This paper by Filomeno S. Sta. Ana III was presented at the Alternatives to Neoliberalism Conference sponsored by the New Rules for Global Finance Coalition, 23-24 May 2002.
Summary
It is neoliberalism that attempts to suppress the interventionist or illiberal aspects found in neoclassic economics. From one perspective of neoclassical economics, capital control is no big deal. At the theoretical level, we recall, for example, the Mundell-Fleming model, which states that one cannot simultaneously have a fixed exchange rate, monetary policy independence, and full capital mobility. One can have two of the three features. It thus suggests that capital control is permissible in a regime of independent monetary policy and a fixed exchange rate (the East Asian countries that were hit by the 1997 financial crisis had a de facto fixed exchange rate). In practice, we cite Chile, one of the most liberal economies in the world, for successfully adopting capital controls during the 1990s. Chile's capital control was a necessary condition in Chile's economic growth and that the control was an integral part of what was trumpeted as a strategy of economic liberalization.
