Brazil, Russia, India, China and South Africa are “wary” about rules proposed by the International Monetary Fund on when controls can be used to curb short-term foreign-capital inflows, South African Trade Minister Rob Davies said.
While the IMF has agreed that limited use of controls may be appropriate, members of the so-called BRICS group, which met in China last week, are concerned that any restrictions may be to their “disadvantage,” Davies told reporters today in Pretoria.
Interest rates close to zero in the U.S., Europe and Japan have fuelled demand for high-yielding assets in emerging markets, boosting the currencies of Brazil and South Africa, while undermining their exports.
Brazil has imposed taxes on foreign-capital inflows to curb the real, which strengthened 5 percent against the dollar last year. South Africa has stuck to a policy of increasing foreign-currency reserves to curb the rand, which surged 11 percent against the dollar in the same period.
“There was a lot of wariness within the BRIC countries on how these rules will be structured and whether it will be structured to the disadvantage to any of them,” Davies said.
Capital controls were also the subject of the IMF’s semi-annual meeting in Washington this weekend. By keeping interest rates low, countries such as the U.S. are providing the “primary trigger of many of today’s economic woes,” Brazil’s Finance Minister Guido Mantega said yesterday. He defended the use of capital controls as legitimate “measures of self defense.”
While South Africa hasn’t imposed taxes to curb portfolio inflows, the government’s economic plan, called the New Growth Path, makes provision for these kinds of measures should it become necessary, Davies said.
“They have been mooted in the New Growth Path that the package on the table could be added to, as and when circumstances warranted it,” Davies said. “But we haven’t used any of these measures at this point.”