Ilene Grabel

Marketing the Third World: The Contradictions of Portfolio Investment in the Global Economy

Abstract While international portfolio investment (PI) in emerging markets has flourished during the 1990s, the macroeconomic and political dilemmas introduced into these site economies by this development have not been adequately explored. This paper presents a Keynesian analysis of the effects of these inflows. The paper argues that a dependence on PI can constrain the autonomy of macroeconomic policy and introduce increased risk in site economies. The paper then applies this framework to recent Mexican experience. The paper concludes with a call for aggressive management of portfolio investment, and outlines some measures toward this end.

Capital Management Techniques In Developing Countries: An Assessment of Experiences from the 1990's and Lessons For the Future

This paper uses the term, capital management techniques, to refer to two complementary (and often overlapping) types of financial policies: policies that govern international private capital flows and those that enforce prudential management of domestic financial institutions. The paper shows that regimes of capital management take diverse forms and are multi-faceted. The paper also shows that capital management techniques can be static or dynamic. Static management techniques are those that authorities do not modify in response to changes in circumstances. Capital management techniques can also be dynamic, meaning that they can be activated or adjusted as circumstances warrant. Three types of circumstances trigger implementation of management techniques or lead authorities to strengthen or adjust existing regulations: changes in the economic environment, the identification of vulnerabilities, and the attempt to close loopholes in existing measures. The paper presents seven case studies of the diverse capital management techniques employed in Chile, China, Colombia, India, Malaysia, Singapore and Taiwan Province of China during the 1990s. The cases reveal that policymakers were able to use capital management techniques to achieve critical macroeconomic objectives. These included the prevention of maturity and locational mismatch; attraction of favoured forms of foreign investment; reduction in overall financial fragility, currency risk, and speculative pressures in the economy; insulation from the contagion effects of financial crises; and enhancement of the autonomy of economic and social policy. The paper examines the structural factors that contributed to these achievements, and also weighs the costs associated with these measures against their macroeconomic benefits. The paper concludes by considering the general policy lessons of these seven experiences. The most important of these lessons are as follows. (1) Capital management techniques can enhance overall financial and currency stability, buttress the autonomy of macroeconomic and microeconomic policy, and bias investment toward the long-term. (2) The efficacy of capital management techniques is highest in the presence of strong macroeconomic fundamentals, though management techniques can also improve fundamentals. (3) The nimble, dynamic application of capital management techniques is an important component of policy success. (4) Controls over international capital flows and prudential domestic financial regulation often function as complementary policy tools, and these tools can be useful to policymakers over the long run. (5) State and administrative capacity play important roles in the success of capital management techniques. (6) Evidence suggests that the macroeconomic benefits of capital management techniques probably outweigh their microeconomic costs. (7) Capital management techniques work best when they are coherent and consistent with a national development vision. (8) There is no single type of capital management technique that works best for all developing countries. Indeed our cases, demonstrate a rather large array of effective techniques. There are sound reasons for cautious optimism regarding the ability of policymakers in the developing world to build upon these lessons. In particular, we are heartened by the growing understanding of the problems with capital account convertibility in developing countries; by the increasing recognition of the achievements of capital management techniques by important figures in academia, the IMF and the business community; and by the potential for some developing countries (such as Chile, China, India, Malaysia and Singapore) to play a lead role in discussions of the feasibility and efficacy of various capital management techniques.

The rebranding of capital controls in an era of productive incoherence

Abstract The rebranding of capital controls during the global crisis has widened the policy space in the financial arena to a greater, more consistent degree than following the Asian crisis. How are we to account for this extraordinary ideational and policy evolution? The paper highlights five factors that contribute to the evolving rebranding of capital controls. These include: (1) the rise of increasingly autonomous developing states, largely as a consequence of their successful response to the Asian crisis; (2) the increasing assertiveness of their policymakers in part as a consequence of their relative success in responding to the current crisis; (3) a pragmatic adjustment by the IMF to an altered global economy in which the geography of its influence has been severely restricted, and in which it has become financially dependent on former clients; (4) the need for capital controls by countries at the extremes, i.e. those that faced implosion, and also and more importantly by those that have fared ‘too well’; and (5) the evolution in the ideas of academic economists and IMF staff. The paper also explores tensions around the rebranding of capital controls as exemplified by efforts to ‘domesticate’ their use via a code of conduct.

REMITTANCES: POLITICAL ECONOMY AND DEVELOPMENTAL IMPLICATIONS

Private remittances are becoming an increasingly important part of the financial landscape of many developing countries. Indeed, for some such countries, these flows are the single most important type of international capital inflow—public or private—and they have become an important source of purchasing power and foreign exchange. The growing importance of remittances has stimulated a great deal of discussion among scholars and policymakers. However, most studies tend to be rather narrow and microeconomic in scope, and fail to understand remittances within a broader political economy context. This contrasts with studies of other international capital flows such as official development assistance, direct foreign investment, private bank loans, and portfolio investment where political economy concerns have long been a central concern. This paper draws together findings from the rapidly growing multi-disciplinary study of remittances; identifies what we know, what we do not yet know, and what we still need to know about their economic, political and social consequences; and argues that there are a range of important political economy concerns raised by these flows (such as public moral hazard). The current global economic crisis raises new questions for remittance researchers, not least of which is whether the established counter-cyclicality of these flows is giving way to pro-cyclicality. The paper concludes that the political economy effects of remittances are complex, contradictory, and not amenable to generalizations across the developing world, and that there is still much that we need to know about them.

Global Financial Governance and Development Finance in the Wake of the 2008 Financial Crisis

This study examines three related questions. How has the global financial crisis of 2008 affected the influence that developing countries have within the International Monetary Fund (IMF)? What new policy space is available to developing countries? What alternative financial architectures will emerge as competitors or complements to the IMF? The study finds that IMF practice on capital controls has changed partly as a consequence of the crisis; that relatively autonomous developing countries are taking advantage of the policy space that has emerged; and that the global financial architecture is becoming more heterogeneous and multinodal. To date, however, developing countries have secured only modest commitments for increases in their formal influence at the IMF as a consequence of the crisis. Looking ahead, the crisis may create space for pressing an inclusive, participatory, feminist agenda in this domain.

‘Capital controls and the global financial crisis: An introduction’

The global financial crisis of 2008 opened a new chapter in the debate over the consequences and management of international private capital flows. During the neo-liberal era, one had to look to the work of the Keynesian minority within the academic wing of the economics profession (e.g., Crotty, 1983, 1990; Crotty and Epstein, 1996, 1999; Epstein, Grabel, and Jomo KS, 2004; Grabel, 2003a, b, 2004, 2003c; Chang and Grabel, 2004, 2014; Epstein, 2005) and to the world’s dirigiste governments and central banks to find assertive, consistent support for the management of international capital flows. Enter the global financial crisis. Many extraordinary things happened during the crisis, one of which is that Keynesian-inflected ideas about the legitimacy and necessity of managing international capital flows began to infuse the work of a broader set of economists in academia and in the policy community. Views on capital controls at the International Monetary Fund (IMF) also evolved rather importantly during the crisis, though it must be said that this was a grudging evolution that reveals continuing discomfort (Chwieroth, 2013; Gallagher, 2011; Grabel, 2011; Moschella, 2010, 2012). The changes at the IMF are reflected in the positions taken by staff when working in the field with member countries, in research by the organization’s economists, and in the public positions taken by its top-ranking officials (as discussed by Grabel, this issue). The re-discovered Keynesian view sees capital controls as a ‘legitimate part of the policy toolkit’ (to borrow a now oft-cited phrase from recent IMF research on the subject, e.g., Ostry et al., 2010, 2011) and is broadly consistent with

Policy Coherence or Conformance? The New World Bank—International Monetary Fund—World Trade Organization Rhetoric on Trade and Investment in Developing Countries

This article traces the concept of “policy coherence” in new debates over development policy space, explores the codification of coherence through International Monetary Fund World Bank World Trade Organization cooperation and recent bi- and multilateral trade agreements, and critiques the abuse of this concept. Today, coherence is code for “policy conformance.” The task is not to remove coherence from the lexicon of development policy but instead to rescue it in pursuit of expanded space for heterogeneous, autonomous paths to development.

Identifying Risks, Preventing Crisis: Lessons from the Asian Crisis

(2000). Identifying Risks, Preventing Crisis: Lessons from the Asian Crisis. Journal of Economic Issues: Vol. 34, Papers From The 2000 Afee Meeting, pp. 377-383.

Capital Controls in a Time of Crisis

The paper highlights five factors that have contributed to the evolving rebranding of capital controls during the global crisis. These include: (1) the rise of increasingly autonomous developing states; (2) the increasing assertiveness of their policymakers; (3) a pragmatic adjustment by the IMF to its constrained geography of influence; (4) the need for controls not just by countries facing fragility or implosion, but also by those that fared ‘too well’ during the crisis; and (5) the evolution in the ideas of academic economists and IMF staff. The paper also explores tensions around rebranding as exemplified by efforts to develop a hierarchy in which controls on inflows that are a last resort and are targeted, temporary, and non-discriminatory are more acceptable than those that are blunt, enduring, discriminatory, and that target outflows. In addition, tensions have increasingly emerged over whether controls should be used by capital-source rather than just capital-recipient countries.

Post-Crisis Experiments in Development Finance Architectures: A Hirschmanian Perspective On ‘Productive Incoherence’

Abstract The Asian and especially the global crisis of 2008 have catalyzed decentralization of the developing world’s financial governance architecture. I understand this state of affairs via the concept of “productive incoherence” which is apparent in a denser, multilayered development financial architecture that is emerging as a consequence of heterogeneous practical adjustments to changing circumstances rather than as the embodiment of a coherent doctrine. Drawing on Albert Hirschman, I argue that the absence of an encompassing theoretical blueprint for a new economic system—i.e. a new “ism” to replace neoliberalism—is in fact a vitally important virtue. If we cannot live without a new “ism,” I propose “Hirschmanian Possibilism” as a new doctrine—one that rejects an overarching theoretical framework from which to deduce the singly appropriate institutional structure of the economy. Hirschmanian Possibilism asserts instead the value of productive incoherence as a framework for pursuing democratic, ethically viable development institutions.