In 1997, the IMF proposed chan

In 1997, the IMF proposed changing its charter to promotecapital account liberalization. By 2012, it had changed itsposition and accepted the use of capital controls. Why did the IMFreverse its position on capital controls?


The IMF has come a long way since 2005 in clarifying, enhancing,and communicating its approach to capital account liberalization.Within the last five years, it issued the 2012 IntegratedSurveillance Decision that elucidated the place of capital accountissues in bilateral and multilateral surveillance, and developed aninstitutional view on the liberalization and management of capitalflows. IMF staff produced and synthesized a substantial amount ofacademic and operational research on capital account liberalizationand capital controls, and developed new multilateral surveillanceproducts (e.g., spillover reports) that allow for greater attentionto push factors affecting international capital flows. In theprocess, the Fund has also internalized many of the substantivelessons from past IEO evaluations (highlighted in IEO, 2014a) onthe importance of providing clear Board guidance; explicitly takinginto account, in policy and practice, different countrycircumstances and the need for evenhandedness; and breaking downinternal silos.

In the wake of the crisis the IMF surprised many observers byopenly embracing capital controls to both prevent and mitigatefinancial crises. The IMF supported the use of capital controls oninflows in a number of countries such as Brazil and South Korea(Gallagher, 2015). Most surprising to many was the IMF’s outrightadvocacy for the use of capital controls on outflows in Iceland aspart of that country’s post crisis stand-by-agreement.

In some ways, advocating for the appropriate use of capitalcontrols is new policy at the IMF. In 2012, the IMF adopted a ‘newinstitutional view’ on capital account liberalization and controlsthat states that capital account liberalization is not alwaysoptimal and that under certain conditions capital controls oninflows and outflows can be appropriate to prevent and mitigatefinancial instability (IMF, 2012). This shift has received asignificant amount of attention, however there is yet to be arigorous account of whether the IMF has put its new words intoaction.

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