Canada links IMF reform to more surveillance

OTTAWA, Sep 7 (Reuters) Canada's finance minister today said that reforms of the International Monetary Fund to give developing nations more power must be accompanied by stronger surveillance to ensure countries follow market rules.

Jim Flaherty also said he was not aware that the issue of weakness in the yen would be on the agenda at a next week's gathering in Singapore of finance ministers from the Group of Seven industrialised nations, the IMF and the World Bank.

The meeting is expected to approve a first stage of reforms at the fund, granting more voting power to China, South Korea, Turkey and Mexico.

The IMF board has backed a second step of deeper reforms and has given itself a two-year deadline to devise a formula for reweighting voting rights, likely giving a broader range of countries more voice in the lender's decisions.

Canada wants the IMF to more vigorously monitor countries' compliance with market principles such as open trade and foreign exchange flexibility.

''The second stage is more challenging. We from Canada think the second stage has to be related to surveillance, and effective surveillance, by the IMF,'' Flaherty told reporters in a teleconference from Hanoi, Vietnam, where he is attending a meeting of Asia Pacific finance ministers.

In response to a question on wether the G7 ministers would discuss the yen next week, he said: ''I have no information that it's on the agenda for next week at the World Bank-IMF meeting.'' ''There was no discussion about that subject at meetings at which I was present today. I was present at all the meetings today,'' he said, referring to open APEC meetings and bilateral meetings involving Canada.

Germany's deputy finance minister, Thomas Mirow, today said that the G7 finance ministers would discuss the weakness of the yen at the meeting, sending the Japanese currency higher.

REUTERS KD KP2216