Liberalization of the Capital Account: Experiences and Issues

IMF Working Papers, June 1, 1992

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Canonical URL: Liberalization of the Capital Account: Experiences and Issues

Authors: Donald J Mathieson, Liliana Rojas-Suárez
Date: June 1, 1992
Paper type: IMF Working Paper (Working Paper No. 1992/046)
Summary of purpose:
- Reviews the experience with capital controls in industrial and developing countries.
- Considers policy issues raised when the effectiveness of capital controls diminishes.
- Examines the medium-term benefits and costs of an open capital account.
- Analyzes policy measures that could help sustain capital account convertibility.

Historical trend:
- "The effectiveness of capital controls eroded more rapidly in the 1980s than in earlier periods."
Consequences:
- Erosion of capital controls placed new constraints on the formulation of stabilization and structural reform programs.
Net assessment:
- "Experience suggests that certain macroeconomic, financial, and risk management policies would allow countries to attain the benefits of capital account convertibility and reduce the financial risks created by an open capital account."

Core policy areas identified as important to sustain capital account convertibility:
- Macroeconomic policies
- Financial policies
- Risk management policies
Intended outcomes of recommended policies:
- Attain the benefits of capital account convertibility.
- Reduce the financial risks created by an open capital account.

Subject: Balance of payments, Capital account, Capital account convertibility, Capital controls, Capital flows, Foreign exchange, Real exchange rates
Keywords: borrowing cost, Capital account, Capital account convertibility, capital control, Capital controls, capital controls bureaucracy, capital flow, Capital flows, current account, exchange rate system, financial system, fixed interest rate, flight capital, Global, interest rate differential, rate of inflation, Real exchange rates, U.S. dollar, WP