GDAE and IPS circulated the following sign-on letter for economists demanding that the TransPacific Partnership Agreement (TPPA), now being negotiated, exclude current proposed restrictions on the use of capital account regulations to prevent and mitigate financial crises. They are seeking signatures from economists in the nine current TPPA countries: Australia, Brunei, Chile, Malaysia, Peru, New Zealand, Singapore, United States, and Vietnam.
Economists from these countries who wish to sign on to this call for action please send your name, affiliation and country to: email@example.com.
The TPPA is what US President Barack Obama hails as a “21st Century Trade Agreement” that improves upon and rectifies past problems in US trade and investment treaties. Thus this is a particularly opportune time to weigh in, as a major TPPA negotiation round will begin in Melbourne, Australia on March 1, 2012.
Since the financial crisis began, the Asian Development Bank, the United Nations Economic and Social Commission for the Asia-Pacific, the International Monetary Fund and others have all agreed that capital account regulations are legitimate tools to buffer nations from volatile capital flows. However, the U.S. government has used trade agreements to severely restrict a nation’s ability to deploy such regulations.
IPS and GDAE Rebut U.S. Chamber of Commerce, Business Roundtable, Other Big Business Critics
Major U.S. corporate lobby groups have issued a rebuttal to a letter sent by more than 250 economists to the Obama administration calling for a fresh approach to capital controls.
The Institute for Policy Studies and the Global Development and Environment Institute at Tufts University (GDAE) initiated the January 31 economist statement that provoked the corporate response. That initial letter called for trade reforms to “permit governments to deploy capital controls without being subject to investor claims, as part of a broader menu of policy options to prevent and mitigate financial crises.” The statement’s 257 endorsers include an ideologically diverse array of academics and former IMF and government officials.
The February 7 corporate letter, endorsed by the U.S. Chamber of Commerce, the Business Roundtable, and 15 other lobby groups, urges the Obama administration to reject this call, based on unsubstantiated arguments that permitting U.S. trading partners to support financial stability through the use of capital controls would undermine everything from U.S. jobs to national security.
Two years into the global financial crisis, Americans and citizens across the globe continue to suffer because of the actions of footloose capital. If we have learned anything from the crisis it is that sound regulations are needed to stem the ability of speculative capital to create financial bubbles that burst and then leave ordinary people to live with the disaster that follows.
A point-by-point response to the corporate claims:
On Monday, we reported on a letter signed by more than 250 prominent economists, including many Triple Crisis bloggers, which was delivered to Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, and US Trade Representative Ron Kirk, urging the Obama Administration to remove restrictions in its trade agreements with developing countries that limit the use of capital controls. The story was featured in the Wall Street Journal, Bloomberg, BNA Trade Daily (subscription only), and it was picked up on Naked Capitalism blog and the NY Times Dealbook blog among others. Kevin Gallagher, one of the letter’s initiators with Sarah Anderson of the Institute for Policy Studies, wrote his monthly column on the topic in the Guardian. Gallagher and Anderson were also interviewed by the Real News Network to explain why capital controls are an important policy tool developing countries can use to prevent financial instability.
Read the full letter and press coverage here. (The letter is also available in Spanish.) Read more on Gallagher’s work on capital controls.
Since the onset of the global financial crisis, Triple Crisis bloggers have been commenting on the need for policy space for capital controls in developing countries and the need to reform US trade agreements, which generally prohibit their use. To further that end, Triple Crisis co-chair Kevin Gallagher and Sarah Anderson of the Washington-based Institute for Policy Studies initiated an economist sign-on letter, which has more than 250 signatures including many Triple Crisis bloggers. It was released today and presented to Congress and the Obama Administration. The press release, with links to the letter and further information, follows.
More than 250 Economists Call for Trade Reforms to Allow Capital Controls
In a letter delivered January 31, more than 250 economists urged the Obama administration to reform U.S. trade rules that restrict the use of capital controls.
The statement reflects growing consensus among economists that capital controls, while no panacea, are legitimate policy tools for preventing and mitigating financial crises.
Signatories include several economists who have been generally supportive of free trade but are critical of the capital control restrictions (e.g., Arvind Subramanian, Senior Fellow of the Peterson Institute for International Economics and Nancy Birdsall, President of the Center for Global Development), as well as former IMF officials (e.g., Olivier Jeanne of Johns Hopkins University) and a Nobel laureate (Joseph Stiglitz).