It admitted that controls on inward movement of capital could be a useful tool for some countries. Opening economies prematurely to free flows of capital was "an accident waiting to happen".
It also suggested that a significant increase in capital flight from the countries in Adia worst affected, took place long before the crisis hit.
This report is the most explicit admission to date that the IMF's views on the efficacy of capitalist controls have shifted. It said it was apparent from the recent financial crises in Asia that "the combination of a weak banking system and an open capital account was 'an accident waiting to happen'"
The Report: "Given that there are limits to the pace at which financial sectors can be strengthened, policymakers need to undertake an orderly opening of their financial systems and may need to consider imposing temporary measures to restrain certain types of inflows."
These controls would include various prudential controls that attempt to increase the cost of using external debt - particularly of a short-term nature.
It gave the example of Chilean taxes on capital inflows.
It expressed reservation however, that such taxes only had a role for a limited period of time, while the capitalist structures were strengthened, and that these taxes would in time be circumvented.
The report also discusses the problems arising from the use of cross border loans between banks, and made suggestions about mechanisms to control these.
It argues that the Asian crisis threw up new issues.
1) there may be a need to coordinate financial regulation and exchange rate policy for countries attempting to peg exchange rates.
2) the slowness of bank regulators in emerging markets meant that non-traditional measures might sometimes be warranted.
3) in analysing the Asian crisis the report notes there was also considerable unrecorded capital flight from Asia, with suggestions that it originated with domestic residents 'both corporate and houseld entities' [this seems to be code for racist blaming of local capitalists behaving like capitalists]
My impression from this account of the report is that it concedes a significant shift of principle away from neo-liberalism:
a) it concedes that markets need regulation - the unseen hand is not always beneficent
b) it implies that what may matter fundamentally is not money but the economy.
Tonight I understand the Dow has just gone up after Greenspan reported to the Senate subcommittee on business [?] that there was a wide variety of measures to prevent the US economy catching "the contagion".
These are significant concessions of theoretical principle that capitalism [for its own sake, Louis!!] must be accountable to some sort of social standard of performance. Where will this stop?
The FT editorial on the report, starts "The International Monetary Fund has had only very limited success in fighting the growing crisis in emerging markets. This raises the serious question of whether the international financial architecture, designed for another age, can cope with capital movements on an unprecedented scale."
The editorial makes it clear that Blair's speech on Monday is actually a statement of what is now established informed capitalist opinion. "but it is not enough". Fundamental reform and not just technical changes are needed.
The editorial examines three options
1) tinkering with the present institutions - unattractive: "countries can be driven to devalue and to default by a panic among investors."
2) the IMF to fulfil the role of international lender of last resort. But it lacks the reserves and cannot print money. For it to do so the central banks would have to be able to lend it money almost without limit to break runs on a currency. Few legislatures will permit it.
3) Accept there can be no lender of last resort and reform "the financial architecture" accordingly. What is needed is an internationally accepted mechanism for dealing with resceduling, default and bankruptcy. Countries that opt for free capital inflows may need to accept the IMF not as firefighter but as policeman. Countries with less sound banking systems and looser macro economic policies would be well advised to adopt temprorary limits on debt-creating capital flows.
The thrust of this editorial seems to accept that there will be some countries that rightly opt out of the free world financial market. It expects however that the IMF or new insitutions will be turned from fire-fighter to regulator for the financial soundness of the business management of all those countries who aim to be part of the world of free financial movements. This leaves finance capital as dominant in dictating the standards. The world remains vulnerable to the arbitrary movements of finance capital. There would be no centrally responsible bank. It is an acknowledged weakness of the world financial system that there can be no lender of last resort. And leaves events as the resultant of forces between the biggest capitalist players. This provides a background for skirmishing and negotiation between the dollar zone and the euro-zone in the 21st century.
There is no attempt to argue the virtues of unrestrained financial capital movements. The assumption is unchallenged that this is a dynamic and sometimes chaotic global system, that ought to be better regulated. {yes, Louis, for the sake of capitalism!!]
As far as we are concerned it would be more progressive to have a central global bank which could be accountable. To whom it is accountable could then become explicitly open contested territory. If financial movements of a short term nature are so turbulent, (and really a form of insurance against risk which just makes the whole thing even more risky) why not propose for example a Tobin tax not at a modest 1% but at 5% or even 10%? This would generate central funds of the order of $1000 billion a year, and could plausibly stops stampeding finance capital, and might have some other uses.
Chris Burford
London.