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A Capital Idea Essay

1402 words - 6 pages

In the article "A Capital Idea", which was written after the financial crisis throughout 1990s in Latin America,Asia and Russia by Sebastian Edwards, the author examines the reasons of the crisis which are stemming from absence of strong macro economy policy and exemplifies the losses of capital control over foreign investment . Edwards expresses his disagreement on capital control policies to capital outflow and inflow by foreign investment, because the capital controls keep investor out of the country and create either internal or external economical problems.The Author highlights that free foreign investment movement has positive effect and supports the country's economical development by giving examples of this negative effects to the economies of the countries by using the experience of Latin America, Russia, Asia when perform restrictions on short-term capital inflows and and controls on capital outflows. Also Edwards cites the Chili's short term capital control policy for who support and follow up this policy. According to him , Chili's control policy seems like achieve goals but actually , Chile's short-term foreign-denominated policy gave huge debt which almost 50 percent of all debt from 1996 to 1998. He overemphasizes that governments have to understand that the capital controls are not useful , and should lift the control barriers between themselves.In theory , free foreign investment provides benefits to to countries . To create new employment opportunities , to support GDP , blocking monopolism and increasing internal competition, contributing to solve unemployment issues , to bring new technology and industry , etc , those are very attractive and big benefits of foreign investment in Theory .But when it comes to perform on real , foreign investments do not provide this and we can see that benefits of it is only valid on frame of abstract theoretical models.Foreign capitals are apt to consantretion on four biggest sectors (gross market-retail , energy generating and distribution ,banking , telecommunication , which creates income in own country . Common trait of this sectors is that the incomes and savings are domestic . This sectors are already available in produce and services to country , so when a foreign investor buy a banking in a country , we can not call it as a '' investment' ,because it is ''placement''. For comprehending it easily, difference between ''placement'' and ''investment'' should be known well. Investment is additions to improve the capital stock , and placement is to pass of the capital into the other hand . For instance , to create a factory is investment, but to buy a factory is placement. In this context what foreign capitals do is a investment for only itself , the country may not benefit from this situation , conversely it may effected negatively due to transfers the profit to abroad . I can give the Argentina financial crisis in 2001 as a biggest example for this case. Without to have national strong...

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