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WASHINGTON, Oct 28 (Reuters) - Key emerging economies running trade surpluses must "begin in earnest" to allow their currencies to appreciate to help rebalance global demand, the International Monetary Fund urged on Thursday.
The IMF said in a surveillance note to G20 leading economies that trade imbalances would not correct themselves and required policies to smooth the distortions creating large surpluses in some countries and big deficits in others.
"In the absence of policies targeting the elimination of underlying distortions, global imbalances will continue to widen, threatening growth prospects in both advanced and emerging economies," the IMF said.
The IMF note was presented at a meeting of G20 finance ministers in Gyeongju, South Korea last week, ahead of a G20 leaders summit in Seoul on Nov. 11-12.
The IMF said the Chinese yuan
The G20 finance ministers agreed on Saturday to shun competitive currency devaluations but stopped short of setting targets to reduce trade imbalances. For details, see [ID:nTOE69M004]
The United States has accused China of keeping the yuan artificially weak to promote exports, but Beijing has warned that a rapid exchange rate shift could unleash disastrous social turmoil in China.
Emerging market countries have complained that super-loose monetary policy in slow-growing advanced economies, like the U.S., have caused a surge in money into their economies, boosting their currencies and asset prices.
Brazil and Thailand have responded by introducing controls on capital inflows, while other central banks have stepped up currency interventions, fueling talk of trade wars.
Given the fragile and uneven global economic recovery, the IMF said accommodative monetary policy was appropriate in advanced economies. It warned, however, that negative spillovers to other economies, particularly emerging economies, needed to be closely watched and managed.
The Fund said advanced economies needed to prepare credible medium-term fiscal consolidation plans that were based on conservative growth projections, to rein in debt. As part of these plans, spending cuts should begin in 2011, it added. (Reporting by Lesley Wroughton; editing by Jeffrey Benkoe)