Developing countries are not stopped from controlling their short-term capital flows. But the international approval of such measures would help countries planning to introduce these moves. So far such an approval has not been forthcoming. The difference between the two is how the shocks work themselves out. The main issue is that the choice of exchange rate regime should not be part of IMF conditionality and countries should choose their own system, added Akyuz.
Countries facing crisis have three problems relating to international liquidity provision.
Firstly, multilateral institutions do not have funds. Although the IMF has introduced facilities, they lack funds. Thus, the IMF has to draw on its major shareholders, opening the road to undue political influence. Thirdly, the funds go not to the affected countries but instead to bail out creditors. The funds should ideally be used to support the country s currency level against speculation, but in a typical case the currency is instead allowed to collapse and the funds go to bail out the creditors.