Annex IV.1
Management of Capital Inflows: Restrictions and Prudential Requirements
–Country Experiences
Indonesia (1990)
- Measures imposed to discourage offshore borrowing, including limits on banks’
net open-market foreign exchange positions and on off-balance-sheet positions.The
three-month swap premium raised by 5 percentage points.
- All state-related offshore commercial borrowing made subject to prior approval
and annual ceilings were set for new commitments over the next five years.
Malaysia (1989)
- Limits on non-trade-related swap transactions imposed on commercial banks.
- Banks subjected to a ceiling on their non-trade or non-investment related
external liabilities.
- Residents prohibited from selling short-term monetary instruments to non-residents.
- Commercial banks were required to place with Bank Negara the ringgit funds
of foreign banking institutions (Vostro accounts) held in non-interest-bearing
accounts. During January-May 1994, these accounts were considered part of
the eligible liabilities base for the calculation of required reserves, resulting
in a negative effective interest rate on Vostro balances.
Philippines (1992)
- Bangko Central discouraged forward cover arrangements with non-resident
financial institutions.
Thailand (1988)
- Banks and finance companies (a) net foreign exchange positions not to exceed
20 per cent of capital (subsequently increased to 25 per cent) and (b) net
foreign liabilities not to exceed 20 per cent of capital.
- lResidents disallowed from holding foreign currency deposits except only
for trade-related purposes.
- Reserve requirements, to be held in the form of non-interest-bearing deposits
at the Bank of Thailand, on short-term non-resident baht accounts raised from
two to seven per cent. The seven per cent reserve requirement extended to
finance companies short-term (less than one year) promissory notes held by
nonresidents. Offshore borrowing with maturities of less than one year (excepting
loans for trade purposes) by commercial banks, finance companies, and finance
and security companies also subjected to 7 per cent minimum reserve requirement.
Thailand (2003)
- Restrictions on interest payments imposed, effective October 14, 2003, on
short-term borrowing in Baht from non-residents to prevent Thai Baht speculation.
These include: (i) non-residents can maintain only current or saving accounts
for settlement of international trade and investment transactions; deposits
for other purposes must have maturity of at least six months; (ii) a deposit
ceiling of 300 million Baht (equivalent of around US $ 7.5 million) per non-resident
account; and (iii) financial institutions not to pay interest to overseas
holders of Thai cheque and savings accounts.
Taiwan
- Restrictions on short-term financial transactions are used; for example,
each qualified foreign institutional investor (QFII) is permitted to invest
up to US $ 3 billion while individuals are permitted to invest up to US $
5 million.
Eastern Europe and Latin America
Chile (1990)
- Non-remunerated 20 per cent (subsequently increased to 30 per cent) reserve
requirement (to be deposited at the central bank for a period of one year)
on liabilities in foreign currency for direct borrowing by firms.
- The stamp tax of 1.2 per cent a year (previously paid on domestic currency
credits only) applied to foreign loans as well (excepting trade loans).
Colombia (1991)
- A 3 per cent withholding tax imposed on foreign exchange receipts from personal
services rendered abroad and other transfers (but allowed to be claimed as
credit against income tax liability).
- Banco de la Republica increased its commission on its cash purchases of
foreign exchange from 1.5 to 5 per cent.
- Non-remunerated reserve requirement to be deposited at the central bank
on liabilities in foreign currency for direct borrowing by firms. The reserve
requirement to be maintained for the duration of the loan and applied to all
loans with a maturity of five years or less, except for trade credit with
a maturity of four months or less. The percentage of the requirement declined
as the maturity lengthened, from 140 per cent for funds that are 30 days or
less to 42.8 per cent for five-year funds.
Czech Republic (1992)
- The central bank introduced a fee of 0.25 per cent on its foreign exchange
transactions with banks, with the aim of discouraging short-term speculative
flows.
- Limit on net short-term (less than one year) foreign borrowing by banks
introduced.
- Each bank to ensure that its net short-term liabilities to non-residents,
in all currencies, do not exceed the lower of 30 per cent of claims on non-residents
or Kc 500 million.
- Administrative approval procedures imposed to slow down short-term borrowing
by non-banks.
Mexico (1990)
- Foreign currency liabilities of commercial banks limited to 10 per cent
of their total loan portfolio. Banks had to place 5 per cent of these liabilities
in highly liquid instruments.
Brazil (1992)
- Between October 1994 and March 10, 1995, following measures imposed: (a)
one per cent tax on foreign investment in the stock market, (b) tax on Brazilian
companies issuing bonds overseas raised from 3 to 7 per cent of the total
and (c) tax paid by foreigners on fixed-interest investments in Brazil raised
from 5 to 9 per cent.
Note : Dates in brackets refer to the first year of the surge in inflows.
Sources :
1. Reinhart and Smith (1998).
2. Central bank websites.
Annex IV.2
Monetary Measures for Exchange Rate Management: India
1995-96
October 30, 1995
- Effective October 31, 1995 with a view to discouraging
excessive use of bank credit to finance imports, outstandings under the import
credit limit were subject to a 15 per cent interest rate surcharge.
November 29, 1995
- With a view to making the Foreign Currency NonResident
Accounts (Banks)[FCNR(B)] Scheme more attractive to banks and to enable them
to market FCNR(B) deposits more competitively, the increase in liabilities
under the FCNR(B) Scheme over the level outstanding as on November 24, 1995
was exempted from CRR, effective fortnight beginning November 25, 1995.
December 6, 1995
- With a view to enabling banks to better balance the cost
of FCNR (B) deposits and the return on the deployment of their funds, average
CRR on the outstanding liabilities under the FCNR (B) scheme as on November
24, 1995 was reduced from 14.5 per cent to 7.5 per cent effective fortnight
beginning December 9, 1995.
February 7, 1996
- With a view to removing the distortion in the effective
interest rates on post shipment expor t credit denominated in foreign currency
(PSCFC) facility being significantly lower than under foreign currency post-shipment
credit, the PSCFC was terminated effective February 8, 1996.
- Effective February 8, 1996 the interest rate on Post-shipment
Export Rupee Credit for over 90 days and up to 180 days was deregulated.
- Effective February 8, 1996 outstandings under the import
credit limit were subject to a 25 per cent interest rate surcharge.
1997-98
December 2, 1997
- The CRR on net demand and time liabilities (NDTL) of scheduled
commercial banks was raised by 0.5 percentage points to 10.0 per cent, effective
fortnight beginning December 6, 1997.
- The incremental CRR of 10.0 per cent on NRE and NRNR deposit schemes was
removed effective fortnight beginning December 6, 1997.
December 17, 1997
- Effective December 18, 1997, banks were to charge a minimum
interest rate of 20.0 per cent per annum, on overdue export bills from the
date of advance. Earlier banks were free to charge any rate of interest on
overdue export bills which were not realised within the due date.
- An interest rate surcharge of 15.0 per cent of the lending
rate on bank credit for imports was introduced, effective December 18, 1997.
December 31, 1997
- Effective January 1, 1998, the interest rate on post shipment
rupee export credit beyond 90 days and up to six months was reduced from 15.0
per cent to 13.0 per cent.
January 16, 1998
- The Bank Rate was raised by two percentage points to 11.0
per cent per annum, effective January 17, 1998.
- The repo rate was raised by 2 percentage points to 9 per cent, effective
January 17, 1998.
- CRR was raised by 0.5 percentage point to 10.5 per cent
of NDTL of scheduled commercial banks effective fortnight beginning January
17, 1998.
- Effective fortnight beginning January 17, 1998, all scheduled
commercial banks were to be provided export credit refinance to the extent
of 50 per cent of the increase in outstanding export credit eligible for refinance
(as against 100 per cent earlier) over the level of such credit as on February
16, 1996.
- Effective January 17, 1998, the interest rate surcharge
on bank credit for imports (excluding export related imports) was raised from
15 per cent of the lending rate to 30 per cent.
1998-99
June 11, 1998
- To enable exporters to avail of export credit in foreign currency
more effectively at internationally competitive
rates, banks were to charge a spread of not more than 1.5 percentage points
over LIBOR.
June 13, 1998
- The Reserve Bank reduced the fixed repo rate by
one percentage point to 5 per cent, effective June 15, 1998.
August 6, 1998
- A temporary revision in the interest rates charged up to
March 31, 1999 by the scheduled commercial banks on pre-shipment and post-shipment
rupee export credit was effected. It was decided that scheduled commercial
banks would be provided export credit refinance at 2.0 percentage points below
the Bank Rate (i.e., 7.0 per cent per annum).
August 20, 1998
- As a temporary measure, in order to absorb excess
liquidity, the CRR to be maintained by the scheduled commercial banks against
their NDTL (excluding liabilities subject to zero CRR prescription) was increased
from 10 per cent to 11 per cent, effective fortnight beginning August 29,
1998.
August 21, 1998
- The fixed repo rate was increased by three percentage points to
8 per cent from 5 per cent.
2000-01
May 25, 2000
- An interest rate surcharge of 50 per cent of the lending
rate on import finance was imposed with effect from May 26, 2000, as a temporary
measure on all non-essential imports.
-Banks were advised to charge interest at 25 per cent per
annum (minimum) from the date the bills fall due for payment in respect for
overdue export bills in order to discourage any delay in realisation of export
proceeds.
July 21, 2000
- The Bank Rate was increased by 1 percentage point from 7 per cent to 8
per cent effective July 21, 2000.
- CRR was increased by 0.5 percentage point from 8 per cent
to 8.5 per cent in two stages by 0.25 percentage point each effective from
fortnights beginning July 29, 2000 and August 12, 2000, respectively.
- The limits available to banks for refinance facilities
including the collateralized lending facility (CLF) were reduced temporarily
to the extent of 50 per cent of the eligible limits under two equal stages
effective from July 29, 2000 and August 12, 2000.
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