IMF Steps Up Pressure for Dollar Depreciation
By Krishna Guha and Scheherazade Daneshkhu
FT.com
April 19, 2006

On Wednesday, the International Monetary Fund (IMF) published its biannual World Economic Outlook (WEO). The WEO presents IMF staff analysis and projections of global economic development.

In the WEO, the IMF pressured for shifts in exchange rates, and called for a significant depreciation of the dollar over the medium term to resolve global economic imbalances. The IMF said it was also essential that currencies of Asian countries and that of oil exporters be allowed to appreciate as part of the “required realignment of exchange rates”. To address global imbalances, exchange rate shifts would need to be accompanied by “rebalancing demand across the world, with steps to increase savings in the U.S., raise consumption in China, and invest in the rest of Asia and boost productivity growth in the region.”

The IMF identified global imbalances as the biggest threat to an otherwise “favorable” economic environment where global growth has exceeded four percent for the fourth year in a row. The IMF sees the U.S. growing at 3.4 percent this year, and raised its forecasts for Japan, China, India, and oil exporters. The IMF also expects consumer price inflation in industrialized nations to remain at 2.3 percent this year.

The World Economic Outlook encouraged consumers to view the current high oil prices as permanent losses, rather than as temporary. The WEO attributed recent increases to the “deepening” fear of short- and long-term supply.

Click here to view the IMF World Economic Outlook: Globalization and Inflation April 2006