They Don't Play Fair; A strident critic says the IMF should confront China, possibly with sanctions, over its trade practices.(Allan Meltzer on International Monetary Fund)(Interview)

Byline: George Wehrfritz

Allan Meltzer ranks as one of the most strident critics of the IMF. As head of a 2000 U.S. congressional inquiry into the Asian financial crisis, which became known as the Meltzer commission, he drew conclusions that were seen as archly conservative at the time but have since become mainstream, including a call for the IMF to quit poverty relief and return to its original mission--fighting financial crises. The Carnegie Mellon University economist spoke to NEWSWEEK's George Wehrfritz about what he considers the IMF's central challenge, the cheap Chinese yuan. Excerpts:

Wehrfritz: What do you make of the plan to give China, South Korea, Turkey and Mexico a greater voice at the IMF?

Meltzer: It's not a big step. It doesn't address the principal problem, which is to get more incentives into the system so there are better adjustments of exchange rates.

Asian exchange rates are more rigid today than before the 1997-98 crisis. Why is that a bad thing?

Two reasons. The U.S. has an unsustainable current-account [trade] deficit. This year it will borrow $800 billion, much of it from China. And many other countries of Asia have pegged to China just as China has pegged to the U.S. dollar. As a result, Asia's total dollar holdings now are around $2 trillion. They have probably separated themselves from the need to take advice from the IMF.

What does that say about Asia's financial health 10 years after the crisis?