## The Chair’s Summing Up ## Source details **Canonical URL:** [The Chair’s Summing Up](https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020041.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2020/english/ppea2020041.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2020/english/ppea2020041.pdf.json) --- ### Meeting context and overall assessment - Executive Board Meeting 20/9 3 - September 18, 2020 - Executive Directors welcomed the report of the Independent Evaluation Office (IEO) on IMF Advice on Capital Flows and appreciated the high quality of the report, and its thematic and background country studies. - Directors welcomed the finding that the adoption of the Institutional View (IV), along with the development of other frameworks and additional tools, had represented a major advance in the Fund’s policy framework to provide systematic advice to member countries on the management of capital flows and capital account liberalization. - Directors noted the conclusion that, in its application, the Fund had generally followed the IV and other policy frameworks to ensure that the advice was consistent, tailored to country circumstances, and evenhanded across countries. ### Key findings and observations - Capital flow management measures (CFMs) have generally not been used to substitute for warranted policy adjustments. - Most authorities broadly support the IV’s sequenced framework to capital account liberalization and appreciate the Fund’s specific advice in many cases, especially in the context of technical assistance. - During the COVID-19 crisis, emerging markets and developing economies generally followed a multi-pronged approach broadly consistent with the IV framework and made relatively little use of CFMs. - Accumulated country experience and recent research raised issues about the Fund’s advice on managing volatile capital flows, including: - Guidance in the IV that CFMs not be used pre-emptively. - The distinction between measures classified as macroprudential measures (MPMs) and CFMs/MPMs. - The role of foreign exchange intervention (FXI). - The approach to dealing with disruptive outflows. - The role of social and political objectives. - In a few cases, disagreements about labeling of measures crowded out policy dialogue. - Concerns that Fund advice on capital account liberalization did not adequately attend to: - Collateral benefits for market and institutional development. - Robustness of the macroeconomic policy framework. - Social and distributional effects. - Concerns persist about the traction of multilateral surveillance to address spillovers and volatility of capital flows. ### Views on revising the Institutional View (Recommendation 1) - Directors broadly agreed on the need to revisit the IV in light of recent experience and research (Recommendation 1), while many Directors thought a major overhaul was not required. - Directors emphasized the IV core principles remain valid, including: - The overall presumption that capital flows can bring substantial benefits for countries. - CFMs, while useful in certain circumstances, should not substitute for warranted macroeconomic adjustment. - The IV framework should continue to help countries reap benefits of capital flows while managing risks to ensure stability. - The Fund’s policy framework on capital flows must maintain adequate safeguards against possible misuse and be applied evenhandedly across countries. - Divergent views on specific revisions: - Many Directors thought the IV could be more flexible in allowing pre-emptive and more long-lasting use of CFMs on inflows in specific circumstances, e.g., to address build-up of financial stability risks from volatile capital flows. - Some Directors saw merit in allowing use of outflow CFMs outside crisis or near-crisis circumstances to deal with disruptive outflows. - A number of Directors cautioned or opposed such revisions. - On differences in advice between CFMs, MPMs, and CFMs/MPMs: some Directors open to reconsideration; some favored focus on assessing effectiveness rather than classification; others opposed diluting the distinction. - Divergence of views on the role and effectiveness of FXI. - A number of Directors thought CFMs may have a valid role to address social issues such as housing affordability. - Many agreed that the strategy for capital account liberalization within the IV should consider distributional implications; some Directors had concerns or emphasized need for further analysis. ### Strengthening analysis, research, and monitoring (Recommendation 2) - Directors supported building up monitoring, analysis, and research of capital account issues as part of a sustained Fund-wide medium-term agenda (Recommendation 2) to maintain the Fund as a thought and policy advice leader on capital flow issues. - Emphasized needs: - Better understanding of the costs and benefits of CFMs and MPMs. - More research on longer-term implications of different instruments for market development to support the upcoming review of the IV. - Further development of the Fund’s own indices of capital account openness based on the AREAER (supported by some). - Coordination with other workstreams is required to ensure efficiency and coherence with due attention to resource constraints. ### Strengthening multilateral cooperation (Recommendation 3) - Directors agreed on the need to strengthen multilateral cooperation on policy issues affecting capital flows (Recommendation 3). - Emphasized close collaboration with other multilateral organizations, including the OECD, BIS and FSB—with regard to their different mandates, purposes, and memberships—to promote a consistent and comprehensive approach to handling capital flows. - More specific priorities: - Intensify cooperation with other IFIs to increase attention to systemic issues in regulation of securities markets that could reduce risks of volatile portfolio flows. - Address potential tensions between the IV and the Basel III framework, including treatment of reciprocity arrangements and liquidity regulations. ### Resource implications and next steps - Many Directors underlined the need to be mindful of resource implications which should be considered in budget discussions, recognizing competing priorities, including the response to the COVID-19 pandemic. - Emphasis that the upcoming review of the IV is an important task needing adequate support with staff analysis and research. - A few Directors noted reprioritizing resources could be needed for a work program based on the recommendations, since advice on capital flows is at the core of the Fund’s mandate. - Management and staff will carefully consider today’s discussion in formulating a follow-up implementation plan, including approaches to monitor progress. *Source: The Chair’s Summing Up — Independent Evaluation Office—IMF Advice on Capital Flows, Executive Board Meeting 20/9 3, September 18, 2020.* --- _Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020041.pdf_