Capital account convertibility, poor developing countries, and international financial architecture

Capital account liberalisation can deliver modest benefits to poor countries. However, the attainment of these benefits depends on prior or simultaneous liberalisation of the banking sector, and on policy and institutional quality. By itself, liberalisation of the capital account will deliver relatively little. It is inconsistent with pegged exchange rates. This all suggests caution. Capital account liberalisation also leaves poor countries more vulnerable to crises. This vulnerability should form part of the agenda of the multilateral agencies. This article argues that debt standstills are the appropriate instrument to deal with this problem; the negotiation of such procedures is an important issue for the IMF in the coming years.