Comparative Analysis Of Capital Account Liberalization In Argentina And Chile And Its Enlightenment To China

Argentina and Chile are the major economies in Latin America.Being gifted with fertile land,abundant agriculture and animal husbandry resources,Argentina was one of the countries with the highest per head income at the beginning of the 20 th century.The Chilean economy was lagging behind because of the lack of natural resources,except for the copper and saltpeter mine.After the World War II,the Latin American countries were facing economic stagnation and hyperinflation problems.Following the Neoliberalism trend,Argentina,Chile and other countries have begun the process of capital account liberalization in the 1970 s.In the middle of 1970 s and the end of the 1980 s,Argentina abolished all the capital controls in a radical way and implemented rapidly the interest rate and exchange rate marketization,bringing about a temporary economic overheating and malignant inflation.Due to the excessive external debt and domestic credit,the first attempt of capital account liberalization end up with banking crisis and debt crisis.During the latter attempt of liberalization,Argentina implemented a rigid currency board system,which pushed the economy into deflation.However,the Argentine government was unable to use monetary policy to adjust the macro economy.Eventually an unprecedented financial crisis broke out in 2001.The first attempt of capital account liberalization of Chile is very similar to the argentine experience.At the year of 1974,Chile drastically abolished the control measures of the capital account,interest rate and exchange rate and eventually led to a financial crisis.In the mid-80 s,the Chilean government restart the process of capital account liberalization in a prudent and gradual way.As a result of a reasonable arrangement of interest rate and exchange rate marketization,the establishment of a consummate macro prudential management system and the correct collocation of macroeconomic measures,Chile has become the country with the most rapid and stable economic growth in Latin America during the last 20 years.Through the comparison of the capital account opening process and the study of its “double-edged sword” effect on the economic growth of these two countries,this paper analyses why the capital account liberalization brought to the Chilean economy stability and sustainable development,but turbulence and crises to the Argentine economy.From the above analysis we conclude that developing countries should only begin the process of capital account liberalization based on the macroeconomic stability and in a gradual way.In the meanwhile,a consummate macro prudential management system must be established.A correct guidance of capital inflows is also important,as well as the reasonable use of temporary capital management measures during international market turbulences.In our case,China should not hurry the process of capital account openness pursuing the rapid internationalization of Renminbi.In the process of the financial reform in Shanghai Free Trade Zone,we should handle the rhythm of the capital account liberalization carefully to avoid systematical risks.