Abstract
The paper highlights five factors that have contributed to the evolving rebranding of capital controls during the global crisis. These include: (1) the rise of increasingly autonomous developing states; (2) the increasing assertiveness of their policymakers; (3) a pragmatic adjustment by the IMF to its constrained geography of influence; (4) the need for controls not just by countries facing fragility or implosion, but also by those that fared ‘too well’ during the crisis; and (5) the evolution in the ideas of academic economists and IMF staff. The paper also explores tensions around rebranding as exemplified by efforts to develop a hierarchy in which controls on inflows that are a last resort and are targeted, temporary, and non-discriminatory are more acceptable than those that are blunt, enduring, discriminatory, and that target outflows. In addition, tensions have increasingly emerged over whether controls should be used by capital-source rather than just capital-recipient countries.
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Notes
- 1.
Discussion in this paper draws heavily on though extends and updates discussion in Grabel (<CitationRef CitationID="CR46" >2011</Citation Ref>, <CitationRef CitationID="CR51" >2015b</Citation Ref>) and parts of Grabel (2003b, <CitationRef CitationID="CR48" >2013b</Citation Ref>, <CitationRef CitationID="CR49" >c</Citation Ref>), Grabel and Gallagher (<CitationRef CitationID="CR52" >2015</Citation Ref>).
- 2.
See Grabel (<CitationRef CitationID="CR47" >2013a</Citation Ref>, <CitationRef CitationID="CR50" >2015a</Citation Ref>) for an examination of these and other initiatives.
- 3.
Fritz and Prates (<CitationRef CitationID="CR36" >2014</Citation Ref>) see controls on derivatives as distinct from (though complementary to) capital controls and prudential financial regulations.
- 4.
Temporary outflow controls have turned out to be rather long lived—indeed the central bank and the Finance Ministry are planning to phase out the controls during 2016.
- 5.
See Chwieroth (<CitationRef CitationID="CR17" >2015</Citation Ref>) on the process of destigmatizing capital controls.
- 6.
The IEO (<CitationRef CitationID="CR56" >2015</Citation Ref>, p. 13) noted that staff did not approve of outflow and exchange controls in 2008 in Ukraine (see also Saborowski et al. <CitationRef CitationID="CR115" >2014</Citation Ref>).
- 7.
Thanks to Michael Akume for research on Nigeria.
- 8.
A separate annex to the TPP allows Chile alone to maintain or enact capital controls that are consistent with its own domestic laws to ensure financial stability.
- 9.
NAFTA includes a balance of payments exception that allows controls when the host states “experience serious balance of payments difficulties, or the threat thereof,” but controls must be temporary and non-discriminatory (Gallagher <CitationRef CitationID="CR39" >2014</Citation Ref>, p. 181).
- 10.
Korea’s 2007 free trade agreement with the US allows temporary controls under certain circumstances.
- 11.
In some cases, this reframing may be less instrumental than I suggest. Chwieroth (<CitationRef CitationID="CR17" >2015</Citation Ref>) argues that Korean authorities see the measures they put in place during the global crisis as prudential and consistent with their acceptance of the norm of liberalization. I should add here that the re-normalization of capital controls may involve rebranding, the focus of this paper, and/or re-framing of capital controls as something other than capital controls. The former represents a more direct assault on the pre-existing neoliberal ideology, and is expected where states have achieved substantial policy autonomy. The latter amounts to ‘cheating’—attempting to use a strategy that is not permitted under the neoliberal rules of the game without admitting it. We should expect this strategy in cases where states have not achieved substantial policy autonomy.
- 12.
Recall that (as earlier noted) Carstens (<CitationRef CitationID="CR14" >2015</Citation Ref>) spoke more catholically about controls in January 2016.
- 13.
Adair Turner, former chair of the UK’s Financial Services Authority, takes note of the enduring resilience of the liberalization ideal despite empirical evidence (Turner <CitationRef CitationID="CR129" >2014</Citation Ref>). Ghosh and Qureshi (<CitationRef CitationID="CR41" >2016</Citation Ref>) root the demonization of inflow controls in a ‘guilt by association’ with outflow controls. They endorse the former, whereas they distance themselves from the latter, which they see as broad based and difficult to reverse.
- 14.
See Fritz and Prates (<CitationRef CitationID="CR36" >2014</Citation Ref>) for a critique of the institutional view on these and other grounds.
- 15.
Chwieroth (<CitationRef CitationID="CR16" >2014</Citation Ref>) argues that the greater equivocation on controls in the institutional view reflects the fact that official documents require member state approval, whereas reports such as Staff Position Notes do not.
- 16.
Another possibility is that conflict over controls has decisively shifted from the economic to the legal arena of investment and trade agreements, as I suggested earlier.
- 17.
Stiglitz and Rashid (<CitationRef CitationID="CR120" >2016</Citation Ref>) take what I see as a more modest view, such that current and coming turbulence in developing economies may necessitate quick action that includes targeted and time bound capital controls, especially on outflows.
- 18.
On these views, see Horsefield (<CitationRef CitationID="CR54" >1969</Citation Ref>, pp. 31, 65) and Steil (<CitationRef CitationID="CR119" >2013</Citation Ref>, pp. 134, 150).
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Grabel, I. (2016). Capital Controls in a Time of Crisis. In: Arestis, P., Sawyer, M. (eds) Financial Liberalisation. International Papers in Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-41219-1_5
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