Asia-Pacific finance ministers endorsed “market-oriented” exchange rates yesterday and said they would stick with economic stimulus plans until a sustained economic recovery was under way.
US Treasury Secretary Timothy Geithner said the timing of stimulus exit policies would vary between countries, but business confidence and the financial system must be restored first.
“The challenge is growth. First growth, but make sure we have business confidence restored, investments expanding again, unemployment coming down, financial sector definitively repaired — that’s our basic challenge,” Geithner said in Singapore after a meeting of Pacific rim finance ministers.
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The ministers of the 21-member APEC discussed strengthening the post-crisis global economy to prevent asset bubbles and excess leverage with prudent macroeconomic and regulatory policies.
In a statement they agreed to “undertake monetary policies consistent with price stability in the context of market-oriented exchange rates that reflect underlying economic fundamentals”.
The group includes China, which has effectively pegged its currency against the dollar since the middle of last year to help fend off the global downturn.
However, export-reliant Asian nations are crying foul over the yuan’s state-sanctioned rigidity, which makes them less competitive, and the issue has been a hot topic at the APEC talks this week.
Singaporean Finance Minister Tharman Shanmugaratnam sidestepped a question over the level of the yuan, which China has been accused of keeping artificially low in order to boost its exports.
In a veiled reference to the Chinese currency, he said that APEC finance ministers did not advocate any sudden shift in its value.
“None of us around the table were calling for, or thought it advisable to have, any sudden significant realignment of exchange rates,” he said at a joint press conference after the ministerial talks.
“It’s not a silver bullet for solving either the question of domestic demand or towards achieving balanced and sustainable growth,” he said.
“But we do see flexible exchange rates as being part of the overall milieu of options that all our economies must use, together with structural reforms, together with other economic reforms.”
Other APEC economies aside from China manage their currencies to some degree, including Singapore, Malaysia and Vietnam.
US President Barack Obama said in an interview this week that he would raise the currency issue on a visit to China next week. His administration says an undervalued yuan is one factor contributing to economic imbalances between the first and third-biggest economies in the world.
China’s central bank said on Wednesday it would consider major currencies in guiding the yuan, suggesting a departure from the effective dollar peg.
“I’d say that ... is the most significant news we’ve had on the yuan for months, and that APEC is more of a formal reminder from China’s closest neighbors, not just the US and Europe, that forex rigidity in a huge trading economy is not a domestic issue,” Westpac Banking Corp strategist Sean Callow said.
Emergency measures put in place by APEC member governments, including some US$1 trillion in Asia alone and US$787 billion in the US, prevented a deeper recession, Geithner said.
However, Australian Treasurer Wayne Swan told reporters before going into the APEC meeting: “What we have to do is to make sure that we don’t withdraw global support too early.”
“In Australia’s case, our economic stimulus peaked in the middle of this year and is being gradually withdrawn as we go through the rest of the year,” Swan said.
WTO Director General Pascal Lamy cautioned of a false dawn in the recovery.
“There’s certainly a recovery happening, certainly in this region, which has suffered less from the crisis than from other regions of the planet,” he told CNBC in an interview on the APEC sidelines. “But I would be prudent whether or not this would be sustainable six months or a year from now.”
He said rising unemployment was the main threat to free trade and could spark greater protectionist policies around the globe.
APEC’s trade and foreign ministers pledged to refrain from raising new barriers to trade and investment, and said a review of measures taken by member economies that began last July to ensure they were not protectionist would continue into next year.
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