BERLIN (MNI) – The fixing of exchange rates for competitive
advantage will be a topic of discussion among G20 officials at the
upcoming IMF/World Bank meeting in Washington, a senior German Finance
Ministry official said Tuesday.

A document compiled by the finance ministry states that “foreign
exchange rates in some, especially Asian G20 states, are politically
fixed.”

The report says that allegations of anti-competitive currency
policies play a “crucial role” in discussions about economic growth. In
particular, it cites the belief that some countries, “especially China,
are keeping their currencies at an unjustified low level and are giving
their export sector an unfair advantage.”

The document refers to an assessment by the IMF and other research
institutes dating from May, which shows that the Yuan is undervalued by
up to 27%, the Korean Won by up to 20% and the Argentine Peso by up to
37%.

In other remarks, the German Ministry source said institutional
reform of the IMF will play a key role at the Washington meeting. Europe
would be willing to give up two seats on the board if other regions are
also willing to make concessions, he said.

Regarding the Basel III banking regulations, the source said he
expected that they will be implemented internationally without any
changes.

Meanwhile, Bundesbank sources said that the German central bank
welcomes efforts within the G20 and the Financial Stability Board to
reform the financial sector and make it more resistant to crises.
However, “the establishment of permanent aid mechanisms at the IMF with
public money would undermine this goal,” the sources said.

These sources said they expected the IMF to leave its global growth
forecasts for 2010 and 2011 unchanged in its World Economic Outlook to
be published Wednesday. But for Germany, “we expect a considerable
upward revision of the IMF growth projections,” they predicted.

The Bundesbank views “critically” calls to weaken or delay budget
consolidation. “The risks of a delayed budgetary consolidation cannot be
underestimated and the contractive effects of savings measures cannot be
overestimated,” the sources said.

The Bundesbank supports codifying the size of the current IMF board
at 24 seats, since this would strengthen the representation of
developing countries within the body, the sources outlined.

Furthermore, it would be appropriate to agree to elect the
president of the World Bank and the managing director of the IMF purely
on merit and not have the roles linked to regional affiliation, the
sources explained.

This would mean the jettisoning of the current informal arrangement
whereby an American heads the World Bank and a European runs the IMF.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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