Re: In Defense of Capital Controls

[Harry Veeder <eo200@xxxxxx>]

If I may interject.

There are two extreme starting positions with respect to the movement of
capital.

1) The movement of capital is essentially a good thing,
with some exceptions.

2) The movement of capital is essentially a bad thing,
with some exceptions.

A call for 'capital controls' is consistent with the first position.
However, if one supports the second position, a call capital controls
will be viewed with cynicism and suspicion.

Harry Veeder



> From: Gary Santos <evs@xxxxxxxxxxxx>
> Reply-To: Gary Santos <evs@xxxxxxxxxxxx>
> Date: Tue, 27 May 2003 20:55:21 +0800
> To: Tijani Mohammed <sheutij5@xxxxxxxxx>, EGroup PKT <pkt@xxxxxxxxxxxxxxxx>
> Subject: Re: In Defense of Capital Controls
>
> Shehu,
>
> It seems to me that capital controls should be part of any developing
> country's tools. These countries have soft currencies and, by that fact,
> will be subject to balance of payments problems and impairment of central
> bank balance sheets in a regime of liberalized capital flows. In the
> Philippines, I saw the foreign funds get out at P26.50 as the stupid central
> bank governor held fast to the "floating within a band" policy. Now that was
> patently wrong from the point of view of those involved in the stock market.
> When dealers see a big seller out there, they know that the stock price will
> dive as he matches the bids. Result: All dealers get out of the way and the
> steep slide in the Index shows that. The Banko Sentral should have followed
> suit -- let the foreign funds get out at lower and lower exchange rates just
> as they had to get out of the stock market at lower and lower prices. Serves
> them right for being fair weathered friends.
>
> "Second, the process of internationalization of capital has been proceeding
> as a strategic component of managed world trade." This seems to imply a
> cabal and a conspiracy. I have a hard time accepting this as is. The dollar
> tends to be supported by those who export to the US. It is an integral
> benefit to the US because its currency is used as reserves. So, I don't know
> about a cabal.
>
> Gary
>
>
> ----- Original Message -----
> From: "Tijani Mohammed" <sheutij5@xxxxxxxxx>
> To: "Gary Santos" <evs@xxxxxxxxxxxx>
> Sent: Tuesday, May 27, 2003 3:22 PM
> Subject: Re: In Defense of Capital Controls
>
>
> Santos
>
> Globalization to me encompasses three interrelated
> factors: globally managed trade, internationalization
> of capital and state economic intervention. First,
> much of world trade in primary commodities and
> manufactured goods is under the control of
> transnational corporations. Second, the process of
> internationalization of capital has been proceeding as
> a strategic component of managed world trade. Finally,
> state economic intervention to aid these ongoing
> processes. Unless we see globalization from this
> perspective, we are likely going to commit
> unneccessary errors of judgement as to whether capital
> controls is useful or not useful.
>
> Shehu Mohammed
> Aristotle University of Thessaloniki
> Greece.
> --- Gary Santos <evs@xxxxxxxxxxxx> wrote:
>> 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
>>
>>
> ----------------------------------------------------------------------------
>> ----
>>
>> 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.
>>
>>
>>
>
>
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