The International Monetary Fund on Thursday said capital control measures could be valuable for countries like Brazil and India, facing excessive short-term capital inflows that threaten to damage their economies.
"Capital control are a little bit in the eye of the beholder, but it is certainly a part of the toolkit," said IMF spokesperson Caroline Atkinson at a news briefing.
"Some capital control measures are focused on macro-prudential stability. Others focus on shifting the length of the maturity of inflows, as they are taxing short-term and encouraging long-term flows. So these are all part of a range of measures that countries may consider," she said.
Atkinson comments come even as India has maintained that the economy is resilient enough to absorb the current short- -term FII inflows and, therefore, does not need capital controls at the moment.
Brazil has, however, threatened to take more measures to stem the rally in its currency Real. Brazil had imposed an upfront 2 per cent tax on capital inflows in October 2009, paving way for countries like South Korea, Thailand who in 2010 adopted similar measures to safeguard their economy from excessive FII inflows.
Atkinson said a number of emerging markets were facing substantial capital inflows at the moment, as their economies were recovering and growing rapidly.
"And these are good signs. It's a sign of strength and some of the inflows are structural and will be accommodated over time and help to promote investment and growth in those economies," she said.
"But when countries fear that they might be temporary, there's also a concern in some countries about what that might do to the macroeconomy," the IMF spokesperson said.
"There is fiscal contraction and macro-prudential controls to strengthen the banking system and intermediation of these flows can be important," Atkinson said.
"What I am trying to suggest is, the range of measures that countries may take, some of which are focused on the way capital comes into the country and whether it should be taxed if it comes on a short-term basis, and if a bank gets capital it should have higher reserve requirements to pay back the capital when it needs to," she said.
