Front Matter

Front Matter

International Monetary Fund
Published Date:
April 2002
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    © 2002 International Monetary Fund

    Production: IMF Graphics Section

    Figures: Choon Lee

    Typesetting: Alicia Etchebarne-Bourdin

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    Capital account liberalization and financial sector stability/by a staff team led by Shogo Ishii and Karl Habermeier; with Jorge Iván. Canales-Kriljenko … [et al.]. —Washington, DC: International Monetary Fund. 2002.

    p.; cm. (Occasional paper. ISSN 0251-6365: no. 211)

    Includes bibliographical references.

    ISBN 9781589060852

    1. Capital movements. 2. Capital market. 3. International finance. 4. Financial institutions. 5. Monetary policy. 6. Banks and banking—State supervision. 7. Financial crises. I. Ishii, Shogo. II. Habermeier, Karl Friedrich. III. Canales-Krilenko, Jorge Iván.. IV. International Monetary Fund. V. Occasional papers (International Monetary Fund): 211.

    HG3891.C26 2002

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    The following symbols have been used throughout this paper:

    … to indicate that data are not available;

    — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

    – between years or months (e.g., 2000–01 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

    / between years (e.g., 2000/01) to indicate a fiscal (financial) year.

    “Billion” means a thousand million.

    Minor discrepancies between constituent figures and totals are due to rounding.

    The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.


    Capital account liberalization is a complex process and its success requires proper sequencing and coordination with macroeconomic and other policies—particularly structural policies to strengthen the domestic financial system. Reflecting varying approaches and initial conditions, some countries have been able to liberalize their capital accounts while successfully maintaining financial sector stability, whereas other countries have experienced financial crises. This paper analyzes the linkages between capital account liberalization and other policies influencing financial sector stability. Drawing on country experiences, the paper develops an operational framework for sequencing and coordinating capital account liberalization with other policies aimed at maintaining financial sector stabililty. In doing so, the paper focuses especially on policies aimed at developing a sound domestic financial structure. However, the paper does not examine, except in passing, other questions related to the use and liberalization of capital controls, including their role in macroeconomic policy. These issues have been examined in depth elsewhere. In particular, it does not deal with the costs and benefits of different types and uses of capital controls, such as measures to discourage short-term capital inflows, long-standing and extensive controls, and the maintenance or reimposition of capital controls during crises.

    The material in the paper was originally prepared for discussion at an IMF Executive Board seminar in July 2000 in response to a request by the International Monetary and Financial Committee (IMFC) to further examine the sequencing of financial sector development and capital account liberalization and its more recent request for the IMF to stand ready to help countries wishing to undertake an orderly liberalization of their capital accounts.* The paper was prepared under my direction by a staff team led by Shogo Ishii and Karl Habermeier that included Jorge Iván Canales-Kriljenko. Bernard Laurens, John Leimone. and Judit Vadasz. Matthew Fleming provided excellent research assistance and Nadia Malikyar and Joanna Meza-Cuadra provided outstanding secretarial support. Jeremy Clift of the External Relations Department edited the manuscript and coordinated production.

    The paper has benefitted from the comments of IMF Executive Directors, colleagues in the Monetary and Exchange Affairs Department, and in other departments in the IMF. The views expressed in this paper are those of the IMF staff and do not necessarily reflect the views of national authorities or IMF Executive Directors.

    Stefan Ingves


    Monetary and Exchange Affairs Department

    *Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund, April 29, 2001 and September 24, 2000.
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