IMF Suggests Capital Controls for Emerging Markets

February 20. 2010

IMF Suggests Capital Controls for Emerging Markets

The International Monetary Fund (IMF) issued a report recommending emerging markets consider using taxes and regulation to moderate vast inflows of capital and reduce the risk of asset bubbles and other financial imbalances.

The report suggests instituting capital controls aimed at achieving a less risky external liability structure paid dividends in reducing financial fragility, but notes the “jury is still out” on whether capital controls have worked in practice.

It also notes that widespread adoption of controls by emerging market economies (EMEs) could exacerbate global imbalances and slow other needed reforms as sustained global recovery hinges on a rebalancing of global demand and the sources of growth in individual countries.

CAPITAL INFLOWS: THE ROLE OF CONTROLS

pdf ~ full report
http://www.imf.org/external/pubs/ft/spn/2010/spn1004.pdf