TWN Info Service on Finance and Development (Feb11/01)
Leading economists urge US allow use of capital
Geneva, 1 Feb (Kanaga Raja) -- More than 250 economists have recommended that as part of a broader menu of policy options to prevent and mitigate financial crises, future US trade and investment treaties should allow governments to deploy capital controls without being subject to investor claims.
In a letter delivered on 31 January to
It called on the
The economists' statement was initiated by Kevin
The initial signatories of the letter include amongst others Dani Rodrik, Rafiq Hariri Professor of International Political Economy, John F. Kennedy School of Government, Harvard University; Joseph Stiglitz, University Professor, Columbia University, Nobel laureate; Arvind Subramanian, Senior Fellow, Peterson Institute for International Economics, and Senior Fellow, Center for Global Development; Nancy Birdsall, President, Center for Global Development, Washington, DC; former IMF official, Olivier Jeanne, Professor of Economics, Johns Hopkins University, and Senior Fellow, Peterson Institute for International Economics; and Gerald Epstein, Department of Economics, University of Massachusetts-Amherst.
Other US-based economists in the list of signatories include Dean Baker, Co-director, Center for Economic and Policy Research; Aldo Caliari, Director, Rethinking Bretton Woods Project, Center of Concern; John Cavanagh, Director, Institute for Policy Studies; Jan Kregel, Senior Scholar and Program Director, Levy Economics Institute of Bard College; Thomas Palley, Associate, Economic Growth Program, New America Foundation; Mark Weisbrot, Co-Director, Center for Economic and Policy Research; Jane D'Arista, Research Associate, Political Economy Research Institute; and Timothy A. Wise, Director of Research and Policy Program, Global Development and Environment Institute (GDAE), Tufts University.
Further signatories include Patrick Bond, Professor of Development Studies, University of KwaZulu-Natal, Durban, South Africa; Ha-Joon Chang, Department of Economics, University of Cambridge, UK; Andrew Cornford, Counsellor, Observatoire de la Finance, Geneva, Switzerland; Gerry Helleiner, University of Toronto, Canada; Kavaljit Singh, Public Interest Research Centre, India; Robert H. Wade, Professor of Political Economy and Development, London School of Economics, UK; and Y Venugopal Reddy, Emeritus Professor, University of Hyderabad, Former Governor, Reserve Bank of India, India.
According to a news release of the GDAE and IPS, the statement reflects growing consensus among economists that capital controls, while no panacea, are legitimate policy tools for preventing and mitigating financial crises.
It notes that the
Several additional deals are in the works, says the release. It points for instance to the US-South Korea free trade agreement, which is pending Congressional approval; the Trans-Pacific Partnership Agreement, whereby negotiators from the US and eight other countries will be meeting for a fifth round of talks in February; and the investment treaty with China.
The release said that the
In their letter to the senior
They said that authoritative research recently published by the National Bureau of Economic Research, the International Monetary Fund, and elsewhere has found that limits on the inflow of short-term capital into developing nations can stem the development of dangerous asset bubbles and currency appreciations and generally grant nations more autonomy in monetary policy-making.
"Given the severity of the global financial crisis and its aftermath, nations will need all the possible tools at their disposal to prevent and mitigate financial crises. While capital account regulations are no panacea, this new research points to an emerging consensus that capital management techniques should be included among the 'carefully designed macro-prudential measures' supported by G-20 leaders at the Seoul Summit," said the letter.
Indeed, noted the economists, in recent months,
a number of countries, from
"We also write to express our concern that
Under these agreements, private foreign investors have the power to effectively sue governments in international tribunals over alleged violations of these provisions.
A few recent US trade agreements put some limits on the amount of damages foreign investors may receive as compensation for certain capital control measures and require an extended "cooling off" period before investors may file their claims, said the letter.
"However, these minor reforms do not go far enough to ensure that governments have the authority to use such legitimate policy tools. The trade and investment agreements of other major capital-exporting nations allow for more flexibility."
The economists recommended that future US FTAs and BITs permit governments to deploy capital controls without being subject to investor claims, as part of a broader menu of policy options to prevent and mitigate financial crises.
"It's in the