IMF updates guidance to let countries impose pre-emptive capital flow curbs

FILE PHOTO: The International Monetary Fund logo is seen inside its headquarters at the end of the IMF/World Bank annual meetings in Washington
FILE PHOTO: The International Monetary Fund logo is seen inside its headquarters at the end of the IMF/World Bank annual meetings in Washington, U.S., October 9, 2016. REUTERS/Yuri Gripas

March 30, 2022

By David Lawder

WASHINGTON (Reuters) -The International Monetary Fund said on Wednesday it has updated its guidance on capital flow restrictions to allow member countries to impose pre-emptive measures to reduce the risks of abrupt capital outflows causing financial crises or deep recessions.

The IMF’s institutional view on capital controls was launched in 2012 in the wake of the 2008-2009 financial crisis to allow for capital flow management measures and macroprudential measures in the event of capital surges.

Under the new guidance, countries would no longer have to wait until capital flow surges materialize under the new guidance. They could impose such measures to counter a gradual buildup of foreign-currency debt that is not backed by foreign currency reserves or hedges, the IMF said.

IMF First Deputy Managing Director Gita Gopinath said the changes were the result of analysis of recent capital controls practices by countries and research into current economic conditions and vulnerabilities.

“You want to be able to ensure that you are not building up further financial vulnerabilities – and you can take measures preemptively to prevent that from happening,” Gopinath told reporters in introducing the new guidance.

“So that when the environment changes, for instance, like the current environment that we’re in where interest rates could go up very sharply, that you’re able to better insulate your economy,” she added.

(Reporting by David Lawder; Editing by Will Dunham)