APEC rebuffs calls for reform

The Asia Pacific Economic Cooperation (APEC) forum yesterday rebuffed a US call for a flexible foreign exchange regime in Asia including China where it wants the currency to be free floated immediately.

Finance ministers of the 21-member grouping said at the end of a two-day meeting that they recognized the "importance of accelerating structural reform [and] adopting macroeconomics policies that promote sustainable growth.''

But these should be "supported by appropriate exchange rate policies that facilitate orderly and balanced external adjustment," said the statement.

It added that "there is no single exchange rate regime that suits all economies at all times."

The meeting had been split by a US-led push for China and other fixed-rate economies to loosen their regimes and let their currencies rise in value. Many Asian countries, however, wanted a more measured approach.

In a concession to the US stand, the statement said the ministers "noted a view expressed at the meeting that more flexible exchange rate management, in some cases, would promote this objective."

China's currency yuan is now pegged in a narrow band of around 8.28 to the dollar, which makes Chinese exports cheap.

In the run-up to an election year, US manufacturers are arguing that the undervalued yuan lets cheap Chinese exports undercut US products, costing American jobs. They have pressured Washington to force Beijing to uncouple the yuan from the dollar and let it rise.

US Secretary of the Treasury John Snow put on a brave face, saying he was "very much encouraged" by the APEC statement.

"It is an important step in the right direction," he told a joint news conference at the end of the meeting. It recognizes "the role of greater flexibility to a more orderly set of adjustments in the economies in question, and can help relieve pressures in creating imbalances," he said.

Asian central banks have favored a slower appreciation of their currencies to maintain export competitiveness, the main growth driver for the region, against the US and Japan.

Also, they argue that the region is not ready yet for a free float, citing the 1997 to 1998 Asian financial crisis, which exposed the risks of sudden liberalization.

Chinese leaders reiterated to Snow on a visit to Beijing this week that they plan to float the yuan eventually but that it will be at their own pace.

China's first vice minister for finance, Jiwei Lou, told the news conference that he was "very satisfied" with the joint statement.

The statement has "correct views with regards to exchange rate regimes. Because it says you need to have appropriate range [for exchange rates] and secondly it calls for orderly and balanced adjustment," Lou said.

Snow had argued that a free float of currencies would benefit Asian countries including China since their economies are doing well and need the flexibility of a free market.

He reiterated his view that countries should intervene as little as possible in currency markets and instead focus on domestic growth.

"The management of currencies at unnatural rates distorts markets, tending toward beggar-thy neighbor policies, and encourages protectionism," Snow said in a written statement.

The APEC ministers, in their joint statement, also emphasized the importance of promoting more open and freer trade and investment through the multilateral system and through regional and bilateral trade arrangements.

APEC members must also work to promote small and medium enterprises in a bid to encourage equitable economic growth, the statement said.

Also discussed during their two-day meeting was the importance of promoting regional bond markets "that are effective sources of long term funds."