Capital Controls in Emerging Economies

By Christine Ries Hekman; Richard J. Sweeney | Go to book overview
risks that apply differentially to them; until that condition is met, which it surely is not as yet in Eastern Europe, the effect of liberalization will be a capital outflow rather than a balanced flow.
4. High capital mobility requires either a floating exchange rate or severe constraints (at the least) on monetary policy. It would in my view be unwise for most of the countries to float freely and thus lose the ability to ensure an exchange rate sufficiently competitive to secure export-led growth. The countries need to keep monetary policy as a usable tool for demand management at least until fiscal policy is in a position to take up the strain.
5. Holding foreign assets is a way to evade taxation, at least until tax administration is strong and the country has established a network of tax treaties with the main potential haven countries. Both things will take time.
6. Countries with large stocks of foreign assets have a strong reason to liberalize capital outflows in order to privatize the foreign investment decision. But Eastern Europe is not, and certainly should not be, anything like a net creditor region.
7. An open capital account exposes the financial sector to the disciplines of foreign competition. However, the domestic financial system needs to be strong enough to compete, not loaded down with nonperforming assets from dinosaur state enterprises as it is in Eastern Europe, before the disciplines of foreign competition can be expected to enhance performance rather than precipitate financial collapse.

Notes
This paper is taken from remarks at a conference on "Capital Controls and Financial Liberalization in Transitioning Economies" held at Georgetown University, April 23, 1993.
References
Brecher Richard A., and Carlos Diaz Alejandro. 1977. "Tariffs, Foreign Capital, and Immiserizing Growth." Journal of International Economics 7( 4): 317-22.
Lában, Raúl, and Felipe Larraín. 1993. "Can a Liberalization of Capital Outflows Increase Net Capital Inflows?" PUC-Santiago Documento de Trabajo no. 155.
Williamson John. 1993. "A Cost-Benefit Analysis of Capital Account Liberalization," in Helmut Reisen and Bernhard Fischer, eds., Financial Opening. Pp. 25-34. Paris: Organization for Economic Cooperation and Development.

-16-

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Capital Controls in Emerging Economies
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface ix
  • Acknowledgments xi
  • Introduction and Overview 1
  • Notes 12
  • 1 - Orthodoxy is Right: Liberalize The Capital Account Last 13
  • Notes 16
  • 2 - Reality and the Logic Of Capital Flow Liberalization 17
  • Introduction 17
  • Notes 29
  • 3 - Preconditions for Liberalization Of Capital Flows: a Review And Interpretation 33
  • Introduction 33
  • Notes 43
  • 4 - The Information Costs Of Capital Controls 45
  • Introduction 45
  • Conclusions 54
  • References 55
  • 5 - Currency Convertibility, Policy Credibility and Capital Flight In Poland and the Czech and Slovak Federal Republic 63
  • Introduction 63
  • Notes 83
  • References 85
  • 6 - Capital Controls and Corporate Investment Behavior 89
  • Introduction 89
  • Notes 108
  • References 108
  • 7 - Capital Account Liberalization and Policy Incentives: an Endogenous Policy View 111
  • Introduction 111
  • Notes 131
  • 8 - A Payments Mechanism For The Independent States Of The Former Soviet Union 137
  • Introduction: Economic Rationale For a Payments Mechanism 137
  • References 157
  • About the Editors and Contributors 159
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