Developed countries introduced almost 'crazy' measures against the global crisis. They created liquidity abundance and kept interest rates at quite low levels. As a result of this 'emerging market economies' across developing countries started to witness substantial short term fund inflows.

Some of the emerging market economies started to raise their voice against this trouble caused by developing countries. There are two reasons why these fund flows are considered as trouble: First, they are low quality; there is a shift towards short term. Second, they are temporary. Developed countries will eventually withdraw the liquidity and raise interest rates.

Some emerging market economies are not contented with raising their voices. Since they see this phenomenon as a threat against their economy, they initiate some measures to discourage short term fund inflows which generally take the form of imposing tax on returns on domestic financial assets.

In my last to commentaries, I briefly discussed measures against short term capital inflows relying on the recent academic literature. If you do not have much room to maneuver in the realm of monetary and fiscal policy, or if you believe that steps in these fields would not be much of a remedy against short term capital inflows, the options you have would be capital controls and regulation and supervision.

The necessity of additional monetary loosening is debated must widely in the USA, proving that this phenomenon will be a trouble for emerging market economies for some time. On the other hand, I do not remember hearing a word from authorities as to the measures against temporary short term capital flows.

There could be two reasons for this. First, it is possible that capital controls are rejected categorically. For instance, State Minister Mr. Babacan has statements in the past that they are against capital controls. And of course, in normal times such opposition could have justified reasons. In fact, as far as I remember, such statements by Mr. Babacan were heard in such periods. Therefore, it is not clear whether or not there is a categorical opposition to capital controls. But if there exists such a categorical opposition, it does not make sense. There might be such preconditions that you have to pursue the measures you would oppose to in normal times. And I believe the period we are in is one of such periods.

Nonetheless, we do not have much time until the general elections. Under these circumstances appears another possibility, which goes as follows: after all, such fund movements secure a certain additional buoying effect on the economy. What is more, this buoy increases tax revenues creating space for additional budget expenditures. Under these conditions, capital movements might not be attractive also given that you have reservations about implementing the controls in normal times in the first place.

This commentary was published in Radikal daily on 14.10.2010