Although the International Monetary Fund’s newly revised policy framework on capital controls makes some improvements on what came before, it is still likely to do more harm than good. Real-world experience and advances in economic theory have shown that the IMF’s suspicions about such policies are misplaced.
GENEVA – The International Monetary Fund’s revised policy framework for managing cross-border financial flows, approved by its Executive Board last month, broadens the circumstances under which countries may restrict capital inflows. Unfortunately, it also ties countries’ hands excessively and fails to contend with the myriad real-world contexts in which the proffered IMF advice is, or is not, appropriate. So, while volatile capital flows already pose an ongoing challenge for many emerging and developing economies, the IMF’s framework will reduce countries’ options for achieving their social objectives and may ultimately make the global economy less stable.
GENEVA – The International Monetary Fund’s revised policy framework for managing cross-border financial flows, approved by its Executive Board last month, broadens the circumstances under which countries may restrict capital inflows. Unfortunately, it also ties countries’ hands excessively and fails to contend with the myriad real-world contexts in which the proffered IMF advice is, or is not, appropriate. So, while volatile capital flows already pose an ongoing challenge for many emerging and developing economies, the IMF’s framework will reduce countries’ options for achieving their social objectives and may ultimately make the global economy less stable.