer of a nation’s fundamentals that should not be tampered with, as in the case of Japan’s market interventions, or pegged to the dollar artificially, as with China.

“What are exchange rates but a set of signals for the global economy about how resources ought to flow, how resources can be best employed,” he said.

“It’s important that those signals, within an economy and among and between economies, convey the right information.”

A weak currency helps a nation’s exporters by increasing their local currency income and making their goods more price competitive abroad.

Japan spent nine trillion yen (77 billion dollars) to help weaken the yen in the currency markets from January to July, far above the record for a year’s spending set at 7.6 trillion yen in 1999.

But the latest finance ministry figures released on Friday showed Japan did not intervene in the market from July 30 through August 27 despite repeatedly warning it would do so to prevent the yen’s sudden rise, which it fears will harm the competitiveness of the nation’s exporters.

Snow added he would rather see Japanese domestic demand play a bigger role in what is so far primarily an export-driven recovery.

“I think what is really important is for the Japanese economy to grow. That’s the key,” he said.

“A stronger, more robust domestic economy in Japan will lead to greater purchases of things that are produced in the United States. That will help jobs in the United States and that will help growth in the United States.

“My main message is let’s see if we can’t focus, whether it’s Japan, whether it’s other Asian countries, or whether it’s Europe ... on the barriers that stand in the way of higher growth rates.”

The treasury secretary was speaking after meeting briefly with Japanese Prime Minister Junichiro Koizumi and Finance Minister Masajuro Shiokawa, as well as holding separate talks with Japan’s economic policy czar Heizo Takenaka, and Bank of Japan governor Toshihiko Fukui.

At a second, longer meeting with Shiokawa late Monday, the two agreed that it was good for Japan and the United States to tell China their view of what is beneficial for the Chinese people, a finance ministry official said.

Snow reiterated his point about foreign exchange rate flexibility, and Shiokawa replied that “foreign exchange rates should reflect economic fundamentals,” according to the official.

“We will keep an eye on foreign exchange markets and we will cooperate in that,” the official quoted Shiokawa as telling Snow.—AFP