Saturday, February 8, 2014

On capital account covertibility

In light of recent problems faced by many emerging economy currencies, I am reminded of these wise words by Dani Rodrik written in the aftermath of the 1997 East Asian crisis. This is as relevant now as it was then,
The greatest concern I have about canonizing capital-account convertibility is that it will leave economic policy in the typical “emerging market” hostage to the whims and fancies of two dozen or so thirty-something country analysts in London, Frankfurt, and New York. A finance minister whose top priority is to keep foreign investors happy will be one who pays less attentionto developmental goals. We would have to have blind faith in the efficiency and rationality of international capital markets to believe that these two sets of priorities will regularly coincide.

2 comments:

Sai Prasad said...

We need to take country experience and needs into account while deciding public policy. The focus neeeds to be public good and probably every action should directly reflect this objective, at least to an extent. We cannot be swayed by arguments of ultimate good happening as a result of the policy.

Sai Prasad said...

We need to take country experience and needs into account while deciding public policy. The focus neeeds to be public good and probably every action should directly reflect this objective, at least to an extent. We cannot be swayed by arguments of ultimate good happening as a result of the policy.