Writing in the Financial Times, Kevin Gallagher, Stephany Griffith-Jones, and Jose Antonio Ocampo urge the International Monetary Fund to adopt more flexibile guidelines on how states regulate international capital flows. The authors contend that the Fund's push for the free flow of international capital in the 1990s contributed to several international financial crises:
In the 1990s....the IMF pushed to amend the IMF Articles and require that all nations liberalize their capital accounts and effectively deregulate global financial flows. Just as the IMF’s effort was gaining momentum, capital account liberalization played a big role in the Mexican, Asian, and related financial crises of the 1990s. The attempt of the IMF to acquire authority over countries’ capital account was rejected.
In any case, after their own crises, nations shunned IMF loans when they could, and instead “self-insured” by accumulating reserves and putting in place capital account regulations (traditionally referred to as capital controls). Interestingly, recent IMF research has shown that those nations that regulated cross-border finance in the run up to the global financial crisis were among the least hard hit.
The authors acknowledge that the IMF has engaged in serious research on the topic recently but appear concerned that these new insights won't make their way into the final guidelines. Brazil, which has recently seen a flood of international capital, has been particularly active in making the case that goverments must have the right to control excessive inflows.
David Bosco reports on the new world order for The Multilateralist.