International finance and policy space

To be fully effective, policies aimed at structural transformation require a favourable macroeconomic framework. This means economic policy must aim to keep the key macroeconomic prices (interest rates, wages and exchange rates) at levels that favour robust capital accumulation, domestic market growth and trade competitiveness. Macroeconomic policy must also avoid excessive instability or unsustainable domestic and external imbalances. In all these areas, international finance can play an important, but sometimes disruptive, role. Indeed, foreign capital inflows, depending on their size and composition, may increase or reduce economic policy’s room for manoeuvre and, more generally, support or undermine growth and development.

Related Subject(s): Economic and Social Development