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Re: In Defense of Capital Controls

The issue is not good or bad in a ethical sense, not even in an
economics sense.  The issue is good for whom and bad for whom in a game
theroy context.  Since finance globalization had been structured by
those who have surplus capital to invest, it favors capital owners.
Those needing capital had no input into the structuring of a system that
fundamentally affects their fate. Thus neo-liberal market funamentalism
is not fair trade.  It is neo-imperilaism.

Further, the need fo cross border capital movement is not the word of
God.  In fact trade economics up to Bretton Wood substrabed to the
theory that cross border fainance is destructive.  This view was
torpedoed by Nixon's taking the dollar off gold and by the need to
recycle Petro dollars after Opec gained market power.

There is no option for non-dollar economies except to adopt capital
control in the current international finance architecture. And because
of dollar hegemony, FDI will only finance dollar earning enterprises,
leaving domestic development starved for capital. And the State Theory
of mMoney will not work because of foreign exchange implications.

It is not a theoretical issue.  It is an operational issue.
Who would want to particiate in a game where heads you lose and tails
they win?

Henry C.K. Liu

Gary Santos wrote: 
Well, I do not think foreign capital is bad. There were jobs created with
foreign capital. Foreign capital is neither bad nor good per se. And,
perhaps, I was wrong in labelling "them" fair weathered friends as it was a
mischaracterization of what foreign capital was in the context of the
1990's.

Nonetheless, it appears to me accurate that the policy adopted by the
central bank, in light of the harm a depressed exchange rate could do to
spending and well being, that capital controls were a justifiable policy
even with a stated commitment to liberalized capital flows. Everyone was
caught by surprise, in fact, even the IMF.

I can even fault the Asian countries themselves for a lack of foresight.
They should have prepared for the possibility that bubbles were to form with
such a huge influx of capital and debt.



----- Original Message -----
From: "Harry Veeder" <eo200@xxxxxx>
To: "post keynesian thought" <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, June 01, 2003 7:57 PM
Subject: Re: In Defense of Capital Controls


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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