Asian currency pressure grows on US, China

AFP

SINGAPORE: Asian economies aired rare public criticism of both the United States and China as the dollar's slump and the yuan's state-sanctioned rigidity reignited trade tensions Thursday.

A draft statement by Asia-Pacific finance ministers meeting in Singapore called for greater exchange rate flexibility, in what is widely seen as code for China to allow the yuan to strengthen against the greenback.

"We will undertake monetary policies consistent with price stability in the context of market-oriented exchange rates that reflect underlying economic fundamentals," the ministers were expected to say later Thursday.

The dollar's plunge is bad news for export-reliant Asian countries that are struggling to maintain competitiveness, particularly against Chinese rivals benefiting from the yuan's government-enforced stability.

The currency issue has flared anew as leaders of the 21-member Asia-Pacific Economic Cooperation (APEC) forum gather for summit meetings in Singapore this weekend.

The summit will be attended by US President Barack Obama and his Chinese counterpart Hu Jintao, who will then pursue their own talks in Beijing next week. US officials say the yuan's exchange rate will figure in the talks.

In a statement after their own annual discussions, APEC foreign and trade ministers said they "remained concerned over the threat of protectionism to our economic recovery", and vowed to work for a Pacific-wide free trade zone.

More immediately, APEC members fretted over the impact of currency gyrations just as the world emerges from its worst slowdown since the 1930s.

"There is concern in Asia about the falling dollar," Philippine Finance Secretary Margarito Teves said as he entered a meeting between Southeast Asian ministers and US Treasury Secretary Timothy Geithner.

"If more intervention is needed, Asian central banks will act accordingly," he said, adding that ministers would press Geithner on the dollar's weakness.

Geithner declined to take questions as he entered the meeting in Singapore, but said in Tokyo Wednesday that a strong dollar was "very important" to the United States.

However, the dollar has plunged about 15 percent against a basket of six other major currencies from a peak earlier this year, sparking serial intervention from Asian countries in a bid to stop their units rising too much.

In an opinion piece in Thursday's Wall Street Journal Asia, Geithner called for "market-oriented exchange rates" in the region -- echoing the statement set to be adopted at the APEC forum.

The editorial was co-authored by Indonesian Finance Minister Sri Mulyani Indrawati and Singapore Finance Minister Tharman Shanmugaratnam.

For years, the United States has urged Beijing to relax its exchange rate regime, hinting that China keeps the value of the yuan artificially low to boost exports.

Other Asian nations are now joining the US complaints as they struggle to stay competitive with China, which was the target of broader criticism at a G20 meeting last weekend in Scotland.

"Obviously everyone in exporting is suffering the consequences of what is primarily a US dollar story," New Zealand Trade Minister Tim Groser said at the APEC meetings.

"Open up any newspaper in Brazil and you'll see the same thing, in Europe you'll see the same thing," he said.

Thai Finance Minister Korn Chatikavanij said Wednesday his country had bought about 15 billion dollars this year to prevent the baht appreciating too much against the greenback.

And persistent yuan weakness was likely to require further intervention by Asian central banks, he said.

"I'm convinced that in the long term the dollar is more likely than not to decline in value, so we're building up assets that are declining in value over time. That's not healthy," the minister said.

China's central bank said in a quarterly report Wednesday that its exchange rate policy would start taking into account "changes in international capital flows and the trends of major currencies". It did not elaborate.

World Bank president Robert Zoellick said Wednesday the yuan was likely to "become more internationalised" -- but only "over 10, 15 years".