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Analysis

G20 Finance Conclusions
on Capital Account Liberalization, 1999-2009

Drawn from G20 finance communiqués
Anton Malkin, G20 Research Group, August 2009

Summary of Conclusions on Capital Account Liberalization in G20 Finance Communiqués

Notes: *emergency meetings

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Definition

Capital account liberalization refers to the liberalization of capital accounts and capital movement, specifically with regard to emerging market economies. The definition here excludes the broader area of increasing global economic integration and economic globalization, including capital mobility in the form of capital goods, capital market efficiency and capital flows in general. The G20 finance ministers and central bankers began calling for capital account liberalization in 2000 but ceased to explicitly endorse it in 2004.

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Criteria

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Conclusions on Capital Account Liberalization in G20 Finance Communiqués

Montreal, Canada, October 25, 2000
Communiqué

Our meeting provided us with an opportunity to engage in a wide-ranging discussion of the opportunities and challenges posed to all of our economies by globalization — the increasing integration of national economies resulting from the greater international mobility of goods, services, capital, people, and ideas. The process of globalization has deep historical roots, but has been accelerated in recent years by unprecedented technological change, the increasing universality and acceptance of market-based economic systems, and the liberalization of international trade and capital movements.

3. Improve integration into the globalized financial world. Emerging market economies should be supported with technical assistance and policy advice by the international financial community in opening their capital accounts in a well-sequenced manner to benefit from international capital flows while minimizing potential risks.

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Ottawa, Canada, November 16-17, 2001
Communiqué

The reduction of capital flows to emerging markets underscores the need for sound policies to provide and to maintain a positive investment environment in member countries. We remain committed to this endeavour. Adopting the best practices embodied in international standards and codes also will help support strong, stable growth and reduce the risk of future financial crises. A majority of G20 members have already participated, on a voluntary basis, in assessments under one or both of the IMF/World Bank-led Financial Sector Assessment Program (FSAP) and Reports on Observances with Standards and Codes (ROSCs) consistent with our undertaking at our inaugural meeting in Berlin in December 1999. We will continue to promote adoption of international standards and codes for transparency, macroeconomic policy, sound financial sector regulation and corporate governance in consultation as appropriate with relevant international bodies and with the private sector, and thereby strengthen the integrity of the international financial system. We will continue our work on appropriate exchange rate regimes, prudent liability management, and orderly liberalization of the capital account. These efforts reduce susceptibility to financial crises.

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Delhi, India, November 23, 2002
Communiqué

We believe that effective and accountable International Financial Institutions (IFIs) and worldwide surveillance are essential for a healthy global financial system. Sustainable exchange rate regimes, prudent asset-liability management, and implementation of agreed standards and codes are important components of an effective strategy for crisis prevention. We agreed on the need for sound national financial systems, effective supervision, and corporate governance in line with global best practice. We also agreed that capital account liberalisation should proceed in an appropriately sequenced manner.

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Berlin, Germany, November 20–21, 2004
Communiqué

5. Based on an exchange of experience over the past two years, we emphasised that strong domestic financial sectors are essential in supporting economic growth and reducing external vulnerabilities. We agreed that high priority should be given to establishing stable and efficient institutions. Progress in institution building is also important for a well-sequenced liberalisation of the capital account. Emphasis must be given to implementing the relevant internationally recognised standards and codes. We highlighted the crucial role of financial sector supervision, which should pay due regard to efficiency, operational independence and accountability of the agencies involved. We welcomed the efforts of the World Bank to develop principles and guidelines for effective insolvency and creditor rights systems and we commend efforts to develop a unified international standard in this area, in collaboration with UNCITRAL, that takes into account different legal traditions. We identified stable and efficient payment systems as pivotal for the financial infrastructure and emphasised the role of central banks as a supplier and overseer of payment services. We welcomed the efforts of the IMF, the World Bank and others in promoting institution-building and the development of local capacity and agreed on the importance of closely coordinating such activities.

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Berlin, Germany, November, 20-21, 2004
G20 Accord for Sustained Growth

• The liberalisation of the capital account yields essential efficiencies and benefits for economic growth. However, countries still opening their capital account should proceed prudently in order to avoid an excessive volatility of capital flows. A prudent approach would be based on sound macroeconomic policies and gradual deregulation of the domestic financial sector combined with adequate enhancements of the supervisory framework. The elimination of restrictions on capital movements should be appropriately sequenced. Experience has shown that countries seeking domestic monetary autonomy while substantially liberalising their capital account should increase the degree of exchange rate flexibility accordingly.

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