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Abstract
The rebranding of capital controls during the global crisis has widened the policy space in the financial arena to a greater, more consistent degree than following the Asian crisis. How are we to account for this extraordinary ideational and policy evolution? The paper highlights five factors that contribute to the evolving rebranding of capital controls. These include: (1) the rise of increasingly autonomous developing states, largely as a consequence of their successful response to the Asian crisis; (2) the increasing assertiveness of their policymakers in part as a consequence of their relative success in responding to the current crisis; (3) a pragmatic adjustment by the IMF to an altered global economy in which the geography of its influence has been severely restricted, and in which it has become financially dependent on former clients; (4) the need for capital controls by countries at the extremes, i.e. those that faced implosion, and also and more importantly by those that have fared ‘too well’; and (5) the evolution in the ideas of academic economists and IMF staff. The paper also explores tensions around the rebranding of capital controls as exemplified by efforts to ‘domesticate’ their use via a code of conduct.
ACKNOWLEDGEMENTS
I thank George DeMartino, Jonathan Kirshner, Eric Helleiner, and two anonymous referees for invaluable comments on this paper, and Alison Lowe for excellent research assistance
Notes
1 Best Citation(2005) discusses the related issue of ambiguity in international monetary governance.
2 Moschella Citation(2013) argues (based on the Swiss case) that the crisis has also created space for foreign exchange intervention and exchange rate targeting.
3 The turn away from capital controls began at the IMF during the 1970s (Chwieroth, Citation2010). This was part of a broader intellectual transformation toward liberalism in economics in the same period (Blyth, Citation2002).
4 Chwieroth Citation(2010, Citation2013a) and Abdelal Citation(2007) suggest that the process of change in a complex organization like the IMF is messy and uneven. I argue that ‘uneven, messy and contested’ is an apt description of the evolving transformation around controls at the IMF and in the economics profession today.
5 We might think of these strategies collectively as promoting resilience and even what Nassim Taleb Citation(2012) refers to as ‘anti-fragility’, or the ability to thrive in periods of instability.
6 Many have claimed that excess reserve accumulation poses other problems as well — namely, it can contribute to global financial instability insofar as global imbalances contribute to fragility.
7 Some SWFs played a counter-cyclical role outside their borders. Some increased exposure to euro assets (Park et al., 2012). The SWFs of China, Singapore, and Middle Eastern countries provided US$80 billion to recapitalize financial institutions in Europe and the USA in 2007–08 (BIS, 2009: 153; Campanella, Citation2012:20). However, some SWF decisions have been destabilizing (Drezner, Citation2008:118). For instance, some exited overseas markets after losing value on international equities (Campanella, Citation2012). More broadly, there is debate on whether SWFs are developmental and stabilizing. See, e.g., Helleiner Citation(2009) on SWFs and state financialization.
8 The IMF's rhetorical attention to pro-poor spending during the crisis may also have legitimated counter-cyclical responses (Grabel, Citation2012). See Blyth Citation(2013, preface and pp. 59–62) for discussion of the G-20's switch to an austerity message.
9 Chwieroth Citation(2013a, Citation2013b) suggests that the G-20's timid and late focus on capital flows reflects US policy preferences and influence. This contrasts to the almost immediate identification of unrestrained capital flows as a culprit in the Asian crisis. I thank Eric Helleiner for this point.
10 See Grabel Citation(2012) and Chin Citation(2012) for discussion. See Grimes Citation(2011) for a skeptical view of the likelihood that CMIM will operate independently of the IMF, and Wade (2013) for a strongly dismissive view of the matter.
11 Note that the activities of national (development) banks are driven as much by growth and trade objectives as they are by any crisis-stimulated appetite for innovation.
12 There is anecdotal evidence that the Fund is beginning to face competition from other institutions, even the World Bank. For instance, Wade Citation(2010: fn10) notes that the IMF is losing new business to the World Bank outside of the European rescues.
13 This is not to say that all BRICS participants agree on all of the relevant issues, or that the BRICS represents a happy marriage of cooperating states (see, e.g., Ban and Blyth, Citation2013: fns1, 2). Indeed, it can better be described as a group of independent-minded states that occasionally have managed to overcome various tensions to reach tentative consensus on matters pertaining to financial governance.
14 Wade and Sigurgeirsdottir Citation(2013) argue that the IMF's more accommodative stance on capital controls was partly instrumental as the institution sought to rehabilitate the image that was so tarnished by the Asian crisis.
15 Krugman Citation(2011) and Wade and Sigurgeirsdottir Citation(2012) argue that Iceland broke the rules in other respects (e.g., by increasing public spending), though Wade and Sigurgeirsdottir Citation(2013) later hedge on this issue. Neo-liberals in Iceland are not happy about its unorthodox response or the IMF's advice (Arnason and Danielsson, Citation2011).
16 The credit rating agency Fitch downgraded Cyprus’ Hellenic Bank, though this seems to reflect the oddly sudden realization that Russian money laundering bloated the country's banking system.
17 In an example of the resilience of old views, in August 2010 Canadian Prime Minister Harper used some of his time in Brazil to lecture the government about dismantling controls (Mayeda, Citation2011).
18 See Chwieroth Citation(2013b) on Korea's reframing of these measures as macroprudential and not as capital controls.
19 Policymakers in Brazil, Korea and China loosened or abandoned some controls during 2011 and 2012 as their economies slowed and investors reallocated assets to US markets.
20 See Gallagher Citation(2013) on divergent responses in Brazil, Korea, Chile and South Africa.
21 Lisbon Treaty obligations mean that countries on the European periphery have not been able to use controls during the crisis (with the exception noted above). Such countries enjoy less policy space than many developing countries.
22 By contrast, South Korea's free trade agreement with the US allows controls (Gallagher, Citation2013). Though it is an OECD member, Korea has been able so far to pursue capital controls without raising the ire of other members.
23 In some cases, this reframing may be less instrumental than I suggest. Chwieroth Citation(2013b) argues that Korean authorities see these measures as prudential and consistent with their acceptance of the norm of liberalization. I should add here that the re-normalization of capital controls may involve rebranding, the focus of this paper, and/or re-framing of capital controls as something other than capital controls. The former represents a more direct assault on the pre-existing neo-liberal ideology, and is expected where states have achieved substantial policy autonomy. The latter amounts to ‘cheating’ – attempting to use a strategy that is not permitted under the neo-liberal rules of the game without admitting it. We should expect this strategy in cases where states have not achieved substantial policy autonomy.
24 That this work is marketed as ‘new’ says much about the state of economics!
25 We should of course not presume that developments at these three levels necessarily unfold in a lock-step manner. What is remarkable about the current conjuncture, however, is the degree to which there have been parallel developments on all three levels as concerns capital controls.
26 Even though they do not represent the IMF's official position (and do not require member state approval), Staff Position Notes (such as Ostry et al., Citation2011) are nevertheless authorized for distribution. Thus, they are important documents in tracking the evolution of thinking at the Fund. Indeed, Ostry et al. (2011, 2012) was authorized by no less than Olivier Blanchard.
27 Chwieroth Citation(2013a) argues that the greater equivocation on controls in the institutional view reflects the fact that official documents require member state approval, whereas reports such as Staff Position Notes do not.
28 Others have previously sought to rebrand controls. Epstein, Grabel and Jomo Citation(2004) refer to controls as one among many ‘capital management techniques’, and Ocampo Citation(2003, Citation2010) has long used the term ‘capital account regulations’ to refer to a family of policies.
29 For an opposing view, see Gabor Citation(2012).
30 Managing capital controls through multilateral rules has long been a French preoccupation (Abdelal, Citation2007).
31 See Gallagher Citation(2013) on efforts to countervail US monetary power through capital controls.
32 Another possibility is that conflict over controls has shifted from the economic to the legal arena as I suggested earlier.
33 This contrasts with Wade Citation(2013), who while acknowledging some change, argues that signs of continuity are more significant than those of discontinuity.
Additional information
Notes on contributors
Ilene Grabel
Ilene Grabel is an Economist and Professor at the Josef Korbel School of International Studies at the University of Denver. She is also a Research Scholar at the Political Economy Research Institute of the University of Massachusetts; Research Partner at the Centro de Estudios Financieros y Económicos de América del Norte, National Autonomous University of Mexico; and Member of the Scientific Board of the Progressive Alliance of the European Parliament. She is an Editorial Board Member of the Review of International Political Economy, the Forum for Social Economics, and the Review of Political Economy, and member of the Board of Directors of the Association for Evolutionary Economics. Her 2004 book (with Ha-Joon Chang), Reclaiming Development (Palgrave Macmillan/Zed Books), has been widely translated, and will be reissued in 2014. She has also authored many articles on financial crises and financial policies in developing countries; the political economy of independent central banks and currency boards; international private capital flows to the developing world; and regional financial architectures.