APEC ministers urge flexible FX to ease imbalances

By Neil Chatterjee

SINGAPORE (Reuters) - Asia-Pacific finance ministers were set to call for flexible exchange rates among measures to try to reduce global economic imbalances that were at the heart of the financial crisis.

The 21-member Pacific Rim group includes China, which is under pressure, particularly from the United States, to allow its currency to rise, having effectively pegged it against the dollar since the middle of 2008 to help fend off the global downturn.

"We agreed that flexible prices, including exchange rates and interest rates, play a critical role in allocating resources efficiently, and can facilitate the adjustments needed to support balanced and sustainable global growth," the latest draft statement by the finance ministers said.

Foreign, trade and finance ministers from the Asia-Pacific Economic Cooperation forum (APEC) have gathered in Singapore ahead of a summit of their national leaders this weekend focused on avoiding future crises, whether financial or climatic.

APEC is dominated by members of the Group of 20, including the United States, Russia, Japan and China, which has supplanted the Group of Seven as the premier forum for global policy making.

The APEC draft statement coincided with a monetary policy statement by China's central bank, the People's Bank of China, that provided the country's clearest signal yet that it would allow the currency to appreciate again. It said it will consider major currencies in guiding the yuan.

Beijing's control of the yuan is a hot-button topic. The U.S. administration of President Barack Obama says the yuan is undervalued and is one factor contributing to economic imbalances between the first- and third-biggest economies in the world.

Obama told Reuters he would raise the yuan issue with Chinese leaders when he visits there next week.

Speaking in the Oval Office, Obama warned in the interview the economic relationship had become "deeply imbalanced" in recent decades, with America's yawning trade gap and huge Chinese holdings of U.S. government debt.

Obama said he would work with China on his Asian visit to address the economic recovery and trade imbalances.

PRESSURE OVER DOLLAR

The U.S. Treasury Department said in a semi-annual report on currency practices of key trade partners that China was piling up foreign exchange reserves at a rate that threatens progress in reducing global economic imbalances.

While China has been under pressure over the yuan, Washington for its part has been under pressure over the weakening dollar, which fell to a 15-month low on Wednesday.

U.S. Treasury Secretary Timothy Geithner said on Wednesday he believes strongly in the need to maintain a strong dollar and said America was determined to get its budget deficit down.

"I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar," Geithner said in a meeting with Japanese reporters at the U.S. embassy on Tokyo.