IMF acknowledges capital controls have helped Argentine economy

4 October 2023

The IMF has acknowledged, in a country report published in April, that the capital flow management measures (CFMs) Argentina has implemented since 2019 to restrict destabilising capital outflows have been beneficial. The measures, including currency exchange restrictions and multiple currency practices, were approved by the Fund’s executive board and contributed to the country comfortably meeting the Fund’s performance criteria for the continuation of its emergency Extended Fund Facility.

The IMF categorically opposed CFMs until 2012, when it issued its Institutional View (IV) on the Liberalization and Management of Capital Flows, which recommended controls be used as a last resort in response to a capital inflow surges. The 2022 IV review included limited exceptions but, as Professor Kevin Gallagher of Boston University noted, remained silent on the need to regulate capital outflows to prevent capital flight and the need to regulate capital flows multilaterally (see Observer Spring 2022).

The IMF’s view has been criticised as unduly constraining policy space, especially for economically struggling states in the Global South. Capital outflows can be massively destabilising, as by stripping vulnerable Global South states of foreign currency, they can lead to balance of payments problems that can make it difficult to make payments on their debt – potentially leading to sovereign debt crises (see Observer Autumn 2022). Capital controls allowed Iceland to prevent economic collapse after the 2008 financial crisis and stage one of the fastest recoveries on record, and there is a strong argument for the IMF affording other countries the opportunity to do the same.