Tag Archives: Multilaterals

The IMF finally considers nuance in capital controls policy

After a three-year review of its policy on capital controls, the IMF is reversing its stance, effectively connoting a status for the institution that brings to mind a certain Kent ‘Flounder’ Dorfman:

Sure, the IMF has said it favors macro prudential policies and sure, it gave limp support for austerity due in part to the screamingly obvious distortions near-zero interests rates are causing. But a couple of these big-pic takeaways from the IMF’s recently issued report are worth noting and indicate a very different tune than the usual liberalize-at-all-expense advice the IMF has become famous for (emphasis mine):

Liberalization needs to be well planned, timed, and sequenced in order to ensure that its benefits outweigh the costs, as it could have significant domestic and multilateral effects. Countries with extensive and long-standing measures to limit capital flows are likely to benefit from further liberalization in an orderly manner. There is, however, no presumption that full liberalization is an appropriate goal for all countries at all times.

Rapid capital inflow surges or disruptive outflows can create policy challenges. Appropriate policy responses comprise a range of measures, and involve both countries that are recipients of capital flows and those from which flows originate. For countries that have to manage the macroeconomic and financial stability risks associated with inflow surges or disruptive outflows, a key role needs to be played by macroeconomic policies, including monetary, fiscal, and exchange rate management, as well as by sound financial supervision and regulation and strong institutions. In certain circumstances, capital flow management measures can be useful. They should not, however, substitute for warranted macroeconomic adjustment.

While it’s nice to have the IMF join a party that has been underway for a few years now, I would remind everyone of a couple of things. One, there are many variables that influence capital flows into developing countries, and while monetary policy in the US and Europe is a major factor, it is far from the only one. Macro environment matters, relative yields matter, “currency wars” and just plain wars, to name a few, also matter.

I also should note that I have not yet read the full paper but I suspect that when I do I will have more to say about this. In the meantime, new readers looking for more on cap controls might try the following:

Previously related reading:
A non-ideological defense of capital controls here.

A non-ideological rebuttal of capital controls here.

FT coverage here and here.

IMF, World Bank negotiators, take note: A novel approach to Game Theory

Golden Balls, the British prisoner’s dilemma game show that showcases “the ultimate test of faith, trust and greed” features a final showdown in which two contestants must decide whether to split or steal the jackpot. If they both decide to split, they walk away with half the pot each; if one steals and one splits, the stealer takes the whole pot; and if they both steal, they walk away with nothing.

A You Tube channel that goes by the name, “spinout3” recently put up a clip of what has got to be one of the more novel approaches to this paradigm. If you’re interested in these sorts of things, I promise you this clip is worth six minutes of your time. Politicians, salespeople, WTO negotiators, take note:

Roadkill from the World Bank presidency shoutfest

POP QUIZ:

How much money did the 54 African countries supporting Ngozi Okonjo-Iweala’s World Bank presidential candidacy donate to the World Bank’s current US$50 billion funding profile?

Answer:
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A sampling of World Bank projects in Brazil’s Northeast

Directly from a speech delivered Tuesday by outgoing World Bank President Robert Zoellick:

  • A project to support the water sector in Sergipe (US$70.3 million),
  • The Piauí Green Growth Development Policy Loan to help the government promote green, inclusive growth in rural areas through the improvement of land tenure security, sustainable agriculture, and environmental sustainability; this project will also promote access to basic education and fiscal sustainability (US$350 million).

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Inter-American Development Bank Annual Meeting Roundup

Source: chinahearsay.comIt’s not clear to me what sort of timetable emergingmarkets.org publishes on but the site got it together to cover the Inter-American Development Bank’s annual meeting this weekend to publish a whole swath of new analysis on Latin America, FDI, capital controls, local currency debt and other associated development finance issues. It’s a lot of material and there’s a lot to say, but in the interest of time, here are a few highlights that jumped out at me:

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