The IMF Joins the Econoblogosphere

Simon Johnson, who heads up the research department at the IMF, is now blogging, and in his official capacity, no less. My favorite part of the blog so far is the "about" page, which says that "the aim of the blog is to interact more with people who don't attend press conferences"; you can't argue with that!

Johnson's meatiest blog entry so far is on the thorny issue of capital flows.

A recent study by the IMF's research department-which used data from the past 30 years to assess the effects of financial globalization-conveys two messages. The first is that countries should be cautious about external financial liberalization when financial sector development and institutional quality are below key thresholds. In other words, don't go in the water unless you can swim.
The second is that caution has costs: financial openness may itself catalyze improvements in fundamentals that enhance the benefits of globalization. Capital controls, whatever their benefits in terms of mitigating the risks associated with volatile capital flows, are costly in a variety of ways. In other words, everyone really should learn to swim...
Of more pressing immediate concern is the fact that capital is currently flowing to many countries whether or not they are ready to receive it...
If I'm right, then the major risk today is not imminent crisis but rather that the capital flows arising from the global boom will not be well managed-leading to the buildup of vulnerabilities. Thus, the danger is that when the party ends - and it is hard to know when this will be - there will a lot of mopping up to do.

I like the long-term viewpoint here: everybody's so excited about the subprime crisis that the continued healthy capital flows to emerging economies have almost been forgotten. And I think Johnson is right to be cautious about this idea that if a country opens itself up to international capital flows, that very openness will force the country to build institutions strong enough to withstand the inevitable tides. Asia wasn't ready for an outflow in 1998, and I don't think that countries like Botswana, or even Brazil, are necessarily better-placed today.

If Johnson is right and too much money is a bad thing for many countries, is there anything that the IMF or anybody else can do about this problem?

(HT: Hounshell)