{
  "title": "Public Information Notice: IMF Executive Board Discusses The Liberalization and Management of Capital Flows—An Institutional View",
  "publication": "IMF News, December 3, 2012",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn12137",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2012-12-03",
  "sections": [
    {
      "heading": "Background",
      "content": "- Public Information Notice (PIN) No. 12/137.\n- Date of PIN: December 3, 2012.\n- The Executive Board concluded discussions on November 16, 2012 of a staff paper titled “The Liberalization and Management of Capital Flows—An Institutional View.”\n- The proposed institutional view:\n  - Builds on countries’ experience, previous Fund policy papers and Board discussions on capital flows, and recent analytical research.\n  - Responds to a request from the International Monetary and Financial Committee in 2011 for further work on a “comprehensive, flexible, and balanced approach for the management of capital flows, drawing on country experiences.”\n  - Encompasses both liberalization and management of capital flows, taking into account policy considerations for countries when they receive and when they generate capital flows.\n  - Largely synthesizes conclusions of previous policy papers, research, and Board discussions, and strengthens consideration of issues such as the role of source countries and the relationship between capital-flow policies and macro-prudential measures.\n- Purpose: to guide Fund advice to members and, where relevant, Fund assessments in the context of surveillance; does not alter members’ rights and obligations under the Articles of Agreement or other international agreements."
    },
    {
      "heading": "Executive Board Assessment",
      "content": "- Meetings considered: November 7 and November 16 (2012).\n- General view:\n  - Most Directors agreed the institutional view is comprehensive, flexible, and balanced and provides a good basis for Fund policy advice and, where relevant, bilateral and multilateral surveillance.\n  - Directors agreed the institutional view should remain flexible, evolve over time, be reviewed periodically, and take into account specific country circumstances.\n  - A few Directors considered adoption at this stage premature and preferred further work and discussion.\n  - Many Directors emphasized integrating the role of source countries into the institutional view.\n  - Directors underscored that the institutional view does not alter members’ rights and obligations under any international agreements, including the Fund’s Articles.\n  - Most Directors agreed Box 3 in the staff paper offers a useful summary of key elements, while some Directors wanted a more comprehensive summary and more discussion of risks associated with capital flows."
    },
    {
      "heading": "Capital Flow Liberalization — Findings and Guidance",
      "content": "- Benefits and risks:\n  - Capital flows can enhance financial sector competitiveness, facilitate productive investment, and ease adjustment of imbalances.\n  - Size and volatility of capital flows and premature liberalization pose risks that should be clearly recognized.\n- Determinants of appropriate liberalization:\n  - Net benefits from liberalization depend on country-specific circumstances, notably the stage of institutional and financial development.\n  - Countries with extensive and long-standing measures to limit capital flows could benefit from further liberalization in an orderly manner.\n  - No presumption that full liberalization is appropriate for all countries at all times; several Directors view capital account liberalization as a worthy long-term goal for all countries.\n  - Some Directors highlighted the costs of maintaining capital controls, both domestically and internationally.\n- Policy approach:\n  - Capital flow liberalization needs to be well planned, timed, and sequenced to minimize adverse domestic and multilateral consequences.\n  - Most Directors viewed the “integrated approach” to liberalization as appropriate, consistent with countries’ individual circumstances and taking into account macroeconomic and financial sector prudential policies.\n  - A number of Directors stressed a cautious approach where prerequisites are not adequately in place.\n  - Even in long-open economies, including advanced economies, the size and volatility of flows can pose risks requiring vigilance."
    },
    {
      "heading": "Managing Capital Flows — Findings and Guidance",
      "content": "- Challenges and resilience:\n  - Rapid inflow surges or disruptive outflows pose policy challenges despite benefits of capital flows.\n  - Important resilience measures in normal times: sound macroeconomic policies, deepening financial markets, strengthening financial regulation and supervision, and improving institutional capacity.\n  - Macroeconomic policies—monetary, fiscal, and exchange rate management—have to play a key role in managing inflow surges or disruptive outflows, supported by sound financial supervision and regulation and strong institutions.\n- Capital Flow Management Measures (CFMs):\n  - Directors agreed CFMs can be useful and appropriate in certain circumstances, including when room for macroeconomic policy adjustment is limited or appropriate policies take undue time to be effective.\n  - CFMs should not substitute for warranted macroeconomic adjustment.\n  - Characteristics of appropriate CFMs:\n    - Targeted, transparent, and temporary—lifted once inflow surges abate or disruptive outflow pressures subside.\n    - Seek to avoid discriminating on the basis of residency; the least discriminatory effective measure should be preferred.\n    - When differentiation between residents and non-residents is necessary for effectiveness, residency-based measures may be justified (view expressed by a few Directors).\n    - Certain CFMs can be useful over the longer term for safeguarding financial stability.\n  - Use in outflow crises: most Directors view CFMs as generally appropriate only in crisis situations or when a crisis is imminent, and in combination with sound macroeconomic policies and financial regulation.\n- Push and pull factors:\n  - Both push and pull factors drive capital flows; therefore policies in source countries deserve adequate focus.\n  - Most Directors concurred that policies in source countries play an important role in promoting international monetary system stability and should better internalize risks associated with their policies.\n  - Policymakers in all countries should consider how their policies affect economic and financial stability in other countries and globally.\n  - Better cross-border coordination of relevant policies, including at the regional level, would help mitigate the riskiness of capital flows."
    },
    {
      "heading": "Role of the Fund — Mandate, Surveillance, and Implementation",
      "content": "- Legal and surveillance framework:\n  - The Fund’s legal framework for surveillance has long recognized the importance of capital flows and policies to manage them, despite a more limited mandate with respect to international capital movements than for current international transactions.\n  - Most Directors noted the Fund is well-placed to provide policy advice and, where relevant and in accordance with the Integrated Surveillance Decision, assessments on issues related to capital flows, in close cooperation with country authorities.\n  - Most Directors endorsed the proposal in paragraph 60 of the staff paper for use of the institutional view in policy advice and in bilateral and multilateral surveillance.\n  - Many Directors stressed the need for surveillance in important source countries to properly assess potential impacts of policies on cross-border capital flows.\n- CFMs and Fund conditionality:\n  - Directors emphasized that CFMs maintained outside of the proposed institutional view would not be considered measures that the Fund could require members to eliminate as a condition for the use of Fund resources.\n- Cooperation and guidance:\n  - Directors called on staff to continue strengthening collaboration with other international organizations and institutions involved in international frameworks on capital flows, including on data issues.\n  - The proposed institutional view could help the Fund promote a more consistent approach toward treatment of CFMs under other international agreements.\n  - Directors underscored the importance of providing operational clarity on the institutional view in a guidance note to staff, reflecting Directors’ points of emphasis, to ensure effective, consistent, and evenhanded implementation.\n  - Directors looked forward to being consulted prior to finalization of the guidance note.\n\nSource: Public Information Notice No. 12/137 — “The Liberalization and Management of Capital Flows—An Institutional View,” Executive Board discussions concluded November 16, 2012; PIN dated December 3, 2012.\n\n---\n\n Content in this bundle\n\n- 111412pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Public Information Notices\n- request\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn12137"
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    "Published: December 3, 2012",
    "Public Information Notice (PIN) No. 12/137.",
    "Date of PIN: December 3, 2012.",
    "The Executive Board concluded discussions on November 16, 2012 of a staff paper titled “The Liberalization and Management of Capital Flows—An Institutional View.”",
    "The proposed institutional view:",
    "Purpose: to guide Fund advice to members and, where relevant, Fund assessments in the context of surveillance; does not alter members’ rights and obligations under the Articles of Agreement or other international agreements.",
    "Meetings considered: November 7 and November 16 (2012).",
    "General view:",
    "Benefits and risks:",
    "Determinants of appropriate liberalization:",
    "Policy approach:",
    "Challenges and resilience:",
    "Capital Flow Management Measures (CFMs):",
    "Push and pull factors:",
    "Legal and surveillance framework:",
    "CFMs and Fund conditionality:",
    "Cooperation and guidance:",
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