## Statement by the Managing Director on the Independent Evaluation Office Report on IMF Advice on Capital Flows ## Source details **Canonical URL:** [Statement by the Managing Director on the Independent Evaluation Office Report on IMF Advice on Capital Flows](https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020042.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2020/english/ppea2020042.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2020/english/ppea2020042.pdf.json) --- ### Context and overall judgment - Document: Executive Board Meeting, September 18, 2020. - The Managing Director welcomes the IEO report and generally supports its broader messages. - The report will inform the forthcoming review of the Fund’s Institutional View (IV) on the Liberalization and Management of Capital Flows, scheduled for 2021. - Management will proceed on this timetable and will undertake further monitoring, analysis, research, and strengthened multilateral cooperation as resources and competing priorities permit, including considering the context of the COVID-19 pandemic response. ### Assessment of the Institutional View (IV) and past practice - The IV (adopted in 2012) was a major advance: it provided a consistent framework to guide policy advice on capital account liberalization and management of capital flows. - Core principles of the IV highlighted: - Capital flows can bring substantial benefits for countries. - Capital Flow Measures (CFMs), while useful in certain circumstances, should not substitute for warranted macroeconomic adjustment. - Importance of international cooperation to harness benefits safely and minimize negative spillovers. - The Managing Director is pleased: - IMF policy advice has been broadly consistent with the IV. - Member countries perceive the IV’s application as generally evenhanded. - An internal interdepartmental review process supports consistent policy advice. - Recent outreach (G20 notes, Spring and Annual Meetings engagement, IMF Taxonomy of CFMs, cooperation with OECD) has improved explanation of IV application. - Empirical observation: countries’ policy choices during inflow surges and reversals have generally used a mix of macroeconomic policies (exchange rate flexibility, foreign exchange intervention, monetary and macroprudential policies); CFMs generally have not substituted for warranted policy adjustments. This has also characterized responses to the COVID-19 crisis to date. ### Response to IEO Recommendation 1 — Revisit the IV - Position: Qualified support; defer specifics to the upcoming 2021 review. - Management agrees the IV should be kept up to date with theoretical advances, empirical evidence, and lessons from experience. - The IV need not be overhauled; its core principles remain valid. - Reservations noted about proposed changes: - Less attention to labeling of measures. - Changing the definition of CFMs. - Using CFMs to address social issues. - Pre-emptive and long-lasting use of inflow CFMs would be a departure from current framework and requires further consideration and safeguards. - Use of outflow CFMs to deal with disruptive outflows outside crisis or near-crisis circumstances would also be a departure and requires further scrutiny. - Key emphasis: any adaptations should incorporate lessons from recent experience and analytical research (including work on the IPF), include adequate safeguards to prevent an “anything goes” environment, preserve core principles, and maintain consistency of IMF advice. The forthcoming review will follow required consultations. ### Response to IEO Recommendation 2 — Build monitoring, analysis, and research - Position: Qualified Support. - Management broadly supports building up monitoring, analysis, and research of capital account issues as part of a sustained Fund-wide medium-term agenda, with one qualification. - Acknowledgements and planned actions: - The Fund should remain at the cutting edge of work on capital flow issues. - Current research agenda already envisages work on many issues raised by the evaluation. - The Fund’s databases on CFMs are an important public good. - The Integrated Policy Framework (IPF) is an important step to advance understanding of policy options and tradeoffs. - Support for more research on costs and benefits of capital account and macroprudential measures. - Support for ramping up resources committed to the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER). - Intention to coordinate these efforts with other workstreams for efficiency and coherence, mindful of resource constraints. - Management will consider implementation in the context of the Fund’s budget and implement as soon as possible when resources permit. ### Response to IEO Recommendation 3 — Strengthen multilateral cooperation - Position: Qualified Support. - Management broadly supports strengthening multilateral cooperation on policy issues affecting capital flows, with one qualification. - Planned cooperation and focus areas: - Continue intensive collaboration with other multilateral organizations, respecting different mandates, purposes, and memberships. - Sustain collaboration with the OECD on capital account issues. - Strengthen coordination of macroprudential and capital account policies with the FSB and the BIS; address possible tensions between the IV and the Basel III framework. - Study, in collaboration with other institutions, how to address systemic concerns from securities markets. - Continue work on capital account provisions in trade and investment agreements to promote a consistent approach to handling capital flows. - Implementation will be considered in the context of the Fund’s budget and undertaken when resources and competing priorities allow. ### Specific institutional commitments and sequencing - The review of the IV is scheduled for 2021 and will consider specific recommendations of the IEO evaluation as inputs. - Monitoring, analysis, and research enhancements and strengthened multilateral cooperation will be undertaken as critical crisis work abates and budget resources permit. - Management emphasizes preserving consistency and safeguards while updating the IV. ### Table of Managing Director’s Positions on IEO Recommendations (as stated) - Revisit the Institutional View in the light of recent experience and research — Qualified support - Build up the monitoring, analysis, and research of capital account issues as part of a sustained Fund-wide medium-term agenda — Qualified Support - Strengthen multilateral cooperation on policy issues affecting capital flows — Qualified Support *Statement by the Managing Director on the Independent Evaluation Office Report on IMF Advice on Capital Flows, Executive Board Meeting, September 18, 2020.* --- _Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020042.pdf_