The IMF and the Liberalization of Capital Flows

We evaluate the claim that the International Monetary Fund precipitated financial crises during the 1990s by pressuring countries to liberalize their capital accounts prematurely. Using data from a panel of developing economies from the 1982-1998 period, we examine whether the changes in the regime governing capital flows took place during participation in IMF programs. We find evidence that IMF program participation is correlated with capital account liberalization episodes during the 1990s. We use alternative indicators of capital account openness to test the robustness of our results. To determine whether decontrol was premature, we compare the economic and financial characteristics of countries that decontrolled during IMF programs with those of countries who did so independently