The Fund has had to conduct another embarrassing “U-turn” to warn of the growing risks to the stability of developing countries, while cautiously accepting the need for capital controls in principle, but not necessarily in practice.
The IMF's long-awaited guidance note on capital flows fails to remedy the faults of the 'institutional view' on capital account. The World Bank's long-term thinking is also emphasises liberalisation.
While the IMF-supported banking sector restructuring in Cyprus includes a strict set of restrictions on capital movements, the World Bank and IMF are failing to embrace a more pragmatic approach to capital account regulation.
The IMF's new "institutional view" on capital flows, despite being more flexible than its previous stances, has nonetheless angered developing countries who blame rich country policy for volatility in financial movements.
IMF research staff have joined external critics in saying that capital account regulation should be more widespread and better coordinated across recipient countries, setting the stage for a contentious final debate on an IMF institutional view on capital account management at end October.
In October the Fund is expected to present in October an updated institutional view on capital account regulations. The most recent IMF paper on the topic received criticism for advocating for capital account liberalisation in China and India. Meanwhile emerging economies worry that the Fund's prescriptions still constrain their capacity to cope with global financial volatility.
Seminar at the Brookings Institution on capital flows regulations - 19 April
Notes of a meeting with UK executive director to the IMF Alex Gibbs in April 2012
The current surge of capital flows to emerging markets continues to challenge the IMF’s historical position regarding capital account regulation and exchange rate policies, with the Fund’s policy framework being criticised by academics and emerging markets.
It is widely accepted that global imbalances were a major contributing factor to the recent global financial crisis. In written evidence submitted to the UK Treasury Committee, we argue that there are four main underlying causes and three areas of major reform needed.