IMF to implement monitoring of exchange rates

WASHINGTON -- The International Monetary Fund will soon start to implement a new surveillance system that will include monitoring the exchange rates of emerging economies, managing director Rodrigo Rato said yesterday.

Speaking to reporters ahead of the spring meetings of the World Bank and IMF, Rato said challenges of increased surveillance, adjustments to voting shares of emerging economies and how to address the IMF's declining income are some of the issues to be discussed at the weekend gathering of world financial leaders.

''We are going to start a regular exercise twice a year analyzing equilibrium exchange rates that will include a good number of emerging economies' exchange rates," said Rato, who last September launched a review to modernize the 61-year-old lender.

How the IMF will make its analyses on exchange rates public was still a matter of debate because of the delicate nature of the issue, he said.

The United States has been pushing the IMF to take on a larger surveillance role, especially policing of exchange rates, as Washington tries to convince China to increase the flexibility of its yuan currency.

Rato said the IMF's new enhanced watchdog role was designed to reflect the changing global economic landscape and rise of emerging economies.

''Surveillance is an essential, if not the essential part, of the work of the IMF and at a bilateral, regional and global level has to reflect what is the world today," he said.

''We need to move with the times and we need to move ahead from what was probably an efficient way of addressing global issues in the '80's and '90's to a more multilateral way of consulting," he added.

Rato said the new surveillance process will start soon after the IMF spring meetings but will first require the fund to establish procedures to guide consultations with governments.

He said the enhanced surveillance will also evaluate the impact policies of individual countries have on other economies -- and the rest of the world.

''What we will do is engage with 'systemic' countries in a multilateral consultation and will analyze not their specific domestic agenda but the way their macroeconomic and financial policies are affecting others -- exchange rates, levels of savings, private consumption, levels of investment -- and the global economy," he said.

''This is a new consultation process and is going to be technically demanding and politically challenging," he added.

Addressing other changes, Rato said the fund's member voting system had to better reflect the rise of emerging economies in Asia and elsewhere that would also give the IMF new legitimacy.

''It has to change . . . and recognize that new members have a stronger position in the global economy," Rato said, adding that the fund's more powerful member countries had increasingly acknowledged the need to adjust.

Earlier yesterday, US Treasury Undersecretary for International Affairs, Tim Adams, said the United States was willing to yield some of its IMF quota, or membership shares, to give emerging market countries more say.

Rato has proposed ad hoc quota increases for countries that are clearly underrepresented in the IMF, which would give them more weight in the decision-making of global economic issues.

He declined to name the countries, but it could include emerging market economies such as Mexico and Turkey.

Rato also said he would support a move to invest some of the IMF's $9 billion cash reserves to bolster its declining income, hit by the unexpected early repayment of loans by large borrowers like Brazil and Argentina.