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November 13, 2009
IMF chief says most Asian currencies are undervalued
SINGAPORE : The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, believes that most Asian currencies are undervalued.
And he is suggesting that regional currencies should not resist revaluation because it is good for growth.
Mr Strauss-Kahn was speaking at a joint media conference with Singapore's Finance Minister Tharman Shanmugaratnam, following a round-table discussion on Asia's prospects in the global economic landscape.
The discussion on Friday was attended by central bank governors, finance ministers and private sector participants from the region.
Asia's economy is expected to grow around 5.8 per cent next year, compared to 3 per cent for the world economy.
According to the IMF chief, this suggests a growing trend of growth prospects moving towards Asia from the West. And he told a media conference that this will eventually have an impact on regional currencies.
Mr Strauss-Kahn said: "What is going to happen during the recovery (is that) if we succeed at the global level in rebalancing growth, then it will have some consequences on the value of currencies. This is especially true for Asia.
"The IMF analysis is that we still believe that most of Asian currencies are undervalued. And that more domestic-led growth, the process itself of having a shift to more domestic-led growth, will push to revaluation of the currency. And my advice would be not to resist this revaluation too long."
He added that revaluing the currency, for example in China, will result in an increase in household purchasing power.
On the global economy, the IMF said the global recovery is still fragile. While growth may be positive in the next two years, it is likely to be sluggish compared to pre-crisis levels.
Mr Strauss-Kahn said: "Recovery will certainly take place earlier in Asia than US. And the US, probably earlier than Europe. But in all cases, we have to keep in mind that the rate of growth in 2010 and probably 2011, even while positive, will be lower than the rate of growth we experienced before the crisis."
The IMF chief was also asked if he foresees a double-dip recession for the US.
He replied: "There is some risk for the recovery to stall, and even some risk of a double dip. But that is really tail risk. And I do not believe it will happen. Never say never. You can't say there is zero risk of this.
"And for some reason for instance if some countries exit from stimulus package too early, or if central banks tighten monetary policy too early, or some other reason, you may have some problem.
"But I do not believe on the whole, that the double dip scenario is a probable one - neither in the US or in the rest of the world. Having said that, the recovery is fragile. And it is a sluggish recovery, especially when you look at unemployment."
However, he said the IMF's earlier estimates for global growth have been on the pessimistic side, with growth resuming about a quarter or so earlier than expected.
- CNA/ms
