Go With the Flows? Capital account liberalisation and poverty | Capital Account | Poverty

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In January 2001 the Bretton Woods Project and Oxfam organised a meeting with Non-Governmental Organisations, academics, civil servants and staff from the World Bank International Monetary Fund and other international institutions to discuss the linkages between capital account liberalisation and poverty reduction. The meeting, held at Queen Elizabeth House, Oxford University, was concerned with identifying the potential linkages through government policies and through impacts on sustainable livelihoods. The meeting was a useful starting point and highlighted that there are many more questions than we have answers to. This report does not attempt to provide those answers but to suggest some transition mechanisms through which capital account liberalisation might impact on the poor.
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  Go with the fl ow s ?  Capital account l i b e r a l i s a t i o nand poverty   April 2001  Published byWith the support of   The Heinrich Böll Foundation, Washington Office   About Bretton Woods Project The Bretton Woods Project monitors the Wo r l d Bank and International Monetary Fund in collab o-ration with NGOs and re s e a rch e rs .E s t ablished by a n e t  wo rk of 30 UK NGOs in 1995,it circulates info r- mation undert a kes re s e a rch ,and advocates fo r  ch a n ge in these institutions.Issues it has addre s s e d i n clude stru c t u ral adjustment pro gra m m e s ,c o n d i- t i o n a l i t  y,the World Bank/IMF growth model,and a number of controve rsial pro  j e c t s . The Project produces a regular bulletin,t h e  Bretton Woods Update,  which is available in print,email and web versions.Bretton Woods ProjectHamlyn HouseMacdonald RoadLondon N19 5PGEmail:info@brettonwoodsproject.org www.brettonwoodsproject.orgBretton Woods Project is supported by the C.S.Mott Foundation and the John D.and Catherine T.MacArthur Foundation.  About Oxfam Founded in 1942,Oxfam works with poor peopleregardless of race or religion in their struggleagainst hunger,disease,exploitation and poverty.Oxfam GB274 Banbury RoadOxford OX20 1RQEmail:chumphreys@oxfam.org.uk  www.oxfam.org.uk  Conditions for use The text of this publication may be freely used for brief quotations providing the source is credited.Please send a copy of the publication to theBretton Woods Project.Non-profit organisationsmay reproduce longer sections of the report for educational purposes without prior authorisation.  Acknowledgements The Capital Account Liberalisation and Poverty m e e t i n g ,Ja nu a ry 11-12 t h  2 0 0 1 ,on which this report is based,was made possible by the gener-ous support of the Department for InternationalDevelopment,UK. A full transcript of the meeting is available at www.brettonwoodsproject.org.Thank you to the participants of that meeting fo r their energy,c ri t i q u e s ,c reativity and good humour.Thank you to Valpy Fitzgerald and Frances Stewartand the staff at Queen Elizabeth House,OxfordUniversity for hosting the meeting.Thanks also to Alex Cobham for the report, Capital Account  Liberalisation and Poverty ,prepared for it.Thank you to Laura Butler for her invaluable helpin preparing for the meeting.And to Laura andSophia Mahmud for their patience and help with preparing the transcript.Many thanks to the Heinrich Böll Foundation, Washington office,for supporting the publicationof this report. Editing:  Angela Wood,Bretton Woods Projectand Jenny Kimmis,Oxfam Layout:  Anni Long,Oxfam and B a rry McCann,w  w  w.  wag g l e d e s i g n . c o m Cover: King Graphics,king@king-graphics.co.uk  Go with the flows?  Capital account liberalisation and poverty   Contents Preface i From Capital Account Liberalisation to the Real Economy: Putting People First, Angela Wood  1Push Factors for Capital Account Liberalisation  ...................................................................11.1Private Capital as a Substitute for Aid Flows..................................................................................11.2Linkages Between Trade,Capital Account Liberalisation and the Balance of Payments................11.3Linkages Between Privatisation and CAL.......................................................................................2 2From Capital Account Liberalisaton to Poverty: Identifying the Linkages .......................32.1Liberalisation,Resources and Growth............................................................................................32.2Access to Capital Flows and Impacts on Assets.............................................................................4Liberalisation Episodes:When Capital is Flowing in.....................................................................4Crisis Episodes:Capital Outflows..................................................................................................5Government Intervention..............................................................................................................52.3Changes in Government Spending.................................................................................................6Redirecting Government Spending................................................................................................7 Volatility of Government Spending................................................................................................8The Cost of Foregone Taxation/Tax Competition..........................................................................82.4Market Discipline and Government Policy....................................................................................9Market Sentiment and Government Budgets.................................................................................9Market Confidence:Crisis Periods and Recovery.......................................................................10Conclusions..................................................................................................................................11 Capital Account Liberalisation and Poverty, Alex Cobham  Executive Summary......................................................................................................................................13Introduction.................................................................................................................................................14 1Financial and Capital Account Liberalisation  ......................................................................151.1Definitions and Interactions.........................................................................................................151.2The Extent of Capital Account and Domestic Financial Liberalisation........................................161.3Growth Effects of Financial Liberalisation...................................................................................171.4Growth and Capital Account Liberalisation.................................................................................18 2Crisis Periods .............................................................................................................................202.1The Socialisation of Private Debt.................................................................................................202.2Macroeconomic Policy Response................................................................................................212.3Real Economy Impacts.................................................................................................................222.4Some Conclusions........................................................................................................................23 contents continue overleaf  Go with the flows?  Capital account liberalisation and poverty   3Impact on Government Finances and Policy  ......................................................................233.1Government Finances..................................................................................................................233.2Managing Capital Inflows.............................................................................................................243.3Market Discipline.........................................................................................................................253.4Taxation and Capital Mobility......................................................................................................263.5Some Conclusions for Government Finance and the Poor..........................................................27 4Liberalisation and Industry  .....................................................................................................274.1Liberalisation,Macroeconomic Uncertainty and Financing Investment in Firms........................284.2Liberalisation and Credit Availability............................................................................................284.3Stock Market Development..........................................................................................................31Conclusions..................................................................................................................................32References....................................................................................................................................35 Comments: Dr Louis A.Kasekende..................................................................................................................38Filomeno S.Sta.Ana III.................................................................................................................41 Aart Kraay.....................................................................................................................................43 William Larralde...........................................................................................................................47MarkAllen.....................................................................................................................................49Kamal Malhotra............................................................................................................................51List of Participants........................................................................................................................................53 Web Resources.............................................................................................................................................54 Go with the flows?  Capital account liberalisation and poverty 
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