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IMF stresses cautious approach toward capital flow liberalization


09:42, December 04, 2012

WASHINGTON, Dec. 3 (Xinhua) -- The International Monetary Fund (IMF) said on Monday that capital flow liberalization needs to be well planned, timed, and sequenced, so as to minimize possible adverse domestic and multilateral consequences.

"Directors noted that capital flows can have important benefits for individual countries and for the global economy, including by enhancing financial sector competitiveness, facilitating productive investment, and easing the adjustment of imbalances," the Washington-based global institution said in a report.

"At the same time, the risks associated with the size and volatility of capital flows and with premature liberalization should be clearly recognized," it warned.

The Fund noted that a country's net benefits from liberalization, and therefore its appropriate degree of liberalization, would depend on its specific circumstances, notably the stage of institutional and financial development.

The report pointed out that countries with extensive and long- standing measures to limit capital flows could benefit from further liberalization in an orderly manner. However, there should be no presumption that full liberalization is an appropriate goal for all countries at all times, it added.

The report also emphasized that macroeconomic policies - monetary, fiscal, and exchange rate management - have to play a key role in managing inflow surges or disruptive outflows, supported by sound financial supervision and regulation and strong institutions.

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