Financial Policy

.Financial Policy, Economic Policies, MDGs, Poverty, Pro-Poor Growth, Training, Programme, Research

Capital Management Techniques In Developing Countries: An Assessment of Experiences From the 1990s and Lessons for the Future

The Ghana Poverty Reduction Strategy (GPRS) is currently Ghana's blueprint for growth, poverty reduction, and human development. It represents the framework the government of Ghana adopted to foster economic growth and fight poverty. A joint ILO/UNDP team was set up to specifically study the employment initiatives, programs, and projects that the government of Ghana is currently pursuing within the context of the GPRS. This report examines the current content of the GPRS with regard to employment; identifies challenges for realizing employment objectives; and develops recommendations for strengthening the employment content of national policies. In doing so, it outlines the elements of an employment framework for poverty-reducing growth in Ghana.

CAPITAL MANAGEMENT TECHNIQUES IN DEVELOPING COUNTRIES: AN ASSESSMENT OF EXPERIENCES FROM THE 1990S AND LESSONS FROM THE FUTURE.

This paper uses the term, capital management techniques, to refer to two complementary (and often overlapping) types of financial policies: policies that govern international private capital flows and those that enforce prudential management of domestic financial institutions. The paper shows that regimes of capital management take diverse forms and are multi-faceted. The paper also shows that capital management techniques can be static or dynamic. Static management techniques are those that authorities do not modify in response to changes in circumstances. Capital management techniques can also be dynamic, meaning that they can be activated or adjusted as circumstances warrant. Three types of circumstances trigger implementation of management techniques or lead authorities to strengthen or adjust existing regulations: changes in the economic environment, the identification of vulnerabilities, and the attempt to close loopholes in existing measures. The paper presents seven case studies of the diverse capital management techniques employed in Chile, China, Colombia, India, Malaysia, Singapore and Taiwan Province of China during the 1990s. The cases reveal that policymakers were able to use capital management techniques to achieve critical macroeconomic objectives. These included the prevention of maturity and locational mismatch; attraction of favoured forms of foreign investment; reduction in overall financial fragility, currency risk, and speculative pressures in the economy; insulation from the contagion effects of financial crises; and enhancement of the autonomy of economic and social policy. The paper examines the structural factors that contributed to these achievements, and also weighs the costs associated with these measures against their macroeconomic benefits. The paper concludes by considering the general policy lessons of these seven experiences. The most important of these lessons are as follows. (1) Capital management techniques can enhance overall financial and currency stability, buttress the autonomy of macroeconomic and microeconomic policy, and bias investment toward the long-term. (2) The efficacy of capital management techniques is highest in the presence of strong macroeconomic fundamentals, though management techniques can also improve fundamentals. (3) The nimble, dynamic application of capital management techniques is an important component of policy success. (4) Controls over international capital flows and prudential domestic financial regulation often function as complementary policy tools, and these tools can be useful to policymakers over the long run. (5) State and administrative capacity play important roles in the success of capital management techniques. (6) Evidence suggests that the macroeconomic benefits of capital management techniques probably outweigh their microeconomic costs. (7) Capital management techniques work best when they are coherent and consistent with a national development vision. (8) There is no single type of capital management technique that works best for all developing countries. Indeed our cases, demonstrate a rather large array of effective techniques. There are sound reasons for cautious optimism regarding the ability of policymakers in the developing world to build upon these lessons. In particular, we are heartened by the growing understanding of the problems with capital account convertibility in developing countries; by the increasing recognition of the achievements of capital management techniques by important figures in academia, the IMF and the business community; and by the potential for some developing countries (such as Chile, China, India, Malaysia and Singapore) to play a lead role in discussions of the feasibility and efficacy of various capital management techniques.

Capital Management Techniques In Developing Countries: An Assessment of Experiences from the 1990\u27s and Lessons For the Future

This paper uses the term, capital management techniques, to refer to two complementary (and often overlapping) types of financial policies: policies that govern international private capital flows and those that enforce prudential management of domestic financial institutions. The paper shows that regimes of capital management take diverse forms and are multi-faceted. The paper also shows that capital management techniques can be static or dynamic. Static management techniques are those that authorities do not modify in response to changes in circumstances. Capital management techniques can also be dynamic, meaning that they can be activated or adjusted as circumstances warrant. Three types of circumstances trigger implementation of management techniques or lead authorities to strengthen or adjust existing regulations--changes in the economic environment, the identification of vulnerabilities, and the attempt to close loopholes in existing measures. The paper presents seven case studies of the diverse capital management techniques employed in Chile, Colombia, Taiwan Province of China, India, China, Singapore and Malaysia during the 1990s. The cases reveal that policymakers were able to use capital management techniques to achieve critical macroeconomic objectives. These included the prevention of maturity and locational mismatch; attraction of favored forms of foreign investment; reduction in overall financial fragility, currency risk, and speculative pressures in the economy; insulation from the contagion effects of financial crises; and enhancement of the autonomy of economic and social policy. The paper examines the structural factors that contributed to these achievements, and also weighs the costs associated with these measures against their macroeconomic benefits. The paper concludes by considering the general policy lessons of these seven experiences. The most important of these lessons are as follows. 1.) Capital management techniques can enhance overall financial and currency stability, buttress the autonomy of macro and micro-economic policy, and bias investment toward the long-term. 2.) The efficacy of capital management techniques is highest in the presence of strong macroeconomic fundamentals, though management techniques can also improve fundamentals. 3.) The nimble, dynamic application of capital management techniques is an important component of policy success. 4.) Controls over international capital flows and prudential domestic financial regulation often function as complementary policy tools, and these tools can be useful to policymakers over the long run. 5.) State and administrative capacity play important roles in the success of capital management techniques. 6.) Evidence suggests that the macroeconomic benefits of capital management techniques probably outweigh their microeconomic costs. 7.) Capital management techniques work best when they are coherent and consistent with a national development vision. 8.) There is no single type of capital management technique that works best for all developing countries. Indeed our cases, demonstrate a rather large array of effective techniques. There are sound reasons for cautious optimism regarding the ability of policymakers in the developing world to build upon these lessons. In particular, we are heartened by the growing understanding of the problems with capital account convertibility in developing countries; by the increasing recognition of the achievements of capital management techniques by important figures in academia, the IMF and the business community; and by the potential for some developing countries (such as China, India, Malaysia, Chile, Singapore) to play a lead role in discussions of the feasibility and efficacy of various capital management techniques

Regulating global capital flows for long-run development

This repository item contains a single issue of the Pardee Center Task Force Reports, a publication series that began publishing in 2009 by the Boston University Frederick S. Pardee Center for the Study of the Longer-Range Future. The Task Force was co-sponsored by the BU Pardee Center, the Initiative for Policy Dialogue at Columbia University, and the Global Development and Environment Institute at Tufts University, and it met at Boston University in September 2011. The Task Force Co-Chairs authored an Issues In Brief on this subject in November 2011 published by the Pardee Center.This report is the product of the Pardee Center Task Force on Regulating Global Capital Flows for Long-Run Development convened in September 2011 on behalf of the Pardee Center’s Global Economic Governance Initiative led by Kevin P. Gallagher, Associate Professor of International Relations at Boston University. Gallagher co-chaired the Task Force along with Stephany Griffith-Jones and José Antonio Ocampo of the Initiative for Policy Dialogue (IPD) at Columbia University. With contributions from a dozen prominent scholars and practitioners in the field of global finance and development, the report is intended to contribute expert knowledge to an important and very timely debate concerning whether and how nations can use what have been traditionally referred to as capital controls (classified in the report as ‘capital account regulations’ or CARs) to prevent and mitigate financial crises caused by short-term speculative capital flows in developing countries. Based on discussions among members at the September 2011 meeting, the report posits that there is a clear rationale for capital account regulations in the wake of the 2008 financial crisis, that the design and monitoring of such regulations is essential for their effectiveness, and that a limited amount of global and regional cooperation would be useful to ensure that CARs can form an effective part of the macroeconomic policy toolkit. The protocol for deploying capital account regulations in developing countries that is put forth here stands in stark contrast to a set of guidelines for the use of capital controls endorsed by the board of the International Monetary Fund (IMF) in March 2011. However the Task Force’s recommendations are more in sync with the set of “coherent conclusions” on capital account regulations endorsed by the G-20 in November 2011. Our hope is that this Pardee Center Task Force Report will help inform the discussions and decisions of policymakers and the IMF as they move forward on this issue under the rubric of the G-20 recommendations

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

This paper contributes to the debate on macroeconomic management and capital account regulations in developing and emerging countries (DECs). It argues that the recommendation by neoclassical economists and international financial institutions (IFIs) to combine an inflation targeting regime with exchange rate management, whilst maintaining open capital accounts, is both impossible and potentially counterproductive. This, it shows with extensive semi-structured interviews with currency traders in Brazil and London, is due to the peculiar way such a regime shapes central bank interventions in the money and foreign exchange markets and the destabilising way these interventions interact with financial market expectations. The interview results also demonstrate that the guidelines issued by IFIs actually undermine, rather than aid, DEC central banks’ initial attempt to manage excessive exchange rate movements. These results support the long-standing argument by heterodox economists and critical international political economists that DECs need to make the exchange rate an explicit instrument and goal of their macroeconomic policy and complement it with comprehensive capital account regulations to reduce the destabilising impact of international capital flows. The interview results also give some concrete suggestions on how to do so

Capital Control Reconsidered: Financialisation and Economic Policy

We consider capital controls and their impact on selected countries, providing a critique of IMF policy. We show how the warning signs of the 1970s were ignored and the consequences became apparent during the ensuing period of neoliberal hegemony. We contend that promoting increased capital mobility is counterproductive as it reduces macroeconomic ‘policy space’. We introduce a development of the international policy ‘trilemma’ in the form of a variant of the idea of the ‘quadrilemma’. We suggest that, in most cases, the key policy driving economic growth is fiscal policy but it may be that its unconstrained use (and that of monetary policy) is not possible either under fixed exchange rates or when free capital mobility exists; a nation may face a ‘demi-quadrilemma’. We contend that, in practice, a country can only adopt ‘two from four’; if it chooses to retain free use of monetary and fiscal policy, it must sacrifice both fixed exchange rates and capital mobility. We advocate the rejection of fixed exchange rates and free capital mobility allowing the retention of requisite monetary and fiscal policy space, and that a multinational approach to the capital control policy would effectively contribute to a growth and development strategy