Capital-Control Confusion at the IMF |
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April 13, 2010
In February, the International Monetary Fund, which had long opposed controls on capital inflows, published a surprising paper that reversed course.
In February, the International Monetary Fund, which had long opposed controls on capital inflows, published a surprising paper that reversed course.
For countries facing a big inflow of capital — with the attendant risks of asset bubbles — the use of capital controls “is justified as part of the policy toolkit to manage inflows,” the IMF paper wrote. Even if investors figure out ways around the controls, the restrictions still can be useful, the IMF said because “the cost of circumvention acts as ‘sands in the wheels’” and slows down investment.
The change in advice won applause from IMF critics, especially on the left, who have long believed that the Fund was too wedded to free flow of capital even if unhindered flows could inflate asset bubbles.
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