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IMF leader wants to see stronger Chinese consumers

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By The Associated Press

Published: November 15, 2009

BEIJING - The chief of the International Monetary Fund added to pressure on Beijing to let its currency rise, saying Monday that a stronger yuan and more Chinese consumer spending are needed to help ease global economic imbalances and assure healthy growth.

The comments by IMF Managing Director Dominique Strauss-Kahn came as President Barack Obama began a visit to China amid strains over trade and currency. U.S. manufacturers complain that Beijing gives its exporters an unfair price advantage by keeping the yuan undervalued, but Obama is expected to go easy on the issue.

"A stronger currency is part of the package of necessary reforms," Strauss-Kahn said in a speech at a finance conference in Beijing.

Strauss-Kahn said China had started to make important reforms needed to raise domestic demand, such as increase spending on health care and pensions to free families to spend more on consumer goods.

"Allowing the renminbi (Chinese yuan) and other Asian currencies to rise would help increase the purchasing power of households, raise the labor share of income and provide the right incentives to reorient investment," Strauss-Kahn said, according to a text of his speech. "Higher Chinese domestic demand, along with higher U.S. saving, will help rebalance world demand and assure a healthier global economy for us all."

Beijing broke the yuan's direct link with the dollar in mid-2005 and allowed it to rise by more than 20 percent against the U.S. currency over the next three years. But that increase stopped in late 2008 as Beijing tried to help its exporters stay competitive amid plunging demand. The yuan has held steady against the dollar since then.

On the global economy, Strauss-Kahn warned that the nascent recovery was uneven and said governments should avoid withdrawing stimulus measures too soon.

"The biggest risk is a premature withdrawal of policy stimulus," he said. "While it is prudent to plan for so-called exit strategies, policy makers should keep supportive measures in place until a recovery is firmly established, and particularly until conditions are in place for unemployment to decline."

Strauss-Kahn also said he expected the U.S. dollar to remain the world's reserve currency despite concerns about the current system. China and Russia have expressed concern about the dollar's stability and called for creation of an alternative currency, possibly one managed by the IMF.

"My own view is that the current international monetary system, despite its problems, is still working reasonably well," Strauss-Kahn said. "I expect the dollar to remain the principal reserve currency for some time."

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