Half-turn at the IMF

The International Monetary Fund (IMF) and capital controls have had a relationship that reflects the shifts in ideological paradigms in economic theory and policymaking. The IMF, of course, has played its part in influencing the flow of these ideological waves. What was apparent, especially in the last 25 years of the previous century, was the IMF’s obsession with capital account liberalisation and the accompanying need to debunk the utility and efficacy of capital controls.

In 1942, while working to establish the IMF – which came into existence in 1944 – John Maynard Keynes said the “control of capital movements, both inward and outward, should be a permanent feature of the post-war system”. The Articles of Agreements of the IMF do reflect the thinking of those times. While Article VIII enjoins member-countries to put in place current account convertibility, there is no mention about capital account convertibility (CAC).