IEO calls for clarity on capital account issues
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Destabilizing international capital flows in recent years have put the spotlight on the IMF's role in capital account liberalization. This role is particularly controversial because the institution has no formal mandate to promote open capital accounts. In a new report, the IMF's Independent Evaluation Office (IEO) concludes that the organization needs greater clarity in its work in this area. The IEO's Shinji Takagi, team leader of the evaluation, elaborates on its findings.
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Capital account liberalization has reemerged as a topic of intense debate in recent years. Some argue that rapid capital account liberalization caused much of the financial instability and economic distress that many emerging market countries experienced in the mid- and late 1990s. The IMF-which has always had a mandate to promote current account liberalization but no explicit mandate to promote capital account liberalization-has been part of the controversy, with some criticizing it for encouraging member countries to liberalize their capital accounts prematurely. On May 24, the IMF's Independent Evaluation Office (IEO) released its report on the IMF's approach to capital account liberalization. Shinji Takagi, IEO advisor and team leader for the report, spoke with Christine Ebrahim-zadeh of the IMF Survey about the report's findings, which are based partly on the IMF's experience in a sample of emerging market economies during 1990-2004.
IMF Survey: Although current account liberalization is among the IMF's official purposes set out in its Articles of Agreement, the IMF has no explicit mandate to promote capital account liberalization.What have been the consequences of this lack of an explicit mandate-or even a formal IMF position-on capital account liberalization?
TAKAGI: Capital account liberalization is an important issue on which the IMF does not have a position. As a consequence, the IMF has not always provided consistent policy advice across countries. For example, the IMF encouraged Russia to open its government bond market to help the government finance its deficit through foreign borrowing. At the same time, it was telling India not to do so. The staff response to this finding of an apparent lack of consistency is that it reflects the adaptation of policy advice to specific individual country circumstances.We don't...
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