American agenda topped meeting

Apart from the ceremonial public speeches during the annual meetings of International Monetary Fund (IMF) and World Bank board of governors in Dubai, the meeting was a good venue for pushing ahead two main American set topics: Iraq rebuilding, and changing the foreign exchange regime.

After a meeting with US Secretary of the Treasury John Snow, Iraqi Finance Minister Kamel Al Keylani (of the American-appointed interim government in Baghdad) unveiled a string of reforms that read like a free-market manifesto devised by Washington for liberalisation of foreign investment, the banking sector, taxes and tariffs and opening up the whole economy - except oil - for foreign investment.

Though many Iraqi analysts questioned the legal basis of the decision creating a de facto for any elected government to come, the Americans vehemently welcomed the announcement and marketed it among delegates in Dubai.

Such Iraqi moves might have been needed ahead of a donor conference for Iraq in Madrid next month to persuade the world of the worthiness of investing in Iraq. But still it didn't convince the rest of the world that the situation in occupied Iraq is ripe for putting money in.

The IMF and the World Bank put a paper to be presented to the donor conference as the guard-ians for financing rebuilding Iraq and writing off its external debts.

The other dominant issue was first raised in the Group of Seven (G7) meeting in Dubai. The big seven agreed with the American argument that Asian countries' depreciation of their currencies is preventing big economies in the west from exporting more, thus keeping these economies slow.

As the blame for global economic stagnation is always put on the Americans and the Europeans, they now blame China for its rigid stance on currency exchange rates.

The Chinese yuan is pegged to the dollar and thus keeping the Sino-American trade balance on the side of China, destroying US jobs and swelling the US trade deficit and leading to slowing the largest global economy.

Some of these accusations seem far-fetched. In 2001 merchandise imports from China accounted for just one per cent and 1.5 per cent of US and Japanese GDP respectively - enough to cause prices for specific goods to fall, but not sufficient to trigger economy-wide deflation. Still huge trade surplus resulting from Chinese exports growth is controversial.

In 2002 the country generated 5.1 per cent of world merchandise exports, up from under three per cent in 1996. China last year overtook the UK to become the world's fifth largest exporter, and is now neck-and-neck with France, representing a rise of four places over its global ranking just four years ago. Moreover, since 1996 the yuan has remained pegged to the dollar at 8.3 yuan to the dollar.

This exchange rate was not an issue when the dollar was appreciating and prices in China rising; China's government was widely praised during the Asian financial crisis for not further destabilising the region by devaluing the yuan.

Since 2001, however, the dollar has fallen sharply in global foreign-exchange markets, causing the yuan to depreciate in nominal terms against third currencies.

Appreciation of the Chinese currency may be a quick fix to some American economic ailments, but it may have drastic consequences on the Chinese economy and the rest of Asia, leading the global economy into recession.

Monetary intervention in the big economies (cutting interest rates, tax relief to boost spending, etc) didn't help recovery enough to get it out of stagnation. Global monetary intervention may not have much luck if it's forced on countries following IMF programs.

Moreover, some developing countries may suffer social and political turmoil if they're to freely float their national currencies the way the IMF may push for.

The writer is an Arab writer based in Qatar