Policy Brief, January 2013

Since at least the early 1990s, countries that sought to regulate the capital account risked self-inflicted stigma in the international investment arena, even in the face of uncontroverted analytical reasons for their appropriateness.Subsequent events, including the Asian financial crisis in 1997, have not eliminated the stigma risk from capital account controls but the analytical discussion has shifted to when, not if, such controls are warranted.

Policy Brief, December 2012

A fundamental question raised by recurrent financial crises in mature and emerging economies is how to ensure that the financial markets and institutions serve growth and development rather than being a constant source of instability and disruption in pursuit of self-interest.

Policy Brief, October 2012

As seen over and again during recurrent financial crises in both developing and advanced economies (DEs and AEs), including the recent global crisis originating in the US and Europe, financial instability and boom-bust cycles undermine all three ingredients of sustainable development – economic development, social development and environmental protection.

Research Paper 44, March 2012

This paper argues that the unprecedented acceleration of growth in the developing world in the new millennium in comparison with advanced economies is due not so much to improvements in underlying fundamentals as to exceptionally favourable global economic conditions, shaped mainly by unsustainable policies in advanced economies. The only developing economy which has had a major impact on global conditions, notably on commodity prices, is China. However, growth in China has been driven first by a rapid expansion of exports to advanced economies and more recently, after the global crisis, by an investment boom, neither of which is replicable or sustainable over the longer term. To maintain a rapid growth, export-led Asian economies need to reduce their dependence on foreign markets. For Latin American and African commodity exporters, gaining greater autonomy and achieving rapid and stable growth depend on their success in reducing reliance on capital flows and commodity earnings – the two key determinants of their growth which are largely beyond national control.

Research Paper 37, March 2011

The South Centre is releasing a new research paper by its Chief Economist, Y?lmaz Akyüz.

The paper argues that the policy of quantitative easing and close-to-zero interest rates in advanced economies, notably the US, are generating a surge in speculative capital flows to developing countries in search for yield and creating bubbles in foreign exchange, asset, credit and commodity markets. This latest generalized surge constitutes the fourth post-war boom in capital flows to developing countries. All previous ones ended with busts, causing serious damages to recipient countries.  The conditions driving the current boom in capital flows and commodity prices are not sustainable and they are likely to be followed by a sharp downturn.  Various scenarios that can bring them to an abrupt end are discussed.  Examining the policy responses and financial and macroeconomic developments in major emerging economies, the paper concludes that deficit commodity-rich economies that have been enjoying the dual benefits of global liquidity expansion - that is, the boom in capital flows and commodity markets - are most vulnerable to a possible reversal, and urges them to manage capital flows more effectively.

This Analytical Note looks at the new dynamic of capital flows from the South to the North arising from unprecedented levels of capital reserve accumulation by the South. It looks at some of the reasons for such capital accumulation – pointing to the perceived need by developing countries to self-insure themselves against financial crises. It then looks at various ways in which financial crises could be prevented by developing countries and concludes by stressing the need for this new dynamic to be reflected in both international economic arrangements and in terms of ensuring that developmental gains by developing countries are obtained.