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. Last Updated: 07/27/2016

World Bank Says Capital Controls Hard for Russia




MILAN, Italy -- The World Bank's chief economist said capital controls had worked well in countries like Malaysia and China, but it was a more difficult issue in the case of Russia.


"[In Malaysia] capital controls were quite effective as part of stabilizing some of the volatility associated with short-term capital flowing in and out," Joseph Stiglitz said Wednesday after delivering a lecture at Bocconi University. "In Russia, there was another issue associated with capital flows, and that is the broader issue of capital flight."


Money is still flooding out of Russia, and analysts estimate the volume of capital flight over recent years has easily exceeded the billions of dollars pumped in by the International Monetary Fund as it tried to engineer a market economy.


"You had this process of privatization, turning over national assets to private hands, typically at values that were far below what you might call fair market value," Stiglitz said. "And then, because of a very open capital market, almost inviting them to strip their assets and take the assets to the U.S. stock market, which was booming, rather than invest at home.


"Incentives were created, but they were incentives for asset-stripping, not wealth creation," he said.


Stiglitz said China, however, took a different position.


"They did have capital controls, people were reinvesting in their economy and so the economy was booming and the capital controls worked very well."


But, he said, the difficult issue for a government was making capital controls effective, by perhaps imposing conditions.


"The standard story is that you can evade capital controls by under-invoicing - so give up.


"But a major export for Russia is oil. There are international prices of oil, it is very easy to monitor the quantities and prices of oil.


"If a government had wanted to ensure repatriation of those funds, it could have. If the IMF or other international financial institutions had wanted to impose conditions, presumably one could have imposed conditions on that kind of repatriation.


"I don't want to underestimate the difficulties of enforcement, but on the other hand, I think one has to understand the particular nature of oil made it feasible for them to have had much better control than they have had," Stiglitz said.