CAPITAL LIBERALIZATION MATTERS AND DILLEMAS – SPECIAL REFERENCE TO THE REPUBLIC OF MACEDONIA

Abstract

During the period of the recent decades, the capital liberalization has
become an issue of intensive academic proceedings, debates and research
for numerous studies. Discussions have been focused on matters related
to the advantages and disadvantages of capital liberalization, as well as on
the pre-conditions which need to be fulfilled, prior the accession to the full
liberalization of capital flows.
The conclusions of the research on the effects of capital liberalization
are various and very often contrary. Until the occurrence of the Asian crisis,
the literature was dominated by the point of view, which was also officialy
supported by the IMF, that the capital liberalization benefit is higher than its
expenses. Nowadays, based on the analysis of the experience of numerous
currency and financial crises and especially after the great financial and
economic crisis dated from 2007 to 2009, in the economic literature there
seems to have happened certain convergence of the view-points in terms of
treating these issues more carefully and indicating that capital liberalization,
especially the one in the developing countries, should take place gradually, also
it should be controlled and followed by good regulation. The major advantagethe impossible trinity in the monetary policy, according to which the country
cannot simultaneously permit free capital flow, fixed rate of exchange and
independent monetary policy. Therefore, controls of capital enable conducting
autonomous monetary policy, that is to say, they create an opportunity to make
a difference between domestic and foreign interest rates. This conclusion
seems to be relevant for the Macedonian economy as well.
The main goal of this paper is to discuss several dilemmas related to
the capital flow liberalization in the Republic of Macedonia – dynamics,
necessary steps and reforms, advantages and disadvantages which go along
with the process. Within this context, first of all the experience that certain
developing countries have had throughout the process of implementation of
the capital liberalization will be indicated, and after it will thoroughly focus on
the Republic of Macedonia, that is to say, on the issues related to the level of
Macedonian economy globalization, the dynamics of the capital liberalization
and the implications on the exchange rate.