The IMF’s welcome rethink on capital controls

Triple Crisis blogger Kevin Gallagher co-authored the following opinion article with José Antonio Ocampo in the Guardian on the IMF’s formal recognition of capital controls as a vital policy tool for regulating destabilizing capital flows in developing countries.

In contrast to most western governments, over the past two years, the International Monetary Fund (IMF) has boldly conducted one of the most honest self-assessments of its actions leading up to the financial crisis, has become somewhat critical of inflation-targeting and has endorsed the use of capital controls. In March of this year, the IMF held a full conference on rethinking macroeconomics where its organisers concluded that the crisis has shattered the economic orthodoxy behind the fund’s previous policies.

In preparation for its annual meetings next week, on Tuesday the IMF took its work on capital controls a step further by issuing two reports (one official report and one staff discussion paper) outlining when nations should use capital controls, and what types of capital controls should be used under the proper circumstances. The new reports amount to yet another big step forward for the IMF – though there is still a long way to go.

Read the full article at the Guardian.

The EU Debt Crises: Three weaknesses of the European Stability Mechanism

Daniela Schwarzer

The latest meeting of the European Council on March 24-25 was supposed to settle the economic governance reform of the EU. It did indeed agree on a so-called “Comprehensive Package”, including the terms of reference of the future European Stability Mechanism (ESM) to solve sovereign debt crises as well as a so-called “Pact for the Euro Plus”. Two years back, hardly anyone would have expected such progress. But in particular the ESM may prove insufficient both for the prevention and resolution of debt crises.

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The Boom in Capital Flows to Developing Countries in Historical Perspective: Going for a Bust– Again?

Yılmaz Akyüz, Guest Blogger

The post-war period has seen three generalized boom-bust cycles in private capital flows to developing countries (DCs) and we now appear to be in the boom phase of the fourth cycle.  All these booms started under conditions of global liquidity expansion and low US interest rates, and all previous ones ended with busts.  The first one ended with a debt crisis in the 1980s when US monetary policy was tightened, and the second one with a sudden shift in the willingness of lenders to maintain exposure in East Asia as financial conditions tightened in the US and macroeconomic conditions of recipient countries deteriorated because of the effects of capital inflows.  The third boom developed alongside the subprime bubble and ended with the collapse of Lehman Brothers and flight to safety in late 2008.

Unlike previous episodes, the Lehman reversal did not cause serious and widespread dislocations in DCs because of generally strong payments and reserve positions, reduced mismatches in balance sheets and, above all, the short-duration of the downturn.  Indeed, it was soon followed by a rapid recovery in 2009 as major advanced economies (AEs) responded to the crisis caused by excessive liquidity and debt by creating still larger amounts of liquidity to bail out troubled banks and governments, lift asset prices and lower interest rates.

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Albert Hirschman, Alan Greenspan, and the Problem of Intellectual Capture

Mark Blyth

I like the Financial Times (FT) for two main reasons: it gives me all I need to know that day in about seven pages every morning, and the fact that its ‘sound.’ By ‘sound’ I mean that, unlike the Murdoch press, I can rely on the FT to tell me the truth since consistently lying to the global investor class is a losing business model. But one should remember that for the FT, as it is for the rest of us, it’s still the truth as they see it.

A week or so ago the FT published a piece that asked why, if social democracies are so nice, their crime fiction is so dark? It’s a fair point, and anyone sitting through the middle section of ‘The Girl With the Dragon Tattoo’ has probably asked the same question. I didn’t read the FT’s answer, but my own answer comes from being in Iceland last week; a trip that gave me an insight into intellectual capture that I didn’t really appreciate before: that some truths are harder to shake than others.

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Climate games and America

Sunita Narain

Triple Crisis blogger Sunita Narain published the following opinion article in Business Standard on legislation attempting to remove the EPA’s power to regulate carbon dioxide as a pollutant in the U.S.

Last fortnight, the final nail was driven into the action on climate-change coffin. In the US, a crucial vote in the house sub-committee decided that the country’s Environment Protection Agency (EPA) would no longer have the power to regulate carbon dioxide as a pollutant. The committee voted we say that the threat from climate change was not real, urgent or even serious. They said that any steps to curtail emissions would impact manufacturing and energy industry in the US. This was not negotiable. In other words, the world is back to square one — where it started in 1992, at the Rio Conference and where US president George Bush said that his country’s lifestyle was not negotiable.

Read the full article at Business Standard.