Capital flows control: features of innovative approaches and insights for Ukraine
Authors: Shapoval Yu. I.
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Paper dwells upon the dialectic of liberalization and capital flow controls under the conditions of global transformations. Author clarifies the pros and cons of the international capital flows liberalization for the recipient country. Defined are researches that study the relationship between the liberalization of the capital operations account and economic growth, between the capital flows and the new risks emergence. The paradoxes of capital movements are highlighted in practice, namely “Lucas Paradox” and “Allocation Puzzle”. By reviewing historical practice, it has been established that countries started to abolish capital controls in 1960s, but due to problems of the Bretton Woods system in the early 1970s, this process slowed down and was restored only in early 1980s. It has been revealed that the tendency towards liberalization of capital movements still outweighs the use of control. It was shown that liberalization took place within the framework of the movement towards the OECD, joining the Eurozone, the adoption of the terms of Article VIII of the IMF Statute. Three waves of liberalization of OECD member countries are depicted.
The international agreements between the WTO and ASEAN on trade liberalization, which contain provisions for the liberalization of the capital movement are indicated. The approaches to liberalization according to the rate of conducting, namely rapid (“Big Bang”) and sequencing, are generalized. It was shown that Israel, the Baltic States, Mexico, Argentina, Peru, and Kenya were liberalizing by an accelerated scenario. The negative experience of Israel, whose financial stability of the economy has been undermined by the sudden abolition of restrictions on capital movements, points to the need to fulfill the conditions for liberalization, as a set out in the recommendations of the IMF. It was found that in most countries, liberalization was conducted with a consistent approach. It has been established that the use of control, as a tool for levelling the impact of capital inflows (in particular, Chile, Brazil, Colombia, Malaysia, Thailand) and outflows (in Malaysia, Thailand) proves its benefits.
The focus is on recent crises in the Baltic, Iceland, Cyprus, and Greece, where the introduction of restrictions stabilized the currency and stopped the capital outflow. It is noted that now the trend towards liberalization is more evident among developing countries rather than among developed ones. World experience shows that in order to manage inflow/outflow, central authorities practice the policy of low-interest rates, currency interventions, and, less often, fiscal policies, and capital controls.