As the Fed moves towards tightening its post-pandemic monetary policy, developing countries around the world face growing risks of capital flight. The deep political constraints posed by this risk are not new, but their implications for contemporary policymaking are persistent.
In a 2014 book chapter, Léonce Ndikumana and James Boyce consider strategies to overcome the tension.
From the text:
"On the African side, capital flight is associated with the embezzlement of national resources, corruption and political instability. But external agents and institutions also contribute to capital flight from the continent, in particular through the opacity of the international banking system and inadequate enforcement of rules on financial transparency.
This implies that efforts to stem and prevent capital flight must be organized on both domestic and international fronts. At the national level, the effectiveness of official institutions in preventing capital flight is contingent on the existence of a dynamic network of civil society entities committed to financial transparency and accountability. Civil society needs to be given ample space to operate as a counterbalancing force to executive power. In turn, civil society must take advantage of this position to consolidate action plans in the fight against illicit financial flows. Internationally, the establishment of a body to adjudicate questions of debt legitimacy would add an important missing piece to the current financial architecture. The coordination and harmonization of regulatory frameworks and enforcement mechanisms are critical to increase effectiveness in preventing illicit financial flows and tax evasion, and in facilitating stolen asset recovery. A more transparent international financial system will benefit developing and developed countries alike."
Link to the piece.