Managing the capital account
Globalization has been under attack over the last few years. Activists, famous academics, and commentators of various stripes have mounted a systematic campaign against free trade in goods and, especially, in financial claims. One of the latest manifestations of this antiliberalization mood was the failure of the World Trade Organization (WTO) Cancún meeting in September 2003. The antiglobalization lobby has focused on a number of issues, including the effects of freer trade on income distribution and social conditions and the alleged negative effects of capital mobility on macroeconomic stability. For example, in his critique of the U.S. Treasury and the International Monetary Fund (IMF), Stiglitz (2002) argues that pressuring emerging and transition countries to relax controls on capital mobility in the 1990s was highly irresponsible. Stiglitz goes so far as to argue that the easing of controls on capital mobility was at the center of most (if not all) of the recent currency crises in emerging markets—Mexico 1994, East Asia 1997, Russia 1998, Brazil 1999, Turkey 2000, and Argentina 2001. These days, even the IMF seems to criticize free capital mobility and to support capital controls (at least to some degree). Indeed, in a visit to Malaysia in September 2003 Horst Koehler, then the Fund’s Managing Director, praised the policies of Prime Minister Mahathir Mohamad, in particular the country’s use of capital controls in the aftermath of the 1997 currency crises.