Controls an option for volatile capital flows in Asia-IMF

HO CHI MINH CITY, Vietnam, June 6 (BestGrowthStock) – Capital
controls could be an option for taming volatile capital flows
in Asia, but should be only deployed in exceptional
circumstances and after other tools are tried first, a senior
International Monetary Fund official said on Sunday.

Over the past several months the region saw a wave of
capital flow in, then ebb in more recent weeks, and Naoyuki
Shinohara, deputy managing director of the IMF, said that
volatility posed a challenge to policymakers.

“In exceptional circumstances capital controls can be
approved, but there are lots of things that they have to do
before that,” he told Reuters on the sidelines of the World
Economic Forum on East Asia.

He listed macroeconomic adjustments, “prevention measures”
and more flexible exchange rates as some of the other options,
naming China as one of the currencies the IMF had in mind. He
declined to name other currencies.

IMF Managing Director Dominique Strauss-Kahn said in Busan,
South Korea, on Saturday China’s yuan (CNY=CFXS: ) was still
substantially undervalued.[ID:nN05156766]

“If the capital flows are very volatile, and temporary,
then capital controls might be an option but I guess it needs
to be carried out in exceptional circumstances because it has
an impact in terms of market perceptions, and the practicality
and implementation difficulty is one of the areas that they
have to take into account,” Shinohara said.

Another worry for the region was the possibility of a drop
in export demand from abroad, namely Europe, where economic
prospects have been clouded by sovereign debt worries of Greece
and others and the euro (EUR=: ) has taken a beating.

In Asia, he said, domestic demand was strengthening but
“still, it largely depends on external demand for growth, so
there is a risk that the global demand will decline, especially
in Europe, and that would have an impact on exports from Asia.

“I do not see very much risk in banking sector spillover,”
he added.

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(Reporting by John Ruwitch; Editing by Sugita Katyal)

Controls an option for volatile capital flows in Asia-IMF