April 20, 2006	Thursday	Rabi-ul-Awwal 21, 1427

WASHINGTON, April 19: The dollar will have to depreciate and China’s yuan strengthen to help redress huge economic imbalances that threaten global growth, the International Monetary Fund said on Wednesday.

But it is not up to China alone to put the world economy on a more even keel, IMF chief economist Raghuram Rajan told a news conference.

Presenting the IMF’s semi-annual World Economic Outlook, Rajan said the dollar would have to depreciate over time to rectify the groaning US current account deficit.

“When that takes place, and how that takes place, is hard to foretell. But any economist worth his salt would tell you some depreciation has to take place,” he said.

“It would help if that depreciation took place a lot more uniformly across the major currencies in the world,” Rajan added. “One of those currencies is the renminbi (yuan).

“It’s in China’s own interest to allow the renminbi to appreciate,” he said, citing greater control of monetary policy for Beijing, the prospect of “more sensible” investment choices and more spending by Chinese consumers.

US manufacturers, and many in Congress, argue that China continues to manipulate the yuan to bolster its exports despite a small reform to its currency regime last July.

Mammoth trade surpluses being run up by China and oil exporters helped drive the US current account deficit to an unprecedented 7.0 per cent of gross domestic product in the fourth quarter of 2005.

That kind of global imbalance was identified by the IMF as a serious threat to world growth going forward. The deeper it sinks into debt, the more the United States relies on foreign investors to fund its deficits.

The risk of a sudden shock if risk-averse foreigners desert the US economy is low, the IMF report said, but such an outcome “could have sizeable negative effects for the global economy and the international financial system”.

Rajan added: “Global imbalances are not going to be solved simply by renminbi revaluation. Let’s get that straight.

“This is a shared responsibility and many countries have to work at this,” he said, citing the need for a rebalancing also by Japan and oil-exporting nations.

The IMF called for a greater international focus on the imbalances, as the powerful Group of Seven nations prepared to meet here on Friday ahead of annual spring meetings of the IMF and World Bank this weekend.

“That I think would be very useful both in reassuring the markets that the large players are seized of the issue, and in a sense to tell everybody that this is a shared problem,” Rajan said.—AFP