From Argentina to China and India: a guide for capital controls
NEW DELHI: Argentina may have scared investors with the imposition of capital controls over the weekend, but it is barely alone among emerging markets when using them to prevent money from escaping in times of stress.
From China to India, Nigeria and South Africa, investors have largely learned to live with them. Here is a look at the measures taken by different countries and how they affect investors in bonds and stocks:
The administration of President Mauricio Macri announced on Sunday that exporters would have to repatriate foreign currency within five days after payment and that companies would have to ask the central bank for permission to buy dollars in the exchange market. Companies must also request authorization to distribute dividends abroad. The measure was aimed at stopping a fall in foreign exchange reserves.
The world's second largest economy gradually facilitated capital controls in recent decades and facilitated trade in the yuan. But it hardened again in 2016 to stop an avalanche of money leaving the nation, and those restrictions remain. There is a limit of $ 50,000 a year for Chinese citizens who take money from the yuan. For fund managers, both incoming and outgoing investments in financial assets are subject to fees, although the Hong Kong stock liaison program offers an alternative. And there are other restrictions on everything from overseas acquisitions to purchases of insurance policies in Hong Kong.
India has liberalized its capital account in recent years to attract foreign money in the absence of a large domestic savings pool. Foreigners can now buy and sell stocks without any limits, but there is a cap on how much they can invest in rupee bonds. Last week, India eased restrictions on foreign direct investments in sectors such as retail, manufacturing and coal mining. That’s expected to encourage companies like Apple Inc and BHP Group PLC to invest more in Asia’s third-largest economy.
The central bank lifted a currency fixation in 2005 and has since taken several measures to improve the accessibility of land markets. It has made it easier for investors to cover their investments in local currency and has provided more flexibility in ringgit transactions involving non-resident financial institutions. A restriction that still exists is the prohibition of foreign exchange trading, which the central bank has indicated that it has no plans to eliminate.
Africa’s biggest oil producer uses a raft of measures to bolster the naira. The central bank has created a list of about 45 imported items from rice to textiles for which purchases of foreign exchange are banned. Neither are Nigeria ns allowed to buy dollars to invest in Eurobonds. Foreign investors have faced restrictions in the past, including a rule requiring them to hold government bonds for at least a year, but the central bank has eased them in a bid to attract more inflows from carry traders.
South Africa has one of the most liquid coins in the world, thanks in part to it allowing foreign portfolio investors to enter and exit the country at will. Locals, however, face several curbs. The Reserve Bank has a complex system of exchange controls that limits the amount of money South Africa n individuals, investors and companies can move offshore. Exporters have to repatriate foreign earnings within six months.
Thailand hastily reversed strict capital controls imposed in 2006 after they sparked a stock-market meltdown, leaving officials wary of repeating the same mistake. The central bank has taken a different tack recently to restrain the baht’s appreciation. The steps include curbing how much non-residents can hold in baht accounts, tightening reporting requirements on foreign holders of Thai debt, and cutting the supply of short-term bonds.
Turkey still has one of the world’s most open capital accounts, and the lira is among the most liquid emerging-market coins . But over the past year, as households hoard more dollars, the central bank has started regulating foreign-exchange purchases, forced exporters to repatriate some of their hard-currency revenue, and made companies quote contracts only in liras.
Roiled by a pro-Russian insurgency in its east and an economic crisis, Ukraine announced capital controls from 2014. Guided by the International Monetary Fund (IMF), Ukraine ’s steps included a one-day freeze on all currency trading, the mandatory conversion of export revenue and limits on dollar purchases by households. Most curbs have since been lifted, though there are still limits on purchases of hryvnia loans by foreigners.