## Public Information Notice: IMF Executive Board Discusses The Liberalization and Management of Capital Flows—An Institutional View _IMF News, December 3, 2012_ ## Source details **Canonical URL:** [Public Information Notice: IMF Executive Board Discusses The Liberalization and Management of Capital Flows—An Institutional View](https://www.imf.org/en/news/articles/2015/09/28/04/53/pn12137) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/pn12137/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/pn12137/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/pn12137/bundle-manifest.json) ## Bibliographic details - Published: December 3, 2012 --- ### Background - 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: - Builds on countries’ experience, previous Fund policy papers and Board discussions on capital flows, and recent analytical research. - 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.” - Encompasses both liberalization and management of capital flows, taking into account policy considerations for countries when they receive and when they generate capital flows. - 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. - 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. ### Executive Board Assessment - Meetings considered: November 7 and November 16 (2012). - General view: - 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. - Directors agreed the institutional view should remain flexible, evolve over time, be reviewed periodically, and take into account specific country circumstances. - A few Directors considered adoption at this stage premature and preferred further work and discussion. - Many Directors emphasized integrating the role of source countries into the institutional view. - Directors underscored that the institutional view does not alter members’ rights and obligations under any international agreements, including the Fund’s Articles. - 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. ### Capital Flow Liberalization — Findings and Guidance - Benefits and risks: - Capital flows can enhance financial sector competitiveness, facilitate productive investment, and ease adjustment of imbalances. - Size and volatility of capital flows and premature liberalization pose risks that should be clearly recognized. - Determinants of appropriate liberalization: - Net benefits from liberalization depend on country-specific circumstances, notably the stage of institutional and financial development. - Countries with extensive and long-standing measures to limit capital flows could benefit from further liberalization in an orderly manner. - 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. - Some Directors highlighted the costs of maintaining capital controls, both domestically and internationally. - Policy approach: - Capital flow liberalization needs to be well planned, timed, and sequenced to minimize adverse domestic and multilateral consequences. - 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. - A number of Directors stressed a cautious approach where prerequisites are not adequately in place. - Even in long-open economies, including advanced economies, the size and volatility of flows can pose risks requiring vigilance. ### Managing Capital Flows — Findings and Guidance - Challenges and resilience: - Rapid inflow surges or disruptive outflows pose policy challenges despite benefits of capital flows. - Important resilience measures in normal times: sound macroeconomic policies, deepening financial markets, strengthening financial regulation and supervision, and improving institutional capacity. - 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. - Capital Flow Management Measures (CFMs): - 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. - CFMs should not substitute for warranted macroeconomic adjustment. - Characteristics of appropriate CFMs: - Targeted, transparent, and temporary—lifted once inflow surges abate or disruptive outflow pressures subside. - Seek to avoid discriminating on the basis of residency; the least discriminatory effective measure should be preferred. - When differentiation between residents and non-residents is necessary for effectiveness, residency-based measures may be justified (view expressed by a few Directors). - Certain CFMs can be useful over the longer term for safeguarding financial stability. - 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. - Push and pull factors: - Both push and pull factors drive capital flows; therefore policies in source countries deserve adequate focus. - 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. - Policymakers in all countries should consider how their policies affect economic and financial stability in other countries and globally. - Better cross-border coordination of relevant policies, including at the regional level, would help mitigate the riskiness of capital flows. ### Role of the Fund — Mandate, Surveillance, and Implementation - Legal and surveillance framework: - 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. - 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. - 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. - Many Directors stressed the need for surveillance in important source countries to properly assess potential impacts of policies on cross-border capital flows. - CFMs and Fund conditionality: - 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. - Cooperation and guidance: - 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. - The proposed institutional view could help the Fund promote a more consistent approach toward treatment of CFMs under other international agreements. - 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. - Directors looked forward to being consulted prior to finalization of the guidance note. *Source: 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.* --- ## Content in this bundle - [111412pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2012/_111412pdf.pdf){rel="external" type="application/pdf"} --- ## References - [Public Information Notices](https://www.imf.org/en/news/searchnews) - [request](https://www.imf.org/external/np/cm/2011/092411.htm) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn12137_