US Treasury chief takes reform drumbeat to Asia

US Treasury Secretary Henry Paulson heads Thursday for high-powered gatherings of global financial leaders in Singapore before delivering the case for ambitious reform in China.

Paulson was to be in Singapore for annual meetings of the International Monetary Fund and World Bank next week, preceded Saturday by the gathering of finance ministers from the wealthy Group of Seven industrial powers.

According to aides, Paulson, who took over as the top US economic official in July, will use his first G7 meeting to press for bolder action to redress global imbalances that the IMF warns could imperil the world economy.

China, whose breakneck growth has flooded the United States and Europe with cheap imports, has been invited to attend the G7 gathering of Britain, Canada, France, Germany, Italy, Japan and the United States.

"It's really tough to have a conversation about global imbalances without discussing China," a senior Treasury official said ahead of the meetings, on condition of anonymity.

Both the IMF and G7 have warned that the world economy is in danger as China builds up a vast pool of savings on the back of export-led growth, while the United States remains saddled by trade and budget deficits.

Paulson will acknowledge that the United States needs to boost its own savings rate, but will call on China to accelerate reforms across the board to encourage domestic demand from its growing army of consumers.

China must revamp its heavily regulated financial markets to prevent its economy "from veering out of control", he said in a major speech Wednesday.

Another priority is to protect international banking from extremists, according to Paulson, who is set to single out Iran at the G7.

He will also promote a stalled drive to open up world trade in a flurry of bilateral meetings.

Heading into the G7, some Europeans have been calling for debate about whether the Japanese yen has become too weak and therefore whether it poses a threat to their exports.

Statements on currency movements used to be a G7 staple but US officials have made clear that they oppose a strong stand on exchange rates now, preferring the markets to find their own level.

Paulson will press, however, for reform to China's currency regime both in Singapore and when he meets top leaders including President Hu Jintao next week in Beijing.

Many in Congress want to punish China for allegedly distorting its exchange rate to boost its exports at the expense of American jobs.

In his speech, Paulson warned that China underestimates anger over its currency regime at its "own peril", and risks a "backlash" from its trading partners unless it moves away from its export-focussed model of growth.

But he also stressed: "Both in China and in the United States, we must not allow ourselves to be captured by harmful political rhetoric or those who engage in demagoguery."

At the annual IMF meeting, the United States will support a voting reform to give a greater say in the Fund's decision-making to four countries including China.

Advocates of reform have long noted that small European countries like Belgium, The Netherlands and Sweden enjoy a much bigger say at the IMF than big developing countries such as Brazil, China and India.

However, the European countries have grumbled at the prospect of their own IMF influence being diluted to the benefit of the four countries due for an improvement next week -- China, South Korea, Turkey and Mexico.

Despite the complaints, the US government is confident that the IMF will muster the 85-percent majority of votes needed to adopt the interim reform in Singapore.

"The overall consensus is that this is a very important opportunity to renew this institution and to make it more relevant," the senior Treasury official said.

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AFP 141102 GMT 09 06

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