So the IMF has now, officially, said that capital controls — limits on the international movement of funds, hot money in particular — have their uses:
The International Monetary Fund has cemented a substantial ideological shift by accepting the use of direct controls to calm volatile cross-border capital flows, as employed by emerging market countries in recent years.
Although the fund continued to warn that such controls should be “targeted, transparent, and generally temporary”, the policy, announced in a staff paper released on Monday, is a sharp change from the fund’s enthusiasm for liberalising capital accounts during the 1990s.
Here’s the paper (pdf).
This is basically a codification of recent practice; the IMF has already given a green light to capital controls in selected countries, such as Iceland. Still, it’s an interesting turnaround, another indicator of the IMF’s surprising intellectual flexibility these days.
And it brings back memories of the Asian crisis of the 1990s, when I found myself in the middle of this debate.