August 22nd, 2018

Discussion Paper 2018/6 is now available: El-Shagi, M. / Yamarik, S.: IMF Conditionality and Capital Controls: Capital Account Liberalization to Capital Inflow Management?


Since the end of the Bretton Woods system, promoting capital account liberalization has been one of the tenants of the IMF. Capital account liberalization was deemed one of the 10 pillars of what was often dubbed the Washington Consensus. Yet things changed drastically with the Global Financial Crisis of 2008. From 2009 to 2012, comments from top IMF officials and staff reports displayed quite clearly that the IMF had revised its position where capital controls could be part of the toolkit. In this paper, we assess the role of the IMF in capital account liberalization from 1995 to 2015. We use a midpoint-inflated ordered probit model to estimate the effects of being under IMF conditionality on capital controls, allowing for different effects for pre- and post-Financial Crisis. We find that the IMF did indeed drive liberalization of capital inflows in the precrisis era, but stopped doing so in the post-crisis period.