Back Matter

Back Matter

Author(s):
Akira Ariyoshi, Andrei Kirilenko, Inci Ötker, Bernard Laurens, Jorge Canales Kriljenko, and Karl Habermeier
Published Date:
May 2000
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    STATISTICAL APPENDIX
    Table A1Argentina: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance3.3−0.2−2.8−3.3−4.0−1.9−2.4−4.1−4.9
    Financial account balance−3.50.33.13.04.05.31.63.33.2
    Net private capital flows excluding reserves−0.90.54.53.74.14.22.84.44.4
    Direct investment in reporting economy1.31.31.81.71.21.42.12.31.6
    Net portfolio flows, with errors and omissions−0.80.2−0.510.61.4−1.24.45.36.4
    General government balance−1.7−1.20.4−0.2−1.8−3.7−3.6−2.4−2.1
    (In billions of U.S. dollars)
    Current account balance4.7−0.4−6.5−7.9−10.3−4.9−6.5−12.0−14.7
    Financial account balance−4.90.67.17.010.313.84.49.79.7
    Net private capital flows excluding reserves−1.31.010.48.710.610.87.712.813.1
    Direct investment in reporting economy1.82.44.24.13.13.75.76.74.7
    Net portfolio flows, with errors and omissions−1.10.4−1.125.13.7−3.011.915.619.1
    (Annual percentage change)
    Real GDP−1.310.510.36.35.8−2.85.58.13.9
    Consumer prices (e.o.p.)1,343.984.017.57.43.91.60.10.30.7
    Reserve money (e.o.p.)584.8116.340.736.18.5−15.42.113.62.6
    Broad money (e.o.p.)1,113.3141.362.546.517.6−2.818.825.510.5
    Nominal exchange rate (e.o.p.)1211.178.8−0.80.80.10.1−0.10.00.0
    Real effective exchange rate (e.o.p.)2158.3−10.117.56.8−5.9−3.30.37.6−2.9
    (In percent)
    Interest rate differential39,695,413.865.611.63.33.53.60.91.21.5
    Depreciation-adjusted396,635,166.8129.111.73.53.64.01.11.31.6
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in Argentina and those in the reference country, United States (yearly average). See Figure 8 and 17 for details.

    Table A2.Brazil: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−0.6−0.31.0−0.1−0.2−2.6−3.0−4.1−4.3
    Financial account balance0.60.1−0.70.1−0.22.53.33.74.8
    Net private capital flows excluding reserves1.30.62.31.20.84.64.52.53.0
    Direct investment in reporting economy0.20.20.30.10.30.81.42.33.7
    Net portfolio flows, with errors and omissions0.00.92.01.26.91.72.51.82.2
    General government balance1.61.5−2.20.3−3.3−7.0−5.9−6.2−8.0
    (In billions of U.S. dollars)
    Current account balance−3.8−1.46.1−0.6−1.7−18.0−23.0−33.3−33.6
    Financial account balance4.20.7−4.30.7−1.917.825.329.537.6
    Net private capital flows excluding reserves8.13.114.112.06.732.534.920.523.2
    Direct investment in reporting economy1.01.12.11.32.65.510.518.828.9
    Net portfolio flows, with errors and omissions0.14.512.612.256.211.919.214.317.4
    (Annual percentage change)
    Real GDP−3.71.0−0.54.95.94.22.83.7−0.1
    Consumer prices (e.o.p.)1,621.0562.21,119.12,477.1916.522.49.65.21.7
    Reserve money (e.o.p.)1,835.3496.61,148.22,424.42,241.711.922.834.2−11.1
    Broad money (e.o.p.)1,289.2633.61,606.62,936.61,211.931.912.218.48.6
    Nominal exchange rate (e.o.p.)11,458.9528.51,059.02,532.5613.415.06.97.48.3
    Real effective exchange rate (e.o.p.)2−18.8−8.08.112.633.5−4.12.37.0−9.8
    (In percent)
    Interest rate differential3414.6841.81,570.83,281.44,816.447.522.219.524.1
    Depreciation-adjusted31,313.55,605.05,547.425,373.384.842.716.513.42.6
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in Brazil and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A3.Chile: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−1.6−0.3−2.4−5.8−3.1−2.0−5.1−4.9−5.7
    Financial account balance9.62.67.47.010.43.57.79.84.5
    Net private capital flows excluding reserves9.95.56.97.211.26.710.49.93.6
    Direct investment in reporting economy0.71.71.72.03.72.96.05.86.2
    Net portfolio flows, with errors and omissions1.01.71.91.60.80.30.62.5−2.7
    General government balance3.52.33.11.72.93.93.12.50.1
    (In billions of U.S. dollars)
    Current account balance−0.5−0.1−1.0−2.6−1.6−1.3−3.5−3.7−4.1
    Financial account balance2.90.93.13.15.32.35.37.43.3
    Net private capital flows excluding reserves3.01.92.93.25.74.47.17.52.6
    Direct investment in reporting economy0.20.60.70.91.91.94.14.44.5
    Net portfolio flows, with errors and omissions0.30.60.80.70.40.20.41.9−2.0
    (Annual percentage change)
    Real GDP3.78.012.37.05.710.67.47.63.4
    Consumer prices (e.o.p.)27.318.712.712.28.98.26.66.04.7
    Reserve money (e.o.p.)54.423.721.713.620.713.915.916.0−3.6
    Broad money (e.o.p.)23.528.123.323.411.325.819.616.39.6
    Nominal exchange rate (e.o.p.)113.611.32.012.7−6.30.84.43.57.7
    Real effective exchange rate (e.o.p.)2−3.86.510.40.45.81.73.99.6−6.1
    (In percent)
    Interest rate differential332.116.514.615.110.57.88.16.49.4
    Depreciation-adjusted321.717.81.28.719.28.17.6−1.92.0
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated deposit interest rates in Chile and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A4.China: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance3.13.31.3−1.91.31.30.93.83.4
    Financial account balance−2.3−1.60.43.60.42.31.0−1.4−1.3
    Net private capital flows excluding reserves0.81.7−0.73.34.64.94.62.9−1.2
    Direct investment in reporting economy0.91.12.34.66.25.14.94.94.6
    Net portfolio flows, with errors and omissions−0.9−1.6−1.7−1.2−1.0−3.5−1.7−1.7−2.5
    General government balance−2.0−2.2−2.3−2.0−2.7−2.1−1.7−1.8−3.0
    (In billions of U.S. dollars)
    Current account balance12.013.36.4−11.66.98.87.334.732.6
    Financial account balance−8.8−6.51.821.72.216.28.4−12.8−12.7
    Net private capital flows excluding reserves3.16.8−3.619.525.034.238.125.9−11.9
    Direct investment in reporting economy3.54.411.227.533.835.840.244.243.8
    Net portfolio flows, with errors and omissions−3.4−6.5−8.3−7.0−5.6−24.2−13.9−15.1−23.6
    (Annual percentage change)
    Real GDP3.89.214.213.512.610.59.68.87.8
    Consumer prices (e.o.p.)4.34.58.818.825.510.17.00.4−1.0
    Reserve money (e.o.p.)30.124.216.342.531.020.629.513.92.3
    Broad money (e.o.p.)28.926.730.842.835.129.525.317.315.3
    Nominal exchange rate (e.o.p.)110.64.15.80.845.6−1.5−0.2−0.2−0.0
    Real effective exchange rate (e.o.p.)2−16.9−5.8−13.0−0.99.96.35.411.6−8.7
    (In percent)
    Interest rate differential31.62.03.96.46.45.13.71.4−0.5
    Depreciation-adjusted3−7.5−2.40.0−17.010.56.84.41.8−0.4
    Sources: IMF (Wtu, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation. Revised weights.

    Difference between domestic currency-denominated deposit interest rates in China and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A5.Colombia: Selected Economic Indicators1
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance1.35.61.8−4.0−4.4−5.0−4.8−5.4−5.7
    Financial account balance−1.5−6.8−2.24.54.04.75.36.15.9
    Net private capital flows excluding reserves0.3−1.22.14.75.73.55.95.93.0
    Direct investment in reporting economy1.21.11.51.71.81.03.15.23.0
    Net portfolio flows, with errors and omissions0.21.50.8−0.00.41.71.10.11.5
    General government balance−1.1−0.3−0.90.2−1.1−0.8−2.4−3.0−3.4
    (In billions of U.S. dollars)
    Current account balance0.52.30.9−2.2−3.6−4.6−4.8−5.9−5.9
    Financial account balance−0.6−2.8−1.12.53.24.35.26.76.1
    Net private capital flows excluding reserves0.1−0.51.02.64.73.25.96.43.1
    Direct investment in reporting economy0.50.50.71.01.41.03.15.73.0
    Net portfolio flows, with errors and omissions0.10.60.4−0.00.41.71.10.11.5
    (Annual percentage change)
    Real GDP4.32.04.05.45.85.22.13.20.4
    Consumer prices (e.o.p.)32.426.825.122.622.619.521.617.716.7
    Reserve money (e.o.p.)44.633.427.511.25.825.0−16.5
    Broad money (e.o.p.)37.642.942.823.434.124.510.3
    Nominal exchange rate (e.o.p.)231.111.216.79.03.318.81.828.719.2
    Real effective exchange rate (e.o.p.)3−10.611.17.110.510.8−3.521.0−3.2−4.5
    (In percent)
    Interest rate differential417.523.118.429.6
    Depreciation-adjusted4−3.626.1−4.517.6
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Data may not coincide with references in the report, as numbers have recently been revised.

    Domestic currency units per U.S. dollar

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in Colombia and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A6.India: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−3.0−1.3−1.0−0.6−0.9−1.5−1.3−1.3−1.0
    Financial account balance2.21.10.4−0.70.21.81.91.50.8
    Net private capital flows excluding reserves1.10.9−0.01.01.61.72.92.61.8
    Direct investment in reporting economy0.00.00.10.20.40.50.60.80.6
    Net portfolio flows, with errors and omissions0.80.30.72.21.90.40.10.30.3
    General government balance−12.7−9.7−9.1−9.7−9.1−8.1−8.3−8.6−9.0
    (In billions of U.S. dollars)
    Current account balance−9.6−3.8−2.9−1.8−2.8−5.3−4.9−5.3−4.4
    Financial account balance7.13.01.2−1.80.76.67.56.23.5
    Net private capital flows excluding reserves3.42.4−0.12.85.16.111.210.67.5
    Direct investment in reporting economy0.10.10.30.51.21.82.53.32.7
    Net portfolio flows, with errors and omissions2.50.81.96.35.91.60.51.21.3
    (Annual percentage change)
    Real GDP5.91.74.25.17.28.07.45.55.8
    Consumer prices (e.o.p.)13.713.18.08.69.59.710.46.315.3
    Reserve money (e.o.p.)13.718.78.421.721.712.69.511.212.4
    Broad money (e.o.p.)16.318.716.616.520.114.616.117.120.0
    Nominal exchange rate (e.o.p.)16.142.91.419.80.012.12.19.38.1
    Real effective exchange rate (e.o.p.)2−9.3−22.1−1.10.50.7−8.96.34.0−7.4
    (In percent)
    Interest rate differential37.513.611.75.62.99.75.7−0.26.8
    Depreciation-adjusted3−5.3−9.22.10.92.92.52.4−9.2−10.4
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in India and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A7.Kenya: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−5.6−1.1−1.32.90.9−4.5−1.1−3.5−3.5
    Financial account balance3.45.31.1−4.5−5.00.8−5.4−1.1−1.2
    Net private capital flows excluding reserves2.44.31.00.7−3.2−1.1−1.20.1−0.9
    Direct investment in reporting economy0.00.00.00.00.00.00.00.00.0
    Net portfolio flows, with errors and omissions2.2−4.20.21.64.03.76.54.03.9
    General government balance−5.1−2.2−10.9−7.2−1.1−0.2−2.5−1.7−0.1
    (In billions of U.S. dollars)
    Current account balance−0.5−0.1−0.10.20.1−0.4−0.1−0.4−0.4
    Financial account balance0.30.40.1−0.3−0.40.1−0.5−0.1−0.1
    Net private capital flows excluding reserves0.20.30.10.0−0.2−0.1−0.10.0−0.1
    Direct investment in reporting economy0.00.00.00.00.00.00.00.00.0
    Net portfolio flows, with errors and omissions0.2−0.30.00.10.30.30.60.40.4
    (Annual percentage change)
    Real GDP4.71.4−0.80.42.64.44.12.11.5
    Consumer prices (e.o.p.)20.614.633.654.66.66.910.88.32.5
    Reserve money (e.o.p.)21.815.753.552.531.328.78.2−1.5−1.7
    Broad money (e.o.p.)20.119.639.028.027.412.515.99.83.1
    Nominal exchange rate (e.o.p.)111.516.629.088.2−34.224.8−1.613.9−1.2
    Real effective exchange rate (e.o.p.)2−5.7−2.18.6−17.547.4−18.312.31.90.1
    (In percent)
    Interest rate differential37.311.213.146.819.012.817.217.818.0
    Depreciation-adjusted3−7.2−1.1−18.840.594.5−9.226.815.811.3
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated treasury bill interest rates in Kenya and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A8.Malaysia: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−2.1−8.8−3.8−4.8−7.8−10.0−4.9−5.112.9
    Financial account balance−0.57.01.4−2.28.48.34.18.8−11.0
    Net private capital flows excluding reserves3.39.112.816.23.86.46.75.0−4.3
    Direct investment in reporting economy5.58.38.97.86.04.85.87.02.8
    Net portfolio flows, with errors and omissions2.61.82.37.0−0.61.70.8−3.7−2.0
    General government balance−2.20.1−2.6−2.30.93.74.83.5−1.1
    (In billions of U.S. dollars)
    Current account balance−0.9−4.2−2.2−3.1−5.6−8.7−4.9−5.09.2
    Financial account balance−0.23.40.8−1.46.17.24.08.6−7.8
    Net private capital flows excluding reserves1.44.47.410.42.85.66.64.9−3.1
    Direct investment in reporting economy2.34.05.25.04.34.25.76.82.0
    Net portfolio flows, with errors and omissions1.10.91.44.5−0.41.50.8−3.6−1.4
    (Annual percentage change)
    Real GDP9.68.67.88.39.39.48.67.7−6.7
    Consumer prices (e.o.p.)3.44.24.93.45.33.23.32.95.3
    Reserve money (e.o.p.)22.714.521.811.636.224.747.227.4−38.6
    Broad money (e.o.p.)10.616.921.926.612.820.924.317.4−1.4
    Nominal exchange rate (e.o.p.)1−0.10.8−4.13.4−5.2−0.7−0.553.9−2.4
    Real effective exchange rate (e.o.p.)2−7.8−1.111.60.6−2.80.24.4−23.20.2
    (In percent)
    Interest rate differential3−2.11.54.54.20.5−0.11.72.13.1
    Depreciation-adjusted3−3.110.13.91.58.10.33.5−19.04.6
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in Malaysia and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A9Peru: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−3.3−3.0−4.9−5.2−5.3−7.3−5.9−5.0−6.0
    Financial account balance−1.61.21.61.86.66.27.67.83.8
    Net private capital flows excluding reserves0.43.12.93.87.86.58.38.34.0
    Direct investment in reporting economy0.51.21.72.63.12.93.0
    Net portfolio flows, with errors and omissions0.62.51.72.40.5
    General government balance−7.4−1.4−2.6−2.7−2.5−2.8−1.1−0.5−0.4
    (In billions of U.S. dollars)
    Current account balance−1.1−1.3−2.1−2.1−2.7−4.3−3.6−4.4−3.8
    Financial account balance−0.50.50.70.73.33.74.65.12.4
    Net private capital flows excluding reserves0.11.31.21.53.93.85.05.42.5
    Direct investment in reporting economy0.20.50.81.51.91.91.9
    Net portfolio flows, with errors and omissions0.31.31.01.50.3
    (Annual percentage change)
    Real GDP−3.72.9−1.76.413.17.32.46.90.3
    Consumer prices (e.o.p.)7,649.7139.256.739.515.410.211.86.56.0
    Reserve money (e.o.p.)7,782.5162.295.959.431.031.237.838.75.7
    Broad money (e.o.p.)5,113.1250.083.641.741.224.228.015.00.4
    Nominal exchange rate (e.o.p.)13,869.295.762.431.7−0.98.911.15.115.5
    Real effective exchange rate (e.o.p.)211.821.9−4.55.96.8−3.30.97.5−8.7
    (In percent)
    Interest rate differential32,431.4164.756.041.017.79.89.59.49.6
    Depreciation-adjusted31,304,476.8193.2−9.528.116.05.0−2.33.8−8.0
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated deposit interest rates in Peru and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A10Romania: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−8.0−4.7−7.8−4.7−1.7−4.9−7.4−6.2−7.9
    Financial account balance8.14.5−1.11.1−0.83.54.9−0.66.4
    Net private capital flows excluding reserves1.64.9−4.20.31.50.75.62.83.8
    Direct investment in reporting economy0.00.10.40.41.21.81.23.75.3
    Net portfolio flows, with errors and omissions−0.61.90.6−2.00.1−0.12.23.91.1
    General government balance1.03.3−4.6−0.4−1.9−2.6−4.0−3.6−3.3
    (In billions of U.S. dollars)
    Current account balance−1.8−1.3−1.5−1.2−0.5−1.7−2.6−2.2−3.0
    Financial account balance3.11.3−0.20.3−0.21.21.7−0.22.4
    Net private capital flows excluding reserves0.61.4−0.80.10.40.22.01.01.5
    Direct investment in reporting economy0.00.00.10.10.30.70.41.32.0
    Net portfolio flows, with errors and omissions−0.20.60.1−0.50.00.00.81.40.4
    (Annual percentage change)
    Real GDP−5.6−12.9−8.81.54.07.23.9−6.9−7.3
    Consumer prices (e.o.p.)4.7222.8199.2295.561.827.756.9151.440.6
    Reserve money (e.o.p.)22.5116.3136.487.556.251.4136.520.8
    Broad money (e.o.p.)102.275.4143.3138.171.666.075.948.9
    Nominal exchange rate (e.o.p.)1140.4444.5143.4177.455.544.246.0113.932.3
    Real effective exchange rate (e.o.p.)2−42.9−40.930.253.1−4.7−18.08.427.01.4
    (In percent)
    Interest rate differential3103.577.6
    Depreciation-adjusted3152.736.1
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated treasury bill interest rates in Romania and those in the reference country, United States (yearly average). Desk data. See Figures 8 and 17 for details.

    Table A11Russian Federation: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−0.50.5−1.41.43.11.40.9−0.70.8
    Financial account balance0.5−0.51.4−1.4−3.1−1.4−0.90.7−0.8
    Net private capital flows excluding reserves−0.5−1.30.83.20.24.8−0.00.3−4.7
    Direct investment in reporting economy−0.1−0.00.80.50.20.60.61.40.8
    Net portfolio flows, with errors and omissions0.0−0.00.02.76.03.14.24.22.1
    General government balance−6.0−15.2−18.6−7.4−10.4−6.1−8.9−7.9−8.0
    (In billions of U.S. dollars)
    Current account balance−4.54.1−1.22.68.44.83.9−3.02.3
    Financial account balance4.5−4.11.2−2.6−8.4−4.8−3.93.0−2.3
    Net private capital flows excluding reserves−5.0−10.20.75.90.416.1−0.21.4−13.2
    Direct investment in reporting economy−0.7−0.00.70.90.62.02.56.22.2
    Net portfolio flows, with errors and omissions0.0−0.00.05.016.310.317.618.45.8
    (Annual percentage change)
    Real GDP−2.3−5.4−19.4−10.4−11.6−2.4−3.40.9−4.6
    Consumer prices (e.o.p.)840.0215.0131.021.811.084.4
    Reserve money (e.o.p.)203.5107.827.327.628.1
    Broad money (e.o.p.)216.5112.629.628.037.5
    Nominal exchange rate (e.o.p.)1200.5184.730.719.87.2246.5
    Real effective exchange rate (e.o.p.)2−3.738.2−1.69.1−43.9
    (In percent)
    Interest rate differential3162.581.021.241.7
    Depreciation-adjusted3356.688.016.1−41.1
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated treasury bill interest rates in the Russian Federation and those in the reference country, United States (yearly average). Desk data. See Figures 8 and 17 for details.

    Table A12Spain: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−3.5−3.6−3.5−1.2−1.30.00.00.4−0.2
    Financial account balance3.13.23.90.81.0−0.2−0.7−0.6−0.2
    Net private capital flows excluding reserves3.53.0−1.1−9.95.2−4.53.00.70.7
    Direct investment in reporting economy2.72.32.21.61.91.11.11.02.0
    Net portfolio flows, with errors and omissions1.93.50.69.5−4.72.6−0.7−2.0−5.7
    General government balance−3.6−4.3−4.0−6.7−6.1−7.0−4.4−2.5−1.7
    (In billions of U.S. dollars)
    Current account balance−18.0−19.8−21.3−5.8−6.60.20.22.3−1.4
    Financial account balance15.817.723.54.45.0−1.1−4.2−3.1−1.1
    Net private capital flows excluding reserves18.216.5−6.9−49.726.5−26.318.14.04.0
    Direct investment in reporting economy14.012.513.38.19.46.26.55.611.4
    Net portfolio flows, with errors and omissions9.819.23.447.5−23.515.3−4.1−11.7−33.1
    (Annual percentage change)
    Real GDP3.72.30.7−1.22.12.92.43.74.0
    Consumer prices (e.o.p.)6.65.55.44.94.34.33.22.01.4
    Reserve money (e.o.p.)−32.222.00.50.510.33.93.66.63.7
    Broad money (e.o.p.)17.512.0−0.45.06.63.17.011.914.5
    Nominal exchange rate (e.o.p.)1−1.3−0.311.316.13.4−0.4−0.50.40.7
    Real effective exchange rate (e.o.p.)24.20.3−5.0−11.81.34.2−2.2−3.41.3
    (In percent)
    Interest rate differential36.04.24.95.42.95.04.12.10.8
    Depreciation-adjusted311.03.0−7.5−3.6−6.413.62.72.30.5
    Sources: IMF (WEO, IFS, INS, and staff estimates);World Bank, and country authorities.

    Domestic currency units per German mark.

    Increase means an appreciation.

    Difference between domestic currency-denominated treasury bill interest rates in Spain and those in the reference country, Germany (yearly average). Desk data. See Figures 8 and 17 for details.

    Table A13Thailand: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance−8.3−7.5−5.5−5.0−5.4−7.9−7.9−1.912.4
    Financial account balance6.77.36.05.35.69.18.13.1−13.1
    Net private capital flows excluding reserves12.810.78.78.38.612.95.7−7.6−16.9
    Direct investment in reporting economy1.91.71.51.31.01.31.42.56.3
    Net portfolio flows, with errors and omissions2.30.30.04.21.61.21.82.23.0
    General government balance4.74.82.82.21.93.02.5−0.8−2.6
    (In billions of U.S. dollars)
    Current account balance−7.1−7.2−6.0−6.1−7.8−13.2−14.4−3.014.3
    Financial account balance5.77.06.56.48.015.314.64.8−14.6
    Net private capital flows excluding reserves11.010.39.510.212.521.610.4−11.7−19.5
    Direct investment in reporting economy1.71.61.71.61.42.12.63.87.0
    Net portfolio flows, with errors and omissions1.90.20.05.22.32.03.33.33.5
    (Annual percentage change)
    Real GDP11.68.18.28.58.68.85.5−1.3−9.4
    Consumer prices (e.o.p.)6.64.73.04.64.67.54.87.64.3
    Reserve money (e.o.p.)18.613.317.916.114.522.612.04.50.4
    Broad money (e.o.p.)26.719.815.618.412.917.012.72.06.1
    Nominal exchange rate (e.o.p.)1−1.6−0.00.90.1−1.80.41.784.5−22.3
    Real effective exchange rate (e.o.p.)2−2.90.61.81.8−2.63.05.4−33.023.8
    (In percent)
    Interest rate differential34.85.53.43.53.05.13.99.17.7
    Depreciation-adjusted37.45.84.74.25.33.71.05.521.8
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S.dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in Thailand and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

    Table A14Venezuela: Selected Economic Indicators
    199019911992199319941995199619971998
    (In percent of GDP)
    Current account balance17.83.2−6.2−3.34.42.612.55.3−2.8
    Financial account balance−13.4−0.46.33.6−5.5−2.6−11.8−4.92.6
    Net private capital flows excluding reserves−9.62.43.32.5−6.7−3.8−2.0−0.9−0.4
    Direct investment in reporting economy0.93.61.00.61.41.33.75.84.2
    Net portfolio flows, with errors and omissions29.7−1.9−0.1−0.32.10.40.1−1.11.0
    General government balance
    (In billions of U.S. dollars)
    Current account balance8.61.7−3.8−2.02.52.08.84.7−2.6
    Financial account balance−6.5−0.23.82.2−3.2−2.0−8.4−4.32.4
    Net private capital flows excluding reserves−4.61.32.01.5−3.9−3.0−1.4−0.8−0.4
    Direct investment in reporting economy0.51.90.60.40.81.02.65.14.0
    Net portfolio flows, with errors and omissions14.4−1.0−0.0−0.21.20.30.1−0.90.9
    (Annual percentage change)
    Real GDP6.59.76.10.3−2.44.0−0.25.9−0.4
    Consumer prices (e.o.p.)36.531.031.945.970.856.6103.237.629.9
    Reserve money (e.o.p.)129.645.38.29.765.133.7155.657.5−1.6
    Broad money (e.o.p.)71.239.216.525.369.237.169.158.56.5
    Nominal exchange rate (e.o.p.)116.922.229.133.060.970.664.35.811.9
    Real effective exchange rate (e.o.p.)24.96.31.711.1−2.81.66.637.211.4
    (In percent)
    Interest rate differential328.212.9
    Depreciation-adjusted38.86.0
    Sources: IMF (WEO, IFS, INS, and staff estimates); and country authorities.

    Domestic currency units per U.S. dollar.

    Increase means an appreciation.

    Difference between domestic currency-denominated money market interest rates in Venezuela and those in the reference country, United States (yearly average). See Figures 8 and 17 for details.

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    The choice of countries as well as the number of the country cases for a group was based on ready availability of adequate information to make an informed analysis. Conditions in world goods and financial markets have changed profoundly during the last three decades, so the paper focuses on the experience of (mainly developing) countries that have used or liberalized capital controls during the last 5 to 10 years. Most advanced countries had liberalized their capital accounts completely by the beginning of this decade.

    Another issue, which is not addressed in this paper, is the effect on other countries and the international economy at large when a country, or group of countries, resorts to capital controls.

    This tax resembles the “Tobin tax,” which proposes a uniform levy on all foreign exchange transactions to discourage short-term speculative position-taking in foreign currency.

    This assessment is complicated by large differences in the extent of previous research. The Chilean experience with capital controls has by far received the greatest attention in the economic literature; Part II, Chapter V, and Appendix I review these studies.

    National data support this conclusion. However, the evidence is mixed in the case of Chile, where more detailed examinations of the data have cast some doubt on the proposition that the controls affected the composition of flows. (See also Appendix I.)

    The experience here closely parallels earlier episodes in industrialized countries under an adjustable peg regime. For example, Germany during 1968–73 attempted to resist episodes of strong capital inflows by measures including minimum reserve requirements on the growth of liabilities to nonresidents. These measures contributed to disintermediation from the banking system, and obliged the Bundesbank to introduce an ever-broadening range of indirect and quantitative controls. Nonetheless, the controls were largely ineffective in preventing short-term capital inflows and ultimately the appreciation of the currency.

    The control took the form of swap limits on banks’ non-trade-related offer-side swap transactions with nonresidents.

    Capital controls in many instances may be regarded by the authorities as serving other important purposes, including strengthening national sovereignty, protecting national security, and achieving specific social objectives.

    Baliño and others (1999) reviews how inadequate prudential policies and weak banking systems contributed to and deepened the crisis in countries such as Indonesia, Korea, and Thailand.

    In Korea, for example, the crises in the banking and corporate sectors, and the related external payments crisis, were to a large extent rooted in excessive lending of foreign currency to corporate borrowers with inadequate foreign exchange earnings. These exposures were not adequately monitored and controlled, either by the banks themselves or by the supervisory authorities.

    A comprehensive review of work in this area was provided in Annex IV to the October 1999 International Capital Markets report, “Proposals for Improved Risk Management, Transparency, and Regulatory and Supervisory Reforms.” The Basel Committee on Banking Supervision has played a central role in this area. Work is also under way in the context of the Financial Stability Forum, which has established working groups on capital flows, off-shore financial rights, and highly leveraged institutions. The Joint Forum on Financial Conglomerates—which comprises the Basel Committee, the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS)—has also issued a report on the supervision of financial conglomerates.

    Other specific proposals that could influence banks’ international activities include those on risk weights for over-the-counter derivatives and securitized assets.

    National supervisory authorities would need to be satisfied that the risk assessment institutions meet minimum standards for transparency, objectivity, independence, credibility, and accuracy. Also, banks would be expected to follow a consistent approach in using such assessments (that is, cherry-picking ratings would not be permitted).

    For the purpose of the Accord, OECD countries include full members of the OECD and those countries that that have concluded special lending arrangements with the IMF associated with the Fund’s General Arrangements to Borrow, but exclude any country that has rescheduled its sovereign debt during the previous five years.

    In such a run, a rapid and large-scale sell-off of a country’s assets (and by implication its currency) has adverse effects on the real economy, further depressing asset values. Investors, expecting other investors to sell off, seek to be the first through the exits.

    Chile’s prudential policies are discussed in Appendix I. Argentina’s financial sector reforms are discussed in detail in various issues of the IMF Staff Country Reports on Argentina. It is important to note that efforts to improve prudential policies in Argentina have been ongoing, and additional elements of best practice have been implemented almost continuously. In 1996–99, for example, minimum capital requirements were tightened through the introduction of more stringent criteria for calculating risk-weighted assets and by making minimum capital requirements a function of the degree of maturity mismatch between banks’ assets and liabilities.

    Corporate governance and monitoring by creditors are expected to provide oversight, but the basic presumption would be that economic agents must be allowed to invest their own money as they see fit.

    Some countries with weak domestic prudential institutions have limited their resort to capital controls by encouraging foreign bank ownership, with supervision by the banks’ home supervisors.

    A “box” strategy consists of trading four options (two calls and two puts), so that the payment at the maturity date is fixed. Since the payment is fixed at the maturity date, the “no arbitrage” argument leads to the conclusion that the return on the whole strategy must equal the riskless rate of return. In Brazil, this is the rate on the interbank funds market.

    Monthly net private capital flows averaging $39 million between 1988–91 rose to a monthly average net flow of $970 million in 1992–95. During this period, the capital flows also seem to primarily consist of short-term resources (see Cordoso and Gold-fajn, 1997).

    In addition to the “financial engineering” strategies mentioned above, including investments in debentures, government securities, and derivative products that replicate fixed income returns, there has also been a massive increase in direct investment in 1996, a significant part of which was attributed by the financial press to fixed income investments disguised as direct investments to avoid the restriction on capital inflows (Garcia and Valpassos, 1998).

    A more detailed case study of Chile’s experience with the use of capital controls is provided in Appendix I.

    The real effective exchange rate of the Chilean peso continued to appreciate at an average rate of 4 percent a year from 1991 to mid-1997; and average capital inflows amounted to 7.3 percent of GDP in 1990–95 and 11.3 percent in 1996–97, before falling in 1998.

    The share of medium and long-term capital increased from about 23 percent of total inflows in 1990 to 62 percent in 1997–98 (see Le Fort, (1999).

    Capital flow figures used in this section are based on the official balance of payments released on the basis of the fourth edition of the IMF’s Balance of Payments Manual.

    The GDP ratios used here refer to the old GDP series, based on a 1975 survey. Colombia has recently introduced important revisions in GDP based on a new survey year, 1994, and GDP data in the pre-1994 period have not been linked to the new series.

    Losses at the central bank amounted to 0.8 percent of GDP in1991.

    The withholding tax is a foreign exchange tax similar to the one considered by Tobin; the effective tax rate depends on the interest rate as agents can claim amounts paid against future tax payments (Cárdenas and Barrera, 1996). Under IMF jurisdiction, the measure gave rise to a multiple currency practice.

    The discussion of this experience draws on “Malaysia’s Recent Experience with International Capital Flows,” which appeared in IMF (1995), and on Willard Working Group 2 (1998).

    In 1992, the monetary authorities absorbed approximately RM 24 billion of excess liquidity from the banking system, equivalent to 90 percent of the outstanding stock of reserve money, and in 1993, about RM 40 billion of bank liquidity, equivalent to 1.5 times the stock of reserve money. According to the Annual Reports of Bank Negara Malaysia for 1993–94, the “quasi-fiscal” costs of sterilization were substantial (see IMF, 1995).

    A ringgit bid-side swap transaction comprises all forms of forward purchases of foreign currencies against ringgit, including outright forwards and options or spot transactions that are rolled over to synthesize a forward transaction. Prohibition of commercial banks to engage in non-trade-related bid-side swap or forward transactions with nonresidents aims to curtail speculative activities of offshore agents seeking long positions in ringgit in expectation of a ringgit appreciation.

    This measure effectively resulted in a negative interest rate being imposed on these deposits, thereby further discouraging the excessive inflows of such funds.

    The interest rate differentials even became negative in 1995.

    Capital inflows were actively promoted at a relatively early stage (1985–86, 1990–95), while outflows were liberalized only gradually (1990–92, 1994). Inflows through portfolio and equity investments were permitted freely, while portfolio and foreign direct investment outflows were subject to restrictions. Banks’ foreign borrowing was unrestricted other than by net open position limits, while that by residents could be contracted freely except that proceeds needed to be repatriated to authorized banks or placed in foreign currency accounts.

    The dominance of capital inflows by short-term flows was also a feature of the other countries in the region. In Korea, although short-term inflows were liberalized gradually and selectively, the regulations created a bias toward channeling inflows through banks, which tended to borrow short term. In Indonesia, short-term inflows rose after 1994, although the regulations did not seem to promote short-term inflows deliberately and limits were imposed in 1992–96 on foreign borrowing by banks and private and state-owned companies. In Malaysia, the share of short-term inflows in total increased sharply in 1991–93, prompting the authorities to impose controls on short-term inflows (see above).

    While the reserve requirement for resident and nonresident baht account balances with a maturity of less than one year was the same, the rule on how the reserve requirement could be met differed between these deposits, thereby affecting the relative cost of funding.

    A possible channel for such inflows is that, in the absence of adequate indirect monetary instruments, the central bank sterilized inflows through foreign exchange swaps, which involved setting a forward exchange rate that did not deviate significantly from the spot rate. Moreover, the 1995 measures to limit short-term inflows exempted borrowing for trade financing, overdrafts, and liabilities arising from currency trading and derivatives activities.

    Net open position limits were reduced in late 1994 and the criteria for calculating net open positions were tightened in 1995–96; in particular, commercial loans to certain sectors could only be partially included as foreign assets unless borrowers fully hedged the exchange rate risk and foreign exchange loans to certain high-risk sectors were excluded from assets in calculating net positions in 1996.

    A more detailed study of this episode is provided in Appendix III.

    These types of limits on banks’ swap operations with nonresidents have been used by central banks in many other countries to curtail speculative attacks. The rationale for these limits is that the interest rate defense during a speculative attack normally imposes high interest costs on both speculators and on the rest of the economy. To mitigate this cost, a central bank may try to charge speculators higher rates. If speculators are nonresidents who engage in foreign exchange swaps with domestic banks, the central bank can try to achieve this by either banning (or limiting) such swaps, or insisting that heavy forward discounts be imposed on the forward legs of such swaps (see IMF, 1997).

    While short-term capital account recorded a substantial net outflow of capital overall in 1998 (RM 21.7 billion, compared with a net outflow of RM 11.3 billion in 1997), reflecting large outflows of portfolio investment in the second and third quarters of 1998, short-term capital flows stabilized in the last quarter of 1998, following the implementation of the one-year holding period for portfolio investment, effective from September 1998 (see Bank Negara Malaysia, 1998). Moreover, net outflows from overseas investment by Malaysian-owned companies also declined (to RM 3.1 billion in 1998 from RM 8.2 billion in 1997), reflecting the slowdown in economic activity and uncertainty in the region, as well as the government’s directive to defer overseas investments that did not have direct linkages with the domestic economy and the tightening of exchange control regulations on overseas investment since September 1998. However, no information is available to gauge whether this is a possible consequence of substantial outflows of capital having already taken place before the controls were imposed in September.

    Notwithstanding some early repatriation of funds after its introduction and subdued stock market performance until early April, Malaysia has started to receive net capital inflows, the stock market picked up, accumulation of reserves resumed since March, its credit ratings were upgraded, and discussions for its reinclusion in key investment indices were initiated.

    The yield differential on the recent sovereign bond issue was somewhat larger than in Korea, Thailand, and the Philippines, whereas in previous years, sovereign bond spreads had generally been the same or lower.

    Increased foreign holdings of public sector securities were encouraged, in part, by an exemption for nonresidents from taxes on interest and capital gains from the sale and purchase of government debt.

    Some key dates in this episode of crisis include the realignment of the Italian lira (September 13); the exit of the lira and the U.K. pound, and the first realignment of the Spanish peseta (September 17); and the second realignment of the peseta and the realignment of the Portuguese escudo (November 23).

    When there is downward pressure on the domestic currency, a one-year 100 percent deposit requirement for one-year financing operations imposed on banks would double the interest income forgone by switching from domestic currency to foreign currency (interest forgone in domestic assets liquidated to buy foreign assets and an equal amount of interest on the assets liquidated to make the required deposit with the central bank). If the banks were to impose on borrowers the implicit cost of financing a shorter-term operation, the cost for a position over a weekend would be 120 times the prevailing domestic rate. Such deposit requirements are known to be equivalent to an implicit widening of the exchange rate band; by introducing a wedge between on and offshore interest rates, they reduce the cost to the authorities of using the interest rate to defend the peg (Eichengreen, Tobin, and Wyplosz, 1995).

    The period for which the deposit with the central bank had to be maintained was set originally at one year, but the norm was also established that the term could be modified weekly.

    Of course, it is possible to attribute these developments to changes in the effectiveness of capital control measures. The Spanish authorities believe that the effectiveness of the measures remained largely intact until mid-November, when, approaching weekends, the higher expectation of an imminent devaluation provoked an increase in speculation against the peseta. That, in their view, translated into a higher offshore demand for pesetas in the offshore markets, which led to rewidening of onshore-offshore differentials, sales on the foreign exchange markets, and consequently, higher volumes of intervention. See, for example, Linde (1993) and Linde and Alonso (1995).

    Before 1997, the capital account had been almost fully liberalized on the inflow side, except for the reserve requirements on short-term foreign borrowing, while outflows were liberalized only gradually. There were no controls on the repatriation of investment funds, dividends, and interest earned, after settlement of relevant taxes, but restrictions existed on outward portfolio and foreign direct investments.

    Despite the initial announcement on June 11, 1997, that the controls would be maintained permanently or at least until the ailing economy recovered, the authorities lifted most of the control measures introduced in May–June 1997, unifying the two-tier market, and replacing the prohibition of baht lending to nonresidents with a maximum outstanding limit of B 50 million on baht credit facilities (loans, currency and interest swaps, options, forward rate agreements) per counterparty without an underlying current and capital account transaction.

    Romania obtained its first non-investment-grade rating in early 1996 based on the resumption of economic growth, decline in inflation, and relatively low indebtedness. The inauguration of the Bucharest stock exchange attracted portfolio flows, and the launching of Eurobond and Samurai issues by the National Bank of Romania opened the way for public commercial banks and public enterprises to tap international capital markets.

    BIS statistics suggest that the first investors whose sentiment changed were residents. Nonresident investors increased their holdings of government securities from $6 billion to $11 billion in the first half of 1998 (about two-thirds of the GKOs maturing in 1998, however, were owned by the central bank and the Russian Savings Bank, and GKOs account for a small fraction of total Russian debt). However, since BIS statistics account for only bank claims, and thus exclude other nonresident investors, the total stock of nonresident holdings of GKOs may involve a larger amount. Although only a minor part was subject to exchange rate risk, nonresidents seem to have actively hedged their currency exposure, since activity in the forward markets increased significantly, both locally and abroad.

    In the first session only importers and the Central Bank of Russia were allowed to purchase foreign exchange from the exporters, who had an export surrender requirement of 50 percent (increased to 75 percent in January 1999).

    The trading sessions were unified by end-June 1999 as part of the conditions for further IMF lending.

    Venezuela’s share in total foreign direct investment received by Latin American countries fell to 3 percent of the total in 1995, compared with about 6 percent in 1989–93, and 9 percent in 1997. Mexico’s share in total foreign direct investment declined only slightly in 1995 despite its currency crisis. However, Mexico lost a significant market share in portfolio investment, to the benefit mainly of Brazil, which had launched its debt and debt service restructuring plan under the Brady scheme in 1994. Because of this decline in Mexico, Venezuela did actually gain some market share in portfolio flows in 1995 (source: IMF, International Financial Statistics).

    Despite a number of steps taken by the authorities to develop a credit culture, the institutional framework for the financial sector is deficient. Classification, provisioning, and accounting standards are all relatively weak, as are internal controls and risk management systems. The central bank faces daunting challenges in strengthening its supervisory functions.

    In particular, the authorities found that during the first half of 1998, capital flight through illegitimate current transactions accounted for $11.9 billion. The finding followed a review of documentation associated with 51,900 current international payments made during the first half of 1998, of which 13,900 could not be demonstrated to be legitimate.

    A survey of multinational firms by the U.S.-China Business Council (an organization of mostly U.S.-based multinational firms operating in China) conducted in November 1998 reported widespread adverse effects of the new exchange control measures. A similar survey sent to European-based multinationals through their national embassies in January and February 1999 reported similar results.

    In the middle of 1998, the authorities had introduced a modest experiment in liberalization by permitting foreign banks to buy yuan from offshore branches of the Bank of China. The measure allowed remitters to convert foreign currency into domestic currency in overseas banks before remitting it into China. The announcement, in June 1999, in effect ended that experiment by requiring that overseas banks directly remit foreign currency into China and leave the decision to domestic beneficiaries to convert into domestic currency or to keep foreign exchange.

    Reserve requirements on demand and savings deposits were lowered in stages from 43 percent to 30 percent, and those on time deposits from 3 percent to 1 percent. In March 1995, banks also were allowed to count up to half of cash-in-vault toward reserve requirements, as well as resources used to purchase assets from banks in difficulty. The central bank created a facility for assisting distressed banks and facilitated interbank transactions by allowing the trading of excess reserve positions among banks. The central bank law was modified in early 1995 to permit the central bank to provide long-term liquidity assistance for amounts in excess of the banks’ capital.

    New issues averaged three to four years’ maturity in 1995, and close to 15 years in 1998.

    The central bank declared that, as of April 30, 1999, the FEBCs ceased to be a financial instrument in Kenya owing to abuses. No new FEBCs will be issued and maturing certificates are to be converted into deposits.

    In particular, the ratio of long-term financing to the private sector to the current account deficit increased from 0.9 percent in 1990 to more than 50 percent after 1993, rising to above 100 percent in 1996.

    Chile had already embarked on a program of economic and financial liberalization in the mid-1970s. However, the combination of a weak prudential framework and a deep recession beginning at the end of 1981 generated a sharp reduction in capital inflows and, ultimately, a crisis that spread throughout the financial system by the beginning of 1983.

    In December 1983, a crawling peg regime replaced the fixed exchange rate. The new exchange regime aimed at maintaining a constant level of the real exchange rate against the U.S. dollar. Discrete devaluation further supported competitiveness (19 percent in September 1984; 3.6 percent in December 1984; 8.2 percent in February 1985; 7.2 percent in June 1985). Eventually, a crawling band was introduced within which the exchange rate could float freely, with the initial band set at ±0.5 percent, then raised to ±2 percent.

    The experience of Chile during the 1983 financial crisis is an example of the latter scenario. The volatility of international capital flows played an important role in triggering the crisis. A large fraction of the capital inflows that entered the country in the period prior to the crisis had been intermediated by a financial system in difficulties. The resulting change in market sentiment and the external debt problems of the country caused a drastic change in the direction of capital flows, which in turn deepened the crisis of the financial system. See Le Fort and Budnevich (1996).

    From this point of view, the URR amounts to an equalization tax to compensate for the higher returns on domestic assets in Chile compared with returns in developed economies.

    In the most recent period, the authorities have emphasized the “macro-prudential” role of the URR—that is, its ability to prevent the buildup of volatile short-term external debt attracted into Chile by the large interest rate differentials, when the exchange rate was expected to appreciate.

    A Tobin tax is one that is a fixed percentage of the capital flow; an asymmetric Tobin tax would discriminate between outflows and inflows.

    Le Fort and Sanhueza (1997) and Labán and Larrain (1998) note that in 1995–96, foreign direct investment became a major channel for portfolio inflows after the URR was extended to ADRs in 1995. Following the 1996 tightening, trade credits by foreign suppliers and importers started to increase gradually, indicating that markets may have found a new channel for inflows. See Soto (1997).

    The “speculative nature” of the inflows is assessed by a committee that approves foreign direct investment applications; a speculative inflow is defined as nonproductive investment.

    The assessment is based on the regulatory framework in place in 1996 as representative of the period under study. In subsequent years the framework has been significantly deregulated (see IMF, Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), 1999).

    A detailed description of the methodology to estimate the indices of exchange controls is provided in IMF (1999b) and Tamirisa (1999). The indices aggregate information from the AREAER.

    Minimum stay requirements (currently one year for foreign direct investment and portfolio investments, and five years for Foreign Capital Invested Funds) were introduced to limit “in and out” financial operations by large institutional investors.

    Chile operates a dual foreign exchange market: the official market for the commercial banks and registered foreign exchange dealers through which all capital inflows and most capital outflows must be channeled; and the informal market on which all other transactions take place. Such a structure is necessary for implementing capital account regulations because the law allows the central bank to regulate only the “formal market.”

    This section draws on Nadal-De Simone and Sorsa (1999).

    Soto finds that the impact effect is positive. The URR increases capital inflows on impact, but it reverses itself after two months, and after six months it is statistically insignificant. The magnitude of the effect is always small. For example, the introduction of a 30 percent tax reduces net capital inflows by approximately $400 million in total. See Soto (1997).

    Laurens and Cardoso (1998) find that the URR affects net private capital inflows only temporarily (i.e., for two quarters).

    In particular, the BIS estimates that short-term debt owed to commercial banks alone (on a residency basis) is significantly higher than official short-term debt. Discrepancies exist also with regard to data collected by the World Bank.

    See Table 5 for a summary of the regulations on capital flows as of March 1999.

    Tests by Edwards indicate that after the introduction of the URR, interest rate differentials tended to disappear more slowly than during the free capital mobility period. See Edwards (1998b).

    The central bank is now including trade credit in its external debt data.

    This is true even once allowance is made for the absolute size of the economy (all other things equal, larger economies tend to be less open than smaller ones).

    Under a dividend balancing requirement, dividends remitted abroad needed to be balanced by other foreign exchange inflows (notably, export earnings).

    This paragraph, and much of the discussion in this section, provides only a broad description of the most important features of the system. For example, a more detailed exposition of the extent of foreign equity permitted to be held by various types of nonresident investors may be found in Box 7.3 of the government’s 1996–97 Economic Survey.

    Foreign institutional investors initially included mutual funds, asset management companies, pension funds, and investment trusts. The list was subsequently expanded. Notably, in 1995, endowment funds, university funds, and foundations and charitable trusts were included.

    Some of these deposits still have tax advantages, however.

    Even so, the average tariff rate remains above the 10 to 15 percent range into which most emerging market economies fall.

    The capital adequacy ratio for nonbank financial corporations is 10 percent.

    Mainly foreign direct investment and portfolio investment. As noted previously, there were considerable debt-creating inflows in the late 1980s, reflecting an increase in NRI deposits and public enterprise borrowing. These inflows contributed to the 1991 crisis and stimulated a rethinking of the approach to capital controls.

    Under covered interest parity, the covered differential (D) equals the difference of domestic interest rates (i) and foreign interest rates (i*), less the forward premium (p): D = i–i*–p. With perfect capital mobility, D should equal zero, so the domestic interest rate equals the foreign rate plus the forward premium. A sophisticated examination for India of the interest rate parity condition is provided by Joshi and Sagger (1998).

    Rishi and Boyce (1990). The margin of error in such studies (as in all studies of illicit economic activity) is high.

    The work of Barro and others supports the view that economic liberalization is associated with faster long-run growth of GDP (Barro and Sala-i-Martin, 1995). Some doubt has also been cast on the statistical robustness of the class of result obtained by Barro and others (see Levine and Renelt, 1992).

    This review is an expanded version of the paper “Use of Capital Controls and Evolution of the Capital Control Regime,” IMF (1999d).

    The size of the offshore market is believed to be some multiple of the underlying stock of ringgit offshore, as reflected in the External Account balances held by nonresidents with resident banks, which amounted to about RM 9.1 billion at end-August 1998 (see Bank Negara Malaysia, 1998 p. 70).

    As of August 1998, the offshore ringgit market was offering deposit interest rates exceeding 20–40 percent compared with 11 percent in Malaysian banks; by that time, the ringgit had depreciated to around RM 4.20 per U.S. dollar from around RM 3.75 in April 1998.

    These channels included transfers of nonresident deposits in Malaysia to offshore banks, and portfolio outflows by residents. The net outflow of portfolio capital was RM 5.5 billion in the last quarter of 1997.

    Some market reports indicated that occasional bilateral trades were made based on RM 3.80 per U.S. dollar as spot, but the trading volumes were too small to constitute a market. Anecdotal evidence suggests that difficulties in finding an onshore counterparty to execute the operation prevented the development of such a market.

    One such incident took place through swaps of portfolio investment for foreign direct investment among market participants; this transaction was approved by Bank Negara Malaysia.

    Based on a comparison of the value of Malaysia’s exports to its three largest trading partners against the value of the trading partners’ imports from Malaysia, a Morgan Stanley report found no signs of misinvoicing of external trade to circumvent the controls; the study attributed the lack of such circumvention primarily to the ringgit’s undervaluation.

    The short-term capital account recorded a substantial net outflow of capital overall in 1998 (RM 21.7 billion, compared with a net outflow of RM 11.3 billion in 1997 and a net inflow of RM 10.3 billion in 1996), reflecting the large portfolio outflows in the second and third quarters of 1998, but short-term outflows stabilized in the last quarter, following the implementation of the 12-month holding period for portfolio investment effective from September 1998 (Bank Negara Malaysia, 1998). Moreover, net outflows from overseas investment by Malaysian companies also declined (to RM 1.3 billion in 1998 from RM 8.2 billion in 1997), reflecting a slowdown in economic activity and uncertainty in the region, as well as the government directive to defer overseas investments that did not have direct linkages with the domestic economy, and the tightening of the exchange control regulations on overseas investments of residents since September 1998.

    Preliminary data indicate that foreign direct investment approved by the government in the first quarter of 1999 amounted to RM 1.3 billion, compared with RM 12.9 billion in 1998, and the value of foreign direct investment applications totaled RM 991 million in the first quarter of 1999, compared with RM 12.7 billion in 1998 and RM 14.5 billion in 1997.

    In its most recent upgrading of Malaysia’s credit outlook, Standard…Poor’s indicated that if the interest rates had not been cut sharply in the last six months, nonperforming loans could have risen to above 30 percent of total loans, computed on a three-month basis.

    The general improvement in market sentiment toward Asia has also contributed to lower interest rates and appreciating currencies.

    The weakness of foreign direct investment also reflected domestic problems in the major investing countries, global excess capacity, and continuing uncertainty in the region in 1998.

    The monthly volume of total transactions in the foreign currency spot and swap markets declined from an average of RM 73.8 billion in January–August 1998 to RM 28.4 billion in the last four months of 1998 (RM 115.8 billion in the same period in 1997).

    The levy is collected by authorized dealers in foreign currencies and permitted merchant banks and deposited into the consolidated federal account as provided by the Exchange Control Act of 1953. The levy is applied at the time of the conversion of ring-git into foreign exchange and is thus not considered a capital gains tax that can be offset through double taxation agreements.

    The effective date of entry is September 1, 1998, or the actual date of entry, whichever comes later. If the investment had been made after a 12-month holding period from when the funds were brought in, the repatriation of profit would also be subject to a 10 percent levy, regardless of when it is repatriated.

    The total amount of outflows since then has been limited to RM 154 million through April 21, 1999 ($40 million at the fixed exchange rate, compared with the estimated amount of $10–$15 billion that had been blocked by the 12-month rule).

    The cumulative amount of net portfolio inflows between February 15 and mid-July 1999 reached RM 4.7 billion but fell to 4.16 billion as of August 11, according to the National Economic Action Council; many investors apparently expect foreign investors to repatriate their funds before September 1, when the prevailing 10 percent tax on repatriation of principal ends.

    Morgan Stanley has announced, however, that Malaysia has been taken out permanently from its developed country stock index, where its previous inclusion was seen as an aberration. This may have a permanent effect on volume of foreign equity investment in Malaysia, even when Malaysia is reinstated in the emerging markets index. Following its initial decision not to rein-clude Malaysia in its emerging markets index, in its review in mid-1999, Morgan Stanley announced on August 12, 1999, that it would reinstate the country into its benchmark investment indices in February 2000, if the process of liberalization of the financial system is not delayed or reversed; Malaysia’s weighting in the indices, however, will be lower than its weight before it was excluded from the index last year.

    Similar concerns have been recently voiced by a prominent academic, Merton Miller (July 9, 1999), that the controls “were actually harmful to Malaysia and its citizens” and led to higher interest rates on dollar borrowings as well as higher costs in attracting equity funds to Malaysia.

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