2008 Reports

The Role of Preventative Capital Account Regulations

Ocampo, Jose A.; Palma, Jose Gabriel

This paper reviews the experience of three developing countries -- Chile, Colombia and Malaysia. After having opened up their capital accounts, these countries decided to fine-tune their integration into international financial markets (via the reintroduction of capital controls) in order to deal with the 1990s surge in private capital inflows, particularly short-term portfolio inflows. The next section of this paper looks at the dynamics of capital flows into developing countries, and presents some contrasting experiences of Latin America and East Asia. The nest analyses the nature and effects of regulations on capital inflows in these three countries during the 1990s; in particular their effects on the magnitude and composition of capital flows, on the macroeconomic policy space that the authorities enjoyed under these circumstances, and on asset prices.