Capital Account Regulations and Macroeconomic Policy: Two Latin American Experiences

Abstract

A new policy debate has arisen in Latin American countries after international investors’ recent reawakening to opportunities in emerging markets. Two polar positions have been defined in this policy debate. On the one hand, the ‘integrationists’ defend financial integration on the grounds that free market operation will always produce the best result for the developing economy. On the other, the ‘isolationists’ consider financial integration dangerous for macroeconomic stability, and prefer a developing world without market-determined international capital movements. The regulations that limit international financial integration have been at the centre of this policy debate, as they define the degree of financial integration and the distance between reality and these two polar positions.

The views presented in this paper represent the opinions of the authors and not necessarily those of the Central Bank of Chile. A first version of this paper was presented at an UNCTAD Conference on Globalization of Financial Markets, held at the Jerome Levy Economics Institute of Bard College, New York, in March 1996. We have benefited from the comments of Y. Akyüz and G. Helleiner and acknowledge the able assistance of O. Landerretche M.