Capital Controls and Implications for Surveillance and Coordination: Brazil and Latin America

New Thinking and the New G20 Paper No. 11

April 10, 2015

From 2009 until 2011, Brazil utilized capital controls to deter real exchange rate appreciation. These measures may have obstructed necessary changes in the fiscal policy stance from occurring. In Chile, which employed capital controls heavily in the 1990s and then decided not to use them again during the commodity super-boom in the 2000s, suggests that an adequate fiscal policy stance provides better results than the use of capital controls. In addition, the recent experiences of Colombia and Peru demonstrate capital controls are not always necessary.

This paper makes recommendations for capital control surveillance and coordination, using the Brazilian experience as an example, and draws on experiences in other Latin American countries. When analyzing the implications for surveillance and coordination, international institutions, such as the International Monetary Fund, should take into consideration that, no matter how many caveats are listed before its guidelines, capital controls mainly serve to bypass needed changes in macroeconomic policy, thereby jeopardizing economic performance.

Part of Series

New Thinking and the New G20

These papers are an output of a project that aims to promote policy and institutional innovation in global economic governance in two key areas: governance of international monetary and financial relations and international collaboration in financial regulation. With authors from eight countries, the 11 papers in this series add to existing knowledge and offer original recommendations for international policy cooperation and institutional innovation.

About the Author

Márcio Garcia is associate professor at the Pontifical Catholic University of Rio de Janeiro, Brazil, since 1991, having previously served as department chairman and director of both graduate and undergraduate studies. He holds a Ph.D. from Stanford University Economics department.