Barriers and Opportunities for Enhancing Capital Flows

In the COMCEC Member Countries

Reservations are possible, even if their introduction is strictly regulated. Article VII of the Code

allows for a series of derogations, allowed when a country’s “economic and financial situation

justifies such a course”. In particular, in case of balance-of-payments crises or a serious

depletion of national monetary reserves, a country can temporarily suspend the application of

measures of liberalisation listed in the Code. This derogation procedure needs to be clearly

documented following the procedure outlined in Articles XIII through XV and can only be

temporary, requiring review by the OECD every six months. Article XIV outlines special

provisions for members in the process of economic development, mandating that the

organisation shall have special regard to the effect that the economic development of the

member has on its ability to carry out its obligations.

These provisions are supplemented by the

Code of Liberalisation of Current Invisible

Operations

, which provides a detailed framework for cross-border services. In addition to

requiring the removal of restrictions on current invisible transactions and transfers, the Code

requires that liberalisation measures be applied to signatories in a non-discriminatory way.

In June 2012 the OECD Council delegated full decision-making powers to the Investment

Committee, extending its membership to non-members willing and able to meet the standards

of adherence. The Investment Committee is in charge of overseeing the operation of the Codes,

acting as a forum for discussion and exchange of information, addressing questions of

interpretation of their legal provisions, reviewing country measures, and assessing their

conformity with the Code obligations.

Articles of Agreement of the International Monetary Fund

The IMF has, by its Articles of Agreement, a mandate to oversee the international monetary

system. In addition to its surveillance activities, the Articles mandate the fund to “assist in the

establishment of a multilateral system of payments in respect of current transactions between

members and in the elimination of foreign exchange restrictions which hamper the growth of

world trade” (Article I). Capital movements are also an important part of the Fund’s mandate.

Under Article VI, members are free to “exercise such controls as are necessary to regulate

international capital movements”. This option is, however, limited by Article VII, which

provides that any action in this sense must be no more restrictive than necessary and limited

in time.

As capital markets have become more closely integrated, the Fund’s approach has evolved.

Global capital flows increased to a peak of about 20% of global GDP in 2007 from an average of

less than 5% in the 1980-99 period.

In September 2011, the International Monetary and

Financial Committee (IMFC) called for “further work on a comprehensive, flexible, and

balanced approach for the management of capital flows, drawing on country experiences.” In a

call on the Fund to “play a key role in contributing to an orderly resolution of the current crisis

and prevention of future crises,”

the IMFC enabled the crystallisation of a process aimed at

identifying best practices in capital account opening. These best practices in capital account