ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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IMF's New View on Capital Controls

In the 1970s the International Monetary Fund became an advocate of capital account liberalisation, and in 1997 it tried to change its Articles of Agreement to include capital account convertibility among its mandates. In contrast, the IMF embraced in December 2012 a new "institutional view" on this issue. While it remains wedded to eventual fi nancial liberalisation, it now acknowledges that free movement of capital rests on a weak intellectual foundation. This article claims that this is a step in the right direction, but that the new institutional view still suffers from a number of shortcomings.

The IMF, Capital Controls and Developing Countries

Continuing with its rethink on capital controls, the International Monetary Fund has now formally suggested that there may be situations when developing countries can gain from placing regulations on the inward flow of foreign capital. However, the new "advice" comes with so many conditions and guidelines that the developing countries have rejected the recommendations and sent the IMF back to the drawing board. Rather than telling developing countries what to do and when, the IMF should perhaps focus more on helping governments enforce capital controls and it should stress the need for the global coordination of those controls.

Curbing Hot Capital Flows to Protect the Real Economy

Developing countries are once again the destination for speculative capital flows with inflows reaching pre-crisis levels, leading to currency appreciation and asset bubbles. Many of these nations are deploying prudential capital regulations to stem these flows. However, this may only be a partial remedy to the problem - such measures should be coupled with action by the developed countries in order to fully steer capital to productive use and to avoid future crises.
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