TWN Info Service on Finance and Development
Ahead of G-20
By Marwaan Macan-Markar,
This move by
The imposition of capital controls by
Indeed, "several developing countries are countering excessive capital inflows (and pressures for currency appreciation) either by intervention in the currency market, or by capital controls such as taxes on certain types of foreign capital entering the country," wrote Martin Khor, executive director of the South Centre, a Geneva-based developing world think tank, in a recent commentary.
"The governments concerned have a good case when they argue that these measures are needed to protect their countries from the damaging effects of speculative capital inflows, and that they are not manipulating their currencies," he added in his assessment made after the October meeting of G-20 finance ministers and central bank governors in South Korea.
Thus far, several Asian economies have imposed different forms of capital controls to deal with the unsettling impact of huge amounts of capital coming from developed economies. In October, the Thai government introduced a 15 percent tax on short-term inflows into its bond market.
Earlier in June,
Asian economies hope these measures can manage the capital inflows that they have been receiving and putting pressure on their currencies, driving their appreciation and prompting exporters to cry foul. ??The Japanese yen has appreciated the most, reaching a 15- year high against the U.S. dollar in August, followed by the Thai baht, whose appreciation in October hit a 13-year high against the dollar, media reports say.
Under renewed pressure to address the perceived
undervaluation of its currency,
"Asian economies are back on track.
They are the world’s growth driver, the emerging centre of economic gravity,"
says Nagesh Kumar, chief economist for the Economic and Social
"Its developing economies achieved an annual
growth rate of four percent, making it the fastest-growing region in
the world." Such impressive numbers, heavily shaped by
But amid concerns by Asian economies that their excessive liquidity would lead to inflationary pressure, asset price bubbles and job losses in the export sector, they are turning to capital controls as their rallying cry. In fact, in the run-up to the G-20 summit, ESCAP convened a meeting of its over 50 member states to support the use of such controls. "The message we sent was that the G-20 should support member states to use mechanisms to control capital flows," Kumar told IPS.
"Capital controls will protect the countries against currency appreciation and will help moderate the volatility of capital inflows, which are causing the problems." Even the International Monetary Fund (IMF), at one time a resolute opponent of such intervention, has been warming up to the idea of capital controls. In 2010, an IMF study praised its role in reducing the impact of the global economic crisis on the developing world.
This rethink by the IMF marks a dramatic shift
from its position in the wake of the 1997 Asian financial crisis,
when it opposed then Malaysian Prime Minister Mahathir Mohamad’s use
of capital controls to protect the Malaysian currency and economy.
?Mahathir was vindicated after his country became the first success
story to rise out of
Yet some caution against a rush toward capital controls. "This is a global issue, a systemic issue. If many countries introduce capital controls, where will this global liquidity flow?" asks Masahiro Kawai, head of the Asian Development Bank Institute, a Tokyo-based think tank for the regional financial institution.
"It is not a global solution; capital controls
may be okay for smaller economies," Kawai said in a telephone interview