TWN Info Service on Finance and Development (Feb09/06)
US Trade Policies Limit Countries’ Use of Capital Control
As the global economy descends further into crisis, a new report finds that US trade and investment agreements with 52 countries have removed one tool that has proved effective in past crises: capital controls.
This worrying development is likely to be reflected as well in current and future trade agreements being negotiated by the European Union (EU) with 123 developing countries. Financial liberalization is a key element in EU trade agreements. As in the case of the EU-Caribbean Forum (CARIFORUM) Economic Partnership Agreement (EPA), the EU is pushing for liberalization of major financial services including the free movements of capital and current payments. An analysis by TWN (http://www.ftamalaysia.org/article.php?aid=214) shows that although the CARIFORUM-EU EPA does contain some financial liberalisation safeguards, they are inadequate. This is because they are too narrow (for example, they cannot be used to limit the movement of current payments, or can only be used if there is also a balance of payments crisis), and comes with other restrictions.
this is any indication, both the EU and
The IPS report can be found at: http://www.ips-dc.org/reports/#1056
Policy holdover conflicts with growing consensus among economists
Institute for Policy Studies
the global economy descends further into crisis, governments are searching
their toolboxes for instruments to protect their people from financial
volatility. A new report finds that
“The Obama administration has a tremendous opportunity to wipe away the relics of a failed policy agenda that turned our global economy into a financial casino,” says report author Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies. “Eliminating obsolete restrictions on capital controls is one important step.”
The report includes quotes in support of capital controls from numerous noted economists, including former IMF chief economist Kenneth Rogoff, who recently wrote that countries with stringent capital controls are less likely to suffer from the current financial crisis than those completely open to international capital markets.
KEY REPORT FINDINGS:
Learned from Asian Crisis, U.S. Didn’t: The International Monetary Fund
abandoned its blanket opposition to capital controls after some countries
used this tool to avoid the worst effects of the Asian financial crisis
that erupted in 1997. The
Investors Can Sue for Compensation: Countries that violate these restrictions face potentially expensive lawsuits by foreign investors. In the supra-national arbitration tribunals that handle such cases, there’s no public accountability, no standard judicial ethics rules, and no appeals process.
Handcuffs are Inherited: Of the 52 leaders who are now bound to such
agreements, only 13 were in office at the time their country’s agreement
was signed. In
under new U.S. Administration: President Barack Obama has committed
to revising the investment rules in
According to report author Anderson, “It’s critical that policymakers not only eliminate capital control restrictions, but also commit to building a new global framework that allows governments to play responsible roles in ensuring that foreign investment and finance support social goals.”