Rejected IMF Plan to Be Reviewed
The International Monetary Fund (IMF) will review its proposed capital control plan after facing rejection from representatives of developing economies who viewed it as a constraint rather than an aid to improving their economies.
The IMF believed that the capital control plan was necessary for developing economies because surging inflows could fuel asset bubbles and inflation and hurt domestic exporters by driving currency values higher.
Brazil, Turkey, South Korea and several other developing countries have implemented capital control plans last year but for them, limiting capital inflow into their country would be an opportunity for advanced economies to thwart their policies.
Brazil’s finance minister Guido Mantega specifically told the IMF policy-steering committee that their country opposes any guidelines, frameworks or codes of conduct that attempt to directly or indirectly constrain policy responses of countries facing surges in volatile capital inflows.
After the rejection, the IMF decided to delay the plan and to study it further in the next months.
However, if the IMF’s plan was adopted, it would only carry an insignificant force outside countries receiving IMF loans.
But on the other hand, it will also worry some countries who fear that they might be judged negatively if they don’t follow the guidelines when the IMF reviews the economies of its member-countries.
Proponents of the IMF’s plan replied by assuring them that the plan is not going to be a hard set of rules with sanctions.
The plan was presented during the spring meeting of the IMF and the World Bank Group in Washington DC, USA on April 16-17 this year.