THE latest
OECD and UNCTAD Study has warned G20 leaders against the risk that
tensions over
current account imbalances could slow investment or degenerate into a
protectionist spiral.
In their fourth report to the G20, both the bodies
find that most new investment measures taken from mid-May to mid-October by
governments were aimed at facilitating and encouraging investment
flows.
However, some countries have recently put in place capital
controls and regulations to buffer their economies from foreign exchange
volatility and capital flows. While such measures may serve legitimate purposes
under exceptional circumstances, they could lead to a fragmentation of
international capital markets along national lines, and may be difficult to
dismantle once in place, says the report.
Besides steering clear of
further intervention in currency markets, governments must also wind down
emergency schemes as quickly as is prudent. Exit strategies should be
transparent and accountable. While 12 G20 countries implemented emergency
programmes for the financial sector, India is the only country to date that has
fully dismantled them and retains no related assets or government
guarantees.
Looking ahead, the report warns that governments must remain
alert to two principal dangers:
+ Signs of intensifying protectionist
pressures, as unemployment remains high in many G20 countries and tensions over
exchange rates continue;
+ The need to manage investment measures taken
in response to the crisis. Countries must ensure that exit measures remain
transparent and non-discriminatory against foreign investors.
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