Privatization and Capital Controls

[Dan Bell <dbell@kent.edu>]

INTERVIEW-Stiglitz doubts cap controls for Russia
  
MILAN, Nov 10 (Reuters) - The World Bank's chief economist said on Wednesday 
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 stabilising 
some of the volatility associated with short-term capital flowing in and 
out," Joseph Stiglitz told Reuters after delivering a lecture at Bocconi 
business 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 exceed ed the billions of dollars 
pumped in by the International Monetary Fund as it tried to engineer a market 
economy. 

"You had this process of privatisation, turning over national assets to 
private hands, typically at values that were far below what you might call 
fair market value. 

"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 re-investing 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, perhaps imposing conditions.
--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-3028
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/