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Age Bakker and Mr. Bryan Chapple

Abstract

After the industrial countries established current account convertibility in the late1950s, they began to phase out their capital controls. Their efforts were slow and tentative at first, but built up considerable momentum by the 1980s as market-oriented economic policies gained popularity. This paper describes how national policymakers’ views of capital controls shifted over time, and how these controls have been closely related to regulation in other policy areas, such as banking and financial markets. As developing countries seek to liberalize their capital accounts to obtain the benefits of increased integration with the global economy, what lessons can be drawn from industrial countries’ diverse experiences with capital controls, and how can a country’s liberalization measures be sequenced to minimize disturbances to its exchange rate and monetary policies?

Mr. G. G. Johnson and Mr. Richard K. Abrams

Abstract

During the 1970s, international lending by banks came to play a dominant role in the flow of international finance. In the early 1980s, banks have continued to play a major role, but the recent evidence of strains in international banking has raised questions about the prospects for continuity of international intermediation by banks.

International Monetary Fund

Abstract

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 stability. Based on the general principles, a methodology for sequencing capital account liberalization is presented in this paper. This methodology, which is illustrated by an example, involves an assessment of capital controls and macroeconomic and financial sector vulnerabilities, and the design of a plan for sequencing capital account liberalization with financial sector reforms and other policies. Financial systems that have been weakened by inappropriate government involvement also face additional risks when operating in international financial markets. The absence of significant macroeconomic imbalances and the high level of official international reserves at the outset of the crisis also appear to be important factors preventing a full-blown exchange crisis. Nevertheless, the prolongation of the crisis lowered economic growth and ultimately led to a recession and increased the total cost of the crisis resolution.

Mr. David S. Hoelscher, Mr. Michael W Taylor, and Mr. Ulrich H Klueh

Abstract

This paper describes recently established deposit insurance systems, identifying emerging trends. In line with previous IMF work on the subject, it argues against the development of "best practices" applicable to all systems. Rather, it stresses the importance of incorporating each country’s individual objectives in adopting a deposit insurance system, as well as that country’s characteristics, to ensure an effective system that minimizes disincentives and distortions to financial sector intermediation. The paper includes a summary of the academic literature.

Mr. Leslie E Teo, Mr. Charles Enoch, Mr. Carl-Johan Lindgren, Mr. Tomás J. T. Baliño, Ms. Anne Marie Gulde, and Mr. Marc G Quintyn

Abstract

This paper reviews the policy responses of Indonesia, Korea, and Thailand to the Asian crisis that erupted in 1997 and compares the actions of these three countries with those of Malaysia and the Philippines, which were buffeted by the crisis. Although work is still under way in all the affected countries, and thus any judgements are necessarily tentative, important lessons can be learned from the various experience of the last two years.

Mr. Ales Bulir, Mrs. Marianne Schulze-Gattas, Mr. Atish R. Ghosh, Mr. Alex Mourmouras, Mr. A. J Hamann, and Mr. Timothy D. Lane

Abstract

Increasing globalization of capital markets poses new challenges for the design and implementation of IMF-supported programs. These challenges have been thrown into sharpest relief in recent capital account crises, during which rapid reversals of capital inflows brought about large and abrupt current account adjustments with pervasive macroeconomic consequences.

Mr. G. G. Johnson and Mr. Richard K. Abrams

Abstract

During the 1970s, international lending by banks came to play a dominant role in the flow of international finance. In the early 1980s, banks have continued to play a major role, but the recent evidence of strains in international banking has raised questions about the prospects for continuity of international intermediation by banks.

Age Bakker and Mr. Bryan Chapple

Abstract

The work of IMF staff members on issues related to the use and liberalization of capital controls has focused on the experiences of emerging market economies and of a few advanced economies during the 1990s and, to a lesser extent, during the 1980s. This paper seeks to complement the IMF staff’s work by examining the experiences of advanced economies with the use and liberalization of capital controls since the middle of the twentieth century.

Mr. Timothy D. Lane and Marianne Schulze-Ghattas

Abstract

The crisis that erupted in Asia's financial markets in 1997 has had dramatic effects on the countries involved: it precipitated deep recessions in these “tiger economies,” resulting in a sharp drop of living standards together with rising unemployment and social dislocation. Moreover, the turbulence in financial markets has spread to other regions, and this, together with the sharp recession in Asia, constitutes an appreciable drag on world economic growth and has at times threatened to create an even wider crisis.

Mr. Leslie E Teo, Mr. Charles Enoch, Mr. Carl-Johan Lindgren, Mr. Tomás J. T. Baliño, Ms. Anne Marie Gulde, and Mr. Marc G Quintyn

Abstract

Financial and corporate sector weaknesses played a major role in the Asian crisis in 1997. These weaknesses increased the exposure of financial institutions to a variety of external threats, including declines in asset values, market contagion, speculative attacks, exchange rate devaluations, and a reversal of capital flows.1 In turn, problems in financial institutions and corporations worsened capital flight and disrupted credit allocation, thereby deepening the crisis.