In Defense of Capital Controls

["Gary Santos" <evs@xxxxxxxxxxxx>]

Interesting read for me.

http://www.geocities.com/Eureka/Concourse/8751/edisi04/glob-01a.html

International Herald Tribune
Paris, Friday, February 18, 2000


In Defense of Capital Controls
At Trade Conference, a Push to Curb Forces of Globalization
By Thomas Crampton International Herald Tribune

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At the United Nations Conference on Trade and Development in Bangkok, Yilmaz
Akyuz, the principal author of the conference's flagship annual report,
argued that developing nations faced continuing perils from globalization.
Mr. Akyuz, chief of macroeconomic and development policies for the
conference, spoke Thursday with Thomas Crampton of the International Herald
Tribune.


Q. Do you approve of capital controls to protect the economies of developing
countries?

A. Yes. Unless you have checks and balances in the movement of capital you
will be subject to the boom-bust phenomenon that is an integral part of the
current international financial system. There are no global arrangements to
control international movement of capital, so you must fall back on your
national policies.

Q. What about those who argue that capital controls discourage foreign
investment?

A. That is nonsense. If you look at new foreign direct investment, where do
they go most? China. China receives the largest portion of new investment in
the developing world and China has no capital account convertibility.

Q. Do capital controls hinder free trade?

A. You have to be careful because a lot of short-term capital flows are
linked to trade, but on the other hand, the world has had free trade
evolving since World War II under capital controls. A stable exchange rate
and stable monetary conditions are important for the expansion of trade.

Q. What is the role of corruption in creating financial crises?

A. Cronyism, corruption and moral hazard were not major causes of Asia's
recent economic crisis. Corruption and cronyism did not increase suddenly in
the late 1990s to create the financial crisis. The institutions and
relationships people blame are not new, what is new is the opening of
financial flows. The same close government and business relations that were
praised for creating the Asian miracle, have now been turned upside down and
receive all the blame.

Q. How do you view the recovery in many developing economies?

A. The markets went down much too far due to the incorrect orthodox policies
put in place by multilateral financial institutions. When these policies
were reversed, the economies bounced back. That fiscal deficits and exports
are driving the economies - not investment or consumer spending - backs up
our view that the high interest rates and austerity measures were incorrect.
There is, however, still excess capacity in these economies and it remains
to be seen how it will be dealt with.

Q. What is the greatest danger now for developing economies?

A. If the U.S. economy slows down and a significant economic expansion does
not take place in Japan and Europe, developing nations will face very
difficult time.

Q. Any sign that America has developed a higher sensitivity to the delicate
global economic situation?

A. Alan Greenspan made a very positive response by cutting interest rates
after the Russian crisis. There were real dangers to the U.S. economy, but
it is the first and perhaps the only time that U.S. monetary policy action
was taken with global considerations. I do not see this as a trend. As soon
as Wall Street went up, Greenspan returned to setting monetary policy on the
basis of domestic considerations alone.

Q. What in this Unctad conference compared with the last one?

A. It has become clear that globalization is a process guided by the
powerful few which has created inherent asymmetries that are hurting
developing countries. The main message coming out is that globalization is
not delivering and there is a danger of backlash against freer trade.

Q. Are you against globalization?

A. I am not against the greater economic integration of countries. What I am
against is the process being swayed by the powerful players or unbridled
market forces. It is not now governed by equity and fairness.