Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience
Indonesia has operated a liberal capital account permitting relatively free flow of international non-FDI flows since the early 1970s. In this paper, we review the Indonesian experience and the effectiveness of capital restrictions during 1990–2010 using a SVAR model of the Indonesian economy. Becau...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
World Scientific Publishing
2012-12-01
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| Series: | Asian Development Review |
| Online Access: | https://www.worldscientific.com/doi/10.1142/S0116110512500151 |
| _version_ | 1797793816109907968 |
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| author | Sisira Jayasuriya Shawn Chen-Yu Leu |
| author_facet | Sisira Jayasuriya Shawn Chen-Yu Leu |
| author_sort | Sisira Jayasuriya |
| collection | DOAJ |
| description | Indonesia has operated a liberal capital account permitting relatively free flow of international non-FDI flows since the early 1970s. In this paper, we review the Indonesian experience and the effectiveness of capital restrictions during 1990–2010 using a SVAR model of the Indonesian economy. Because of severe data problems in the pre-1997 period and because the Indonesian monetary policy and broader macroeconomic regime underwent fundamental changes since the 1997 crisis, we also estimated a model separately for the 2000–2010 period. Both sets of results suggest that inflow and outflow restrictions have been effective for FDI but largely ineffective for portfolio capital. However, the 2000–2010 model results indicate not only that restrictions on inflows have a short-term impact on restricting portfolio flows, but also suggest that controls on inward portfolio investments have some ability to shift funds from short-term to longer-term markets, though the impact is short-lived. |
| first_indexed | 2024-03-13T02:53:47Z |
| format | Article |
| id | doaj.art-a2f4d84417af44d398686af2d70bf6fc |
| institution | Directory Open Access Journal |
| issn | 0116-1105 1996-7241 |
| language | English |
| last_indexed | 2024-03-13T02:53:47Z |
| publishDate | 2012-12-01 |
| publisher | World Scientific Publishing |
| record_format | Article |
| series | Asian Development Review |
| spelling | doaj.art-a2f4d84417af44d398686af2d70bf6fc2023-06-28T08:50:44ZengWorld Scientific PublishingAsian Development Review0116-11051996-72412012-12-01290213618010.1142/S0116110512500151Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian ExperienceSisira JayasuriyaShawn Chen-Yu LeuIndonesia has operated a liberal capital account permitting relatively free flow of international non-FDI flows since the early 1970s. In this paper, we review the Indonesian experience and the effectiveness of capital restrictions during 1990–2010 using a SVAR model of the Indonesian economy. Because of severe data problems in the pre-1997 period and because the Indonesian monetary policy and broader macroeconomic regime underwent fundamental changes since the 1997 crisis, we also estimated a model separately for the 2000–2010 period. Both sets of results suggest that inflow and outflow restrictions have been effective for FDI but largely ineffective for portfolio capital. However, the 2000–2010 model results indicate not only that restrictions on inflows have a short-term impact on restricting portfolio flows, but also suggest that controls on inward portfolio investments have some ability to shift funds from short-term to longer-term markets, though the impact is short-lived.https://www.worldscientific.com/doi/10.1142/S0116110512500151 |
| spellingShingle | Sisira Jayasuriya Shawn Chen-Yu Leu Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience Asian Development Review |
| title | Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience |
| title_full | Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience |
| title_fullStr | Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience |
| title_full_unstemmed | Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience |
| title_short | Fine-Tuning an Open Capital Account in a Developing Country: The Indonesian Experience |
| title_sort | fine tuning an open capital account in a developing country the indonesian experience |
| url | https://www.worldscientific.com/doi/10.1142/S0116110512500151 |
| work_keys_str_mv | AT sisirajayasuriya finetuninganopencapitalaccountinadevelopingcountrytheindonesianexperience AT shawnchenyuleu finetuninganopencapitalaccountinadevelopingcountrytheindonesianexperience |