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.