Capital Flows and Controls in Brazil
Capital Flows and Controls in Brazil
What Have We Learned?
This chapter reviews Brazil's experience with capital controls. In spite of the significant progress in terms of capital account liberalization and currency convertibility attained since the early 1990s, current regulations continue to be cumbersome and complex. The debt accumulation pattern and the profile of external financing substantially changed since liberalization of the capital account and the floating of the currency. Net financial flows have financed current account deficits. Moreover, sudden stops are more pronounced when the crisis is mostly domestically driven. The strong capital controls system did not prevent capital flight. Sudden stops involve both the interruption of capital inflows and an increase in outflows. Foreign direct investment (FDI) flows tend to be more stable and less correlated to the other flows. Liberalization of the capital account in the last fifteen years has provided more convertibility to the currency.
Keywords: capital controls, Brazil, capital account liberalization, currency convertibility, debt accumulation, external financing, sudden stops, capital inflows
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