Capital flows control: features of innovative approaches and insights for Ukraine

168
1
Article(UKR)(.pdf)

Paper dwells upon the dialectic of liberalization and capital flow controls under the conditions of global transformations. Author clarifies the pros and cons of the international capital flows liberalization for the recipient country. Defined are researches that study the relationship between the liberalization of the capital operations account and economic growth, between the capital flows and the new risks emergence. The paradoxes of capital movements are highlighted in practice, namely “Lucas Paradox” and “Allocation Puzzle”. By reviewing historical practice, it has been established that countries started to abolish capital controls in 1960s, but due to problems of the Bretton Woods system in the early 1970s, this process slowed down and was restored only in early 1980s. It has been revealed that the tendency towards liberalization of capital movements still outweighs the use of control. It was shown that liberalization took place within the framework of the movement towards the OECD, joining the Eurozone, the adoption of the terms of Article VIII of the IMF Statute. Three waves of liberalization of OECD member countries are depicted.

The international agreements between the WTO and ASEAN on trade liberalization, which contain provisions for the liberalization of the capital movement are indicated. The approaches to liberalization according to the rate of conducting, namely rapid (“Big Bang”) and sequencing, are generalized. It was shown that Israel, the Baltic States, Mexico, Argentina, Peru, and Kenya were liberalizing by an accelerated scenario. The negative experience of Israel, whose financial stability of the economy has been undermined by the sudden abolition of restrictions on capital movements, points to the need to fulfill the conditions for liberalization, as a set out in the recommendations of the IMF. It was found that in most countries, liberalization was conducted with a consistent approach. It has been established that the use of control, as a tool for levelling the impact of capital inflows (in particular, Chile, Brazil, Colombia, Malaysia, Thailand) and outflows (in Malaysia, Thailand) proves its benefits.

The focus is on recent crises in the Baltic, Iceland, Cyprus, and Greece, where the introduction of restrictions stabilized the currency and stopped the capital outflow. It is noted that now the trend towards liberalization is more evident among developing countries rather than among developed ones. World experience shows that in order to manage inflow/outflow, central authorities practice the policy of low-interest rates, currency interventions, and, less often, fiscal policies, and capital controls.

  1. De Soto, H. (2004). The mystery of capital. Why capitalism triumphs in the West and fails everywhere else. Moscow: ZAO Olymp-Byznes [in Russian]

  2. Rodrik, D. (2011). The Globalization Paradox: Democracy and the Future of the World Economy. New York and London: W.W. Norton. URL: https://drodrik.scholar.harvard.edu/publications/globalization-paradox-democracy-and-future-world-economy

  3. Korinek, A. (2010, May). Regulating capital flows to emerging markets: An externality view. URL: http://www.hec.unil.ch/documents/seminars/deep/404.pdf

  4. Gammoudi, M., Cherif, M. (2015, February 18). Capital Account Openness, Political Institutions and FDI in the MENA Region: An Empirical Investigation. Discussion Paper, 2015-10. URL: http://www.economics-ejournal.org/economics/discussionpapers/2015-10

  5. Reinhart, C.M., Reinhart, V.R. (2008, September). Capital flow bonanzas: an encompassing view of the past and present. NBER Working Paper, 14321. URL: http://www.nber.org/papers/w14321.pdf

  6. Mendoza, E.G., Terrones, M.E. (2008, May). An Anatomy Of Credit Booms: Evidence From Macro Aggregates And Micro Data. NBER Working Paper, 14049. URL: http://www.nber.org/papers/w14049.pdf

  7. Dealing with large and volatile capital flows and the role of the IMF. (2016, September). ECB Occasional Paper Series, 180. URL: https://www.ecb.europa.eu/pub/pdf/scpops/ecbop180.en.pdf?f0001f5df909966d972f1df6047a5241

  8. Key Aspects of Macroprudential Policy. (2013, June 10). IMF Policy Papers. URL: https://www.imf.org/external/np/pp/eng/2013/061013b.pdf

  9. Increasing Resilience to Large and Volatile Capital Flows: the Role of Macroprudential Policies. (2017, September). IMF Policy Paper. URL: https://www.imf.org/en/Publications/Policy-Papers/Issues/2017/07/05/pp060217-increasing-resilience-to-large-and-volatile-capital-flows

  10. Ghosh, A.R., Qureshi, M.S. (2016, February). What’s In a Name? That Which We Call Capital Controls. IMF Working Paper. URL: https://www.imf.org/external/pubs/ft/wp/2016/wp1625.pdf

  11. Klein, M. (2012). Capital Controls: Gates versus Walls. Brookings Papers on Economic Activity, 317-367.

  12. Bakker, A., Chapple, B. (2002, September 26). Advanced Country Experiences with Capital Account Liberalization. IMF Occasional Paper. URL: https://www.imf.org/external/pubs/nft/op/214/index.htm

  13. Nsouli, S.M., Rached, M., Funke, N. (2002, August 1). The Speed of Adjustment and the Sequencing of Economic Reforms: Issues and Guidelines for Policymakers. IMF Working Paper, 02/132. URL: https://www.imf.org/en/Publications/WP/Issues/2016/12/30/The-Speed-of-Adjustment-and-the-Sequencing-of-Economic-Reforms-Issues-and-Guidelines-for-15978

  14. Griffith-Jones, S., Gottschalk, R., Cirera, X. (2000, November). The OECD experience with capital account liberalisation. Brighton: Institute of Development Studies, University of Sussex. URL: https://www.ids.ac.uk/ids/global/finance/pdfs/caloecd2.pdf

  15. Balfour, O., Shelly, B., Soffer, R. (2005, August). Israel’s financial account liberalization. Bank of Israel. Foreign exchange activity department. URL: http://www.boi.org.il/deptdata/neumim/neum190e.pdf

  16. Robertson, J. (2016, October 27). How the Big Bang changed the City of London forever. BBC News. URL: http://www.bbc.com/news/business-37751599

  17. Yaguchi, M. (2018, February). Changes of Tokyo Financial Market: From a Perspective of a Global Financial Center. 3. URL: https://www.iima.or.jp/Docs/newsletter/2018/NL2018No_3_e.pdf

  18. Ariyoshi, A., Habermeier, K., Laurens, B., Otker-Robe, I., Canales-Kriljenko, J., Kirilenko, A. (2000, May 17). Capital Controls: Country Experiences with Their Use and Liberalization. IMF Occasional Paper. URL: https://www.imf.org/external/pubs/ft/op/op190/index.htm

  19. Baba, C., Kokenyne, A. (2011, December). Effectiveness of Capital Controls in Selected Emerging Markets in the 2000s. IMF Working Paper. URL: https://www.imf.org/external/pubs/ft/wp/2011/wp11281.pdf

  20. Cowan, K., De Gregorio, J. (2007). International borrowing, capital controls and the exchange rate: lessons from Chile. In S. Edwards (Ed.), Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (pp. 241-296). URL: http://www.nber.org/chapters/c0154

  21. Saborowski, C., Sanya, S., Weisfeld, H., Yepez, J. (2014, January). Effectiveness of Capital Outflow Restrictions. IMF Working Paper, WP/14/8. URL: https://www.imf.org/external/pubs/ft/wp/2014/wp1408.pdf

  22. Grønn, A., Fredholm, M. (2013, December). Baltic and Icelandic Experience of Capital Flows and Capital Flow Measures. IMF Working Paper, WP/13/242. URL: https://www.imf.org/external/pubs/ft/wp/2013/wp13242.pdf

  23. Article IV consultation press release; staff report; and statement by the executive director for Iceland. (2017, June). IMF Country Report, 17/163. URL: https://www.imf.org/en/Publications/CR/Issues/2017/06/22/Iceland-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-44998

  24. Capital Flows Review of Experience with the Institutional View on the Liberalization and Management of Capital Flows. (2016, December). IMF Policy Paper. URL: https://www.imf.org/external/np/pp/eng/2016/110416a.pdf

  25. Annual Report on Exchange Arrangements and Exchange Restrictions. (2016, November 11). IMF report. URL: https://www.imf.org/en/Publications/Annual-Report-on-Exchange-Arrangements-and-Exchange-Restrictions/Issues/2017/01/25/Annual-Report-on-Exchange-Arrangements-and-Exchange-Restrictions-2016-43741

  26. Chinn, M., Ito, H. (2006, October). What Matters for Financial Development? Capital Controls, Institutions, and Interactions. Journal of Development Economics, 81, 1, 163-192.

Full text