Global finance chiefs weigh bigger IMF role

WASHINGTON, Apr 21 (Reuters) World finance leaders met on Friday to mull reforms for the International Monetary Fund that would give the lender more clout over global imbalances that rich nations so far have been unwilling or unable to unwind themselves.

The fund hosted global economic policy-makers at a meeting to discuss solutions for worrying world trade distortions on Friday morning, ahead of an afternoon gathering of Group of Seven finance chiefs.

Although some economists believe the distorted trade map can return to balance without economic upheaval, there is a growing sense time to find a solution is growing short.

Sources said IMF Managing Director Rodrigo Rato was determined to persuade G7 finance chiefs that reforms at the global lender -- giving key emerging countries more voice and expanding the IMF's position as dispenser of world policy advice -- went hand-in-glove with a deal on fixing imbalances.

But there already were signs of some unease among G7 core members over handing the IMF an expanded role. The United States is ready to cede some voting power and have the Fund oversee currency polices but some European nations seem more doubtful about doing so.

The G7 has been trading blame for years over swelling global imbalances in trade and finance, with the United States contending slow-growing Europe and Japan are partly at fault while the others say America's profligate spending is a root cause of the dangerous economic vulnerabilities.

''A disorderly unwinding of global imbalances would be very damaging and such an outcome becomes more likely as time passes and imbalances are left unaddressed,'' Rato said on Thursday in one of several strongly worded comments aimed at getting the G7 to admit they need a stronger IMF to move a solution forward.

Reforms up for discussion would see the IMF take on more of an economic policy watchdog role, including closer monitoring of currency rates and exchange policies in newly emerging economic powers.

The Fund proposes it start convening multilateral talks with large blocs within its 184-strong membership to coordinate policy steps that would help reduce trade and investment imbalances.

That has been largely the domain of the old-line G7 powers -- the United States, Britain, Canada, France, Germany, Italy and Japan -- but the United States has been pressing for a larger IMF role, a mantle Rato appears willing to assume.

''The days when G7 finance ministers could sit in a hotel room and make decisions about exchange rates are gone,'' he said, referring to 1985's Plaza Accord to weaken the dollar.

The G7 have lots to consider on Friday, including what is expected to be another year of brisk global growth.

Japanese Finance Minister Sadakazu Tanigaki, speaking to reporters in Washington on Friday, said the finance leaders needed more discussion on the economic impact of oil prices, which have renewed their rise.

Tanigaki also said the G7 would discuss capital flows in the wake of changing interest rate conditions around the world, especially the impact on emerging economies.

The communique they issue at around 6:30 p.m. EDT (2230 GMT), will be closely scrutinized for an assessment of that risk but also for signs they agree on increased surveillance authority for the IMF on currency and other matters.

Tension over the currency issue has been heightened by the inability of the United States or other G7 nations to persuade China to revalue its yuan faster -- a failure underlined by inconclusive talks on Thursday between Chinese President Hu Jintao and President George W. Bush.

European sources indicated on Friday that some G7 members, like Germany, were reluctant to have the IMF play a major role in foreign exchange guidance.

That is in contrast to what U.S. Treasury officials have urged and might reflect some underlying wariness within the G7 that the IMF is merely seeking a new justification for itself as demand for its crisis loans falls in a healthy global economy and widening availability of private capital flows.

REUTERS KD KP2246