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Taming Capital Flow Volatility

The global financial safety net has grown since the financial crisis of a decade ago, thanks to regional financial arrangements and bilateral swap agreements. But regional arrangements are not found everywhere, while only a limited number of central banks have access to swap agreements.

BALI – “Today it is a sin to run a current-account deficit, and that is crazy,” lamented Singapore Deputy Prime Minister Tharman Shanmugaratnam at the annual gathering of the International Monetary Fund (IMF) and the World Bank in Bali this month. Ministers who could boasted of their balanced current accounts, while officials from deficit countries were treated like reprobates. Yet, as Tharman reminded the crowd, countries like South Korea and Singapore “grew by running current account deficits at early stages of development so we could invest ahead for growth while our savings were being built up.”