Regulating Capital Flows in
the IMF and the Global Financial Crisis
GEGI Working Paper Series
By Kevin P. Gallagher and Yuan Tian
In the wake of the financial crisis the International Monetary Fund (IMF) began to publicly express support for what have traditionally been referred to as ‘capital controls’. In addition to public statements, the IMF underwent a systematic re-evaluation of Fund policy on the matter, and published an official view on the economics of capital flows. In this view the IMF concluded that capital account liberalization is not always the most optimal policy and that there are situations where capital controls—rebranded as ‘capital flow management measures’—are appropriate. This paper empirically examines the extent to which the change in IMF discourse on these matters has resulted in significant changes in IMF policy advice. To answer this question we create a database of IMF Article IV reports and examine whether the financial crisis had an independent impact on IMF support for capital controls. We find that the IMF’s level of support for capital controls has increased as a result of the crisis and as the vulnerabilities associated with capital flows accentuate.
Article Summary on Third World Network (Page 4): Practising what they Preach? The IMF and Capital Controls