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IMF Seminars, January 1, 1901

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Bibliographic details

• Published: January 1, 1901

Conference overview and objectives

• Event: JOINT HIGH-LEVEL CONFERENCE BY THE BRAZILIAN AUTHORITIES AND THE IMF, RIO DE JANEIRO, BRAZIL, MAY 26-27, 2011.
• Primary focus: root causes of the pickup in capital flows to emerging market economies (EMEs), their impact on these economies, and appropriate policy responses.
• Rationale: Capital flows to EMEs have resumed from the sharp decline in the aftermath of the global financial crisis and are projected to remain high, although volatile, in the coming years. Benefits of capital mobility include financing productive investment, diversification of investment risk, and financial market development; risks include procyclical financial-sector behavior, boom-bust cycles, exchange rate appreciation pressures, loss of monetary-policy independence, asset-price bubbles, and strains on prudential frameworks.
• Attendance: by invitation only.
• Contact: Email: ManagingCapitalFlows2011@imf.org

Key analytical themes and findings presented

• Causes and persistence of inflows:
  • Many flows may reflect interest rate differentials that could be at least partially reversed when policy interest rates in advanced economies (AEs) return to more normal levels.
  • Rapid reversal risk: a rapid reversal could also occur if the global recovery falters and there is a renewed increase in global risk aversion.
  • Structural vs. cyclical debate: while larger inflows could reflect improved EME fundamentals and relative strength vis-à-vis AEs, a history of "sudden stop" episodes suggests caution before interpreting these flows as a "structural break."
• Macroeconomic management challenges:
  • Large inflows can lead to exchange rate appreciation pressures or overshooting and some loss of monetary policy independence.
  • Temporary inflows may entail costly reallocation of productive resources back to the tradable sector when inflows subside and exchange rates normalize.
• Financial stability concerns:
  • Sudden surges can overwhelm domestic prudential frameworks and fuel asset-price bubbles rather than financing productive investments.
• Policy-design implications:
  • Effective responses to capital inflow surges may need both macroeconomic and prudential elements.
  • Consideration of country characteristics (exchange rate regime, fiscal institutions, quality of domestic supervision/regulation) is essential when assessing impacts and policy choices.
  • Importance of weighing trade-offs among macroeconomic policies, macroprudential tools, and capital controls, and considering broader systemic consequences of each instrument.

Conference program and sessions (high-level)

• Opening and introductory remarks:
  • Speakers included Guido Mantega, Minister of Finance of Brazil; Alexandre Tombini, Governor, Banco Central do Brasil; Min Zhu, Special Advisor to the MD, IMF.
• SESSION I — The Causes of the Recent Wave of Capital Inflows to Emerging Market Economies:
  • Chair: Cristiano Romero, Valor Economico.
  • Speakers: Joyce Chang (JP Morgan Chase), José Antonio Ocampo (Columbia University), Eduardo Loyo (BTG Pactual), Hyun Song Shin (Princeton University).
  • Focus questions: determinants of surges and volatility; role of macroeconomic policies in the U.S. and other AEs; differences by flow type; whether the surge represents a “new normal” or reflects global imbalances.
• SESSION II — Capital Inflows: Blessing or Curse?:
  • Chair: Stephanie Flanders, BBC.
  • Speakers/presenters included Paulo Nogueira Batista (Executive Director, IMF), Nicolás Eyzaguirre (IMF), Roberto Frenkel (University of Buenos Aires), John Williamson (Peterson Institute for International Economics).
  • Focus questions: transmission channels to real and financial sectors; trade-offs between theoretical benefits of capital flows and macroeconomic challenges (diminished competitiveness, inflation and overheating, asset-price bubbles/financial fragilities); role of country characteristics.
• SESSION III — How Should EMEs Manage Rapid Inflows?:
  • Chair: Zanny Minton-Beddoes, The Economist.
  • Speakers: Kristin Forbes (Massachusetts Institute of Technology), Jonathan D. Ostry (IMF), Subir Vithal Gokarn (Deputy Governor, Reserve Bank of India), Olivier Jeanne (Johns Hopkins University).
  • Policy Forum: Regional Perspectives on Managing Capital Inflows, Moderator: Adriana Arai (Bloomberg). Regional speakers: José De Gregorio (Governor, Central Bank of Chile), Turalay Kenç (Vice Governor, Central Bank of Turkey), José Uribe (Governor, Banco de la Republica de Colombia), Atchana Waiquamdee (Deputy Governor, Bank of Thailand).
  • Tentative conclusions: Nelson Barbosa Filho (Exec. Sec., Min. of Finance, Brazil) and Olivier Blanchard (IMF).
• Ancillary events:
  • Dinner speaker: Jagdish Bhagwati, Columbia University.
  • Lunch speaker: Guido Mantega, Minister of Finance of Brazil.
  • Press Briefing following sessions.

Policy implications and recommendations emphasized

• Adopt a policy mix that combines macroeconomic responses and prudential measures to manage capital inflow surges.
• Recognize the potential temporariness of some inflows and avoid policy complacency that assumes a permanent structural change without clear evidence.
• Incorporate country-specific factors (exchange rate regimes, fiscal institutions, supervision/regulation quality) into the policy hierarchy and tool selection.
• Account for systemic and cross-border effects when choosing among macroeconomic, macroprudential, and capital control instruments.

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