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The basic dilemma stems from the role of the exchange rate (nominal for-term transactions and real for long-term decisions) in equilibrating both goods and capital markets as they become more open. Heretofore, developing countries in East Asia and elsewhere have been able to use the level and movement of the exchange rate to effect the goods market almost exclusively. East Asian countries have often used nominal deprecations to maintain stable or slightly falling real exchange rates and so promote exports.
As capital markets open capital flows can create pressures to appreciate the real or nominal exchange rate against targets directed toward the goods market. Attempts to maintain a rate satisfactory for the goods market without adjusting other policy instruments can lead to disruptive capital flows. Either the exchange rate target has to be modified, or other policy instruments must be adjusted. Using the exchange rate as a “nominal anchor” to help combat inflation adds to the burden and can be effective only where fiscal and monetary policies are closely coordinated in support of that objective. In countries with less developed financial sectors, the choice and range of instruments are limited.
As the theoretical models have become richer and more complex, so have the range and complexity world. Most of the stabilization models deal with money and simple bonds as assets and include little, if any, explicit analysis of risk- except as the degree of substitutability of domestic and foreign assets may be taken as a partial proxy for differing risk. The models do not look at the differential impacts of different types of capital flow can be quite different. Policymakers need to look at the characteristics of the instruments involves in capital movements in both a short-term and a medium-term perspective to help formulate policy.
Commercial bank borrowing provides resources that are essentially untied. Where the capital flow is directly linked to a specific project, its impact will be in the capital goods markets. It will probably have a high import content, witch will absorb a portion of the increase in demand from the capital inflow and ease pressure to appreciate the exchange rate or raise domestic prices. However, because these flows are flexible, they can readily be used to finance budget shortfalls of the government or of enterprises, perhaps delaying necessary fundamental adjustment, as often happened leading up to the debt crisis of the 1980s. In that case they increase aggregate demand and are more likely to lead to inflationary pressure and exchange rate appreciation. Because of its fixed term, the stock of this form of capital is not likely to be volatile. However, flows can stop abruptly, leading to economic stresses, particulary where borrowers have come to rely on foreign flows and have allowed domestic savings to decline. Excessive dependence on commercial bank flows can be risky because there are few built-in hedges to protect the borrower against exchange and interest rate fluctuations. Furthermore, repayment schedules are fixed in foreign exchange, and provision must be made to service this debt on schedule, regardless of the state of the economy of then project financed.
Foreign direct investment initially affects the market for real assets through purchases of new capital goods and construction services for plant constructions and sales of firms to foreign investors, or, in the case of privatization’s and sales of firms to foreign investors, through purchases of existing plant and equipment. Direct investors may even encourage incremental national saving and investment, either from local partners or from bank borrowing. FDI in new plant increases the aggregate demand for investment goods, and frequently of other goods as well. Higher demand for imports eases the pressure of capital inflow on the domestic, reduces reserve accumulation, and relieves pressure on the exchange rate. Most FDI in East Asia has been of this productive type, and its impact has been manageable. When FDI is in a protected industry, as has occurred in some cases, the profits it earns may not come from real (as opposed to accounting) value added. This form of FDI is least beneficial, as it exploits local marker imperfections to the advantage of the foreign investor and may not increase domestic value added or measured or wealth measured in world prices. The eventual repatriation of capital and profits could reduce the host real income and wealth.
Реферат опубликован: 11/02/2008