Developing countries on Saturday pushed back hard against attempts to restrict how they manage money pouring into their fast-growing economies and said rich nations should reconsider their own policies instead.
Resistance to limiting capital controls, a sensitive topic for economies inundated with inflows of inflationary hot money from countries with low interest rates such as the United States, was widespread among emerging market finance leaders at a weekend International Monetary Fund meeting here.
We oppose any guidelines, frameworks or 'codes of conduct' that attempt to constrain, directly or indirectly, policy responses of countries facing surges in volatile capital inflows, said Brazilian Finance Minister Guido Mantega.
The IMF this month endorsed use of capital controls, a tool once considered anathema to its free-market philosophy, but advanced countries want to establish a framework to monitor the policies governments use, an approach emerging markets oppose.
Ironically, some of the countries that are responsible for the deepest crisis since the Great Depression and have yet to solve their own problems are eager to prescribe codes of conduct to the rest of the world, Mantega said, including to countries that are overburdened by the spillover effects of the policies adopted by them.
Brazil and others point at the U.S. Federal Reserve's zero interest rate policy, which they say leads investors to pour money into their economies in search of higher returns. These flows are stoking inflation and pushing currencies higher in emerging markets.
The G24 group of developing nations, which includes Brazil and India, urged the IMF on Thursday to take an open-minded and even-handed approach to managing capital inflows.
The fund should focus on understanding the effects of policies that spill across borders, Central Bank of Chile Governor Jose De Gregorio said on Saturday.
The G20 group of leading developed and emerging economies delayed a final decision on when countries can use capital controls on Friday and agreed to keep working on a framework.
But French Finance Minister Christine Lagarde, whose country is G20 president this year, said it seems vital to have a common set of rules on how to manage capital flows.
Mexican Finance Minister Ernesto Cordero said capital controls should only be used as a last resort.
Thankfully, there are only a few countries considering these measures, he said.
PUTTING FISCAL HOUSES IN ORDER
Some finance officials said ultra-loose monetary policies and rising budget deficits in the United States and other advanced countries posed a threat to the world's recovery from the worst recession since World War II.
The fiscal situation in the advanced economies gives us great concern, and it is in this area that we see the major risks to the global economy, Russian Finance Minister Alexei Kudrin told the IMF's advisory panel.
The IMF this week noted that the U.S. budget gap was on course to hit 10.8 percent of economic output this year, tying Ireland for the largest deficit to total output ratio among advanced economies. It urged Washington to tighten its belt.
At Saturday's meeting, U.S. Treasury Secretary Timothy Geithner said the United States was committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery.
Leaders also fretted about fiscally strapped euro zone countries and their ability to refinance their massive debts.
Fiscal authorities, especially in advanced economies, should speed up public finance consolidation, said Dutch Finance Minister Jan Kees de Jager. A strong message from the (IMF panel) on this matter would be welcome.
U.S. and other developed country leaders have long argued that emerging countries can combat inflows and price pressures by allowing their currencies to strengthen against the dollar.
China, the world's biggest exporter, has rebuffed acute U.S. pressure to let the yuan rise more rapidly, though Premier Wen Jiabao this week said the country should resort to more exchange rate flexibility to combat rapidly rising prices.
Consumer price increases accelerated in both China and India in the year to March.
Geithner called the IMF's proposed framework on capital controls a good start and called for stepped-up surveillance on monitoring exchange rates.
(Reporting by Reuters IMF/G20 team; Writing by Steven C. Johnson, editing by )