This case highlights how capital controls work and further what their objectives are. It outlines the advantages and disadvantages of capital controls, especially controls on inflows of capital and whether these and other policies like bank regulation and fiscal policy spur or hinder economic growth.
1. Why did Chile institute capital controls in 1991? Did the controls meet their objectives? What was the role of other policies in Chile’s economic success in the 1990s?
2. What were the arguments for and against getting rid of the controls in the context of the aftermath of the Asian and Russian financial crises?
3. Discuss the importance of alternative policy options such as bank regulation and fiscal policy. Was Chile in danger of suffering a crisis such as that of 1982?
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