A disjointed attempt by the IMF to refine its thinking on capital controls
FOREIGN capital fled the emerging world in the throes of the economic crisis. Now, lured by their better growth prospects and repelled by rich countries’ low interest rates, money has gushed back into countries like Brazil, Peru, South Africa and Turkey. Paulo Nogueira Batista, Brazil’s executive director at the fund, calls it an “international monetary tsunami”.
Usually emerging markets welcome foreign capital, which can help finance much-needed investment. But the recent surge has them worried, partly because of its speed and fears of an equally rapid reversal. The IMF reckons that gross inflows have risen to 6% of emerging-world GDP in about a quarter of the time taken for a similar spike before the crisis. Policymakers also fear that this flood of capital could lead to asset-price bubbles and overvalued currencies. Many have implemented measures to stem the tide, from Brazil’s tax on portfolio inflows to Peru’s higher charge on non-residents’ purchases of central-bank paper. ...
