20 Feb.
A paper, Capital Inflows: The Role of Controls, by a group of IMF economists suggests that the IMF has substantially rethought its position on the use of restrictions by emerging markets on capital inflows. It concludes that controls are sometimes “justified as part of the policy toolkit” for an economy seeking to deal with surging inflows.
The fund has historically opposed capital controls, even trying in 1997 to amend its articles of agreement to allow it explicitly to promote capital- account liberalisation. Its economists have argued both that capital controls are costly because they induce distortions to resource allocation and that they are not effective because they are easily evaded. But there is a contradiction between these arguments: if controls have no effect, how can they be distortionary?
The new paper provides some welcome clarity on the effectiveness of inflow controls.
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