Source:
IFIs Latin American Monitor
Wed Feb 24 2010
The International Monetary Fund experts have historically advocated for the free movement of capital. However, the international pressure caused by the crisis has led to a change in tone from the IMF technicians. A report by an IMF working group entitled "Capital inflows: The role of controls", claims that in certain circumstances, "capital controls are a legitimate component of the policy response to surges in capital inflows", a way to curb investments that can destabilize the economy through excessive currency appreciation or the formation of asset bubbles.
The IMF believes that emerging countries with fiscal and regulatory controls to curb massive capital inflows have dealt better with these problems than those which have supported liberalization, although its effectiveness is sometimes questionable. The IMF report calls for such controls in countries where the economy is operating near its potential, the level of reserves is adequate, and the exchange rate is not undervalued.
Last October Brazil announced the imposition of such controls with the implementation of a 2% tax on foreign investment in fixed or variable income after a sharp appreciation of the real. Several Asian countries are considering similar control measures.
However, the IMF warned that the widespread adoption of controls could harm global growth and redirect external funds to countries less able to absorb them. In addition, imbalances could expand, especially if restrictions were implemented by countries with undervalued currencies as a means to resist appreciation. Specifically the IMF believes that the Chinese yuan is “substantially” undervalued.
Source: El País (Madrid)
Related information:
* See full report: Capital Inflows: The Role of Controls (pdf format)
* While the IMF loosens up, Europe adopts the Fund’s old dogmas, by Nuria Molina (Eurodad)
* Global crisis leads IMF experts to rethink long-held ideas - NYTimes.com
* The IMF needs fresh thinking on capital controls, by Dani Rodrik
* IMF: Abandoning some sacred cows?, by Humberto Campodonico
* Rethinking Macroeconomic Policy, by Olivier Blanchard, Giovanni Dell'Ariccia and Paolo Mauro. IMF Staff Position Note SPN/10/03, February 12, 2010
|
