–Up to China, But ‘In Their Interest’ To Adopt Mkt-Oriented FX

By Steven K. Beckner and Heather Scott

WASHINGTON (MNI) – Treasury Secretary Timothy Geithner Friday said
that, although the global economy is recovering and the financial system
is “healing,” much more needs to be done to bring about balanced growth
and reduce unemployment.

Geithner, talking to reporters following a meeting of Group of 20
policymakers, did not say what other countries should do in this regard
— with one exception. He singled out China as needing to make its
exchange rate regime more flexible.

But the Treasury Secretary pulled his punches, relatively speaking,
saying that it is “China’s choice” whether to let the yuan float higher
against the dollar.

Geithner suggested there had been a good deal of discussion about
Greece in the G-20, which includes key players in the European Union as
well as International Monetary Fund managing director Dominique
Strauss-Kahn. He said he detected a “greater sense of urgency” to deal
with Greece’s debt financing burdens, which have threatened to undermine
the stability of the Euro-zone and roiled financial markets worldwide.

Greece announced early Friday that it intended to draw on
previously offered credit lines from the EU of roughly $40 billion and
the IMF of roughly $30 billion.

“Because of our decisive and coordinated measures at home and
across the G-20, the world economy is growing and the financial system
is healing,” Geithner said.

He noted that the IMF has upgraded its global growth forecast for
2010 to 4.2% from 1.9% a year ago, but said “much remains to be done.”

“Although the economic recovery is gathering momentum, the pace of
expansion still remains uneven across countries and regions and
unemployment is still unacceptably high,” he said. “As we work to
reinforce a recovery led by private demand, we need to rebalance the
global economy.”

In an apparent reference to Japan, among others, Geithner said “For
countries with large external surpluses and high savings rates that are
lagging the recovery, there is a strong case for policy reforms that
will strengthen domestic demand, promote consumption growth and reduce
the reliance on exports for growth.”

And in an oblique reference to China, he added, “In large emerging
economies, we have seen encouraging signs of a shift toward more rapid
consumption growth that needs to be sustained and reinforced by a return
to market-oriented exchange rates, where appropriate.”

When asked about Chinese currency revaluation, Geithner said “this
is China’s choice,” but added, “I believe China will decide it’s in
their interest to renew the process of (exchange rate) reform” and move
toward greater currency flexibility. “That remains my view.”

“This is China’s choice, and I’ll leave it there,” he repeated.

Speaking more generally of major surplus countries in general, he
said they are now recognizing that “they do not want to rely as heavily
as on the past on the American consumer to provide a source of growth
and strength. And so in the major surplus countries that are lagging the
global recovery where growth is still very slow we would like to see
more policy reforms that strengthen consumption, that strengthen
domestic demand.”

As for the U.S., Geithner said that next year, steps will be taken
to reduce the budget deficit by half over five years. He said “our
recovery will be weaker unless we take steps to … bring our fiscal
position more into balance over time.”

And he said the U.S. is proceeding with financial regulatory
reforms at its own rapid pace, noting that next week, the Senate will
begin consideration of “strong and comprehensive financial reform
legislation.”

“That legislation, consistent with the reforms put forward by the
Administration and passed by the House of Representatives, imposes
strong constraints on risk taking; limits the size of institutions;
brings transparency and robust oversight to the derivatives market;
provides strong protections for consumers and investors; and gives us
the tools to wind down large, failing financial firms without putting
the rest of the financial system or the taxpayers at risk,” he said.

“We’re going to do what’s necessary in the United States, what’s in
our interest,” he said, adding that “others are going to watch what we
do.”

He touted a proposed fee on banks that will help the taxpayers
recoup losses from past and future bank losses.

As for Greece, Geithner said he detected “a greater sense of
urgency” on the part of both Greece and its would-be creditors, and he
called that “welcome.” He said expects the parties to “move quickly” to
put in place “a strong package of reforms backed by a package of
financial support.”

** Market News International Washington Bureau: 202-371-2121 **

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