$name

IMF Seminars, January 1, 1901

Source details

Capital flows to emerging market economies (EMEs) have resumed since the sharp decline after the global financial crisis and are projected to remain high, although volatile, in the coming years.
Benefits of capital mobility cited:
- Attract financing for productive investment projects in countries with limited savings.
- Foster diversification of investment risk.
- Contribute to the development of financial markets.
Concerns highlighted:
- Procyclical behavior of the financial sector can contribute to boom-bust cycles and fragility.
- Many flows may reflect interest rate differentials that could be partially reversed when policy interest rates in advanced economies (AEs) return to more normal levels.
- Rapid reversal if the global recovery falters or global risk aversion rises.
- Historical "sudden stop" episodes counsel caution before interpreting current inflows as a "structural break."
- Large inflows can complicate macroeconomic policy management, leading to exchange rate appreciation pressures or overshooting and loss of monetary policy independence.
- Temporary inflows can entail costly reallocation of productive resources back to the tradable sector when inflows subside.
- Sudden surges can overwhelm domestic prudential frameworks and fuel asset price bubbles rather than finance productive investment.
Policy implication: A response to a surge in capital inflows may need to include both macroeconomic and prudential elements.

Venue: Caesar Park Hotel, Rio de Janeiro
Opening speakers and remarks:
- Lunch speaker: Guido Mantega, Minister of Finance of Brazil
- Introductory Remarks: Alexandre Tombini, Governor, Banco Central do Brasil; Min Zhu, Special Advisor to the MD, IMF
- Speech sessions and multiple presentations across two days

SESSION I — The Causes of the Recent Wave of Capital Inflows to Emerging Market Economies
- Focus: behavior of capital flows; determinants of surges and volatility; role of macroeconomic policies in the U.S. and other AEs; differences between types of flows; whether the surge is a "new normal" or reflects global imbalances.
- 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

SESSION II — Capital Inflows: Blessing or Curse?
- Focus: impacts on EMEs through real and financial channels; trade-offs between benefits and risks (diminished competitiveness, inflation and overheating, asset price bubbles/financial fragilities); role of country characteristics (exchange rate regime, fiscal institutions, quality of domestic supervision/regulation).
- Chair: Stephanie Flanders, BBC
- Speakers and contributors: Paulo Nogueira Batista, Executive Director, IMF; Nicolás Eyzaguirre, IMF; Roberto Frenkel, University of Buenos Aires; John Williamson, Peterson Institute for International Economics
- Dinner speaker: Jagdish Bhagwati, Colombia University

SESSION III — How Should EMEs Manage Rapid Inflows?
- Focus: policy options for managing inflows and their impacts—macroeconomic policies; macroprudential policy; capital controls; policy hierarchy among tools and systemic consequences of instruments.
- 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
- Panelists: 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

Need to assess whether capital inflows are structural or cyclical, given historical experience with sudden stops.
Importance of integrating macroeconomic (e.g., exchange rate, monetary policy) and prudential measures to manage inflows and mitigate financial stability risks.
Consideration of country-specific characteristics (exchange rate regime, fiscal institutions, supervisory capacity) when designing policy responses.
Recognition that capital controls, macroprudential tools, and conventional macroeconomic policy each have roles and trade-offs; the relative priority among them is a core policy question.