Capital Ideas: The IMF and the Rise of Financial Liberalization

By Jeffrey M. Chwieroth | Go to book overview

CHAPTER SEVEN

Capital Freed
INFORMAL CHANGE FROM THE 1980S
TO THE MID-1990S

THE 1980S AND 1990S were a period of significant change to the IMF staff's informal approach. Without a legal mandate or active influence from member states or IMF management, the staff discarded their earlier attachment to Keynesianism, replacing it with beliefs that spanned the full continuum of neoliberalism. What is remarkable about the evolution of the IMF approach during this period is that it took place almost exclusively on an informal level. A new informal approach emerged that identified capital freedom as desirable, at least in the long run.

Yet beyond this broad consensus at the level of abstract principles, this chapter shows that there was considerable internal debate over how the world should proceed toward capital freedom. The staff did not fully agree on whether to proceed rapidly or slowly, and whether to proceed with various preconditions and allowances for temporary controls or not. The Fund was thus divided between gradualists and proponents of the big bang. Although these two groups agreed that controls on capital outflows were outside the boundaries of legitimate policy, this consensus did not extend to the issue of sequencing or to the introduction of temporary market-based controls on capital inflows.

This chapter shows that professionalization, administrative recruitment, organizational learning, and internal entrepreneurship were at the center of the Fund's informal adoption, interpretation, and application of the norm of capital freedom. As a result of these processes of endogenous organizational change, the Fund began to advocate capital account liberalization informally, though never indiscriminately or uniformly.


CAPITAL CONTROLS IN THE 1980S DEBT CRISIS: U.S. TREASURY
AND IMF MANAGEMENT PERSPECTIVES

U.S. officials were at the center of the response to the 1980s debt crisis. These officials initially saw the crisis as one of illiquidity in which in which market actors had reacted to an efficient reading of poor fundamentals,

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