You can just tell that this is going to get twisted.
The report said: \”Despite their beneficial effects, capital inflow surges can pose challenges to receiving economies… surges of capital inflows can complicate macroeconomic management as the real economy may not be able to adapt to large swings in the exchange rate.
They can fuel a boom in domestic demand leading to overheating and a combination of accelerating inflation and a widening current account deficit through the appreciation of the real exchange rate. They may also lead to asset price bubbles and increase systemic risk in the financial sector, even sometimes in the case of a generally effective prudential supervisory and regulatory system.
\”When the available policy options and prudential measures do not appear to be sufficient or cannot provide a timely response to an abrupt or large increase in capital inflows, capital controls may be a useful element in the policy toolkit.\”
What they\’re saying is that walls of hot money, looking purely for portfolio investment, can cause problems, Thus controls on such walls of hot money might, sometimes, be a good idea.
This is immediately going to be used as support for controls on foreign direct investment (a very different beast indeed) which isn\’t what they mean at all. I confidently expect we\’ll get this from John Hilary at Action Aid, Ritchie with his beloved Green New Deal (which advocates capital controls) and so on.
Look, look, the IMF says economies should be autarkic! When, of course, they say no such thing. This is about huge flows of short term money going into particular markets, not about investment in physical assets and production. But that\’s the way they\’ll play it.