Policy Innovations The central address for a fairer globalization

A publication of the Carnegie Council

Financial Liberalization, Fragility and the Socialization of Risk: Can Capital Controls Work?

By C. P. Chandrasekhar

Abstract: In the wave of neo-liberal economic reform unleashed in developing countries during the 1980s and 1990s, there has been a relatively new and substantial emphasis on the liberalization of financial sector polices. Prior to the 1980s economic liberalisation was primarily concerned with stabilising the balance of payments through contractionary monetary and fiscal policies and structurally adjusting these economies by liberalizing trade and removing controls on domestic capacity creation, production and pricing by domestic and foreign firms. While retaining these features, neo-liberal reform in the 1990s has combined them with a range of policies liberalizing the operations of financial markets and encouraging regulatory forbearance in supervising their operations. Supervision and prudential regulation is intensified in the aftermath of financial failure, only to be diluted subsequently, subject to the adherence to a broad set of guidelines relating to capital adequacy, accounting practices and disclosure norms.

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