NEW YORK, United States – STEPPING into the debate over how countries should deal with capital surges during unsettled times, the International Monetary Fund said yesterday that controls can be helpful — but only in limited cases.

The study noted that developed nations responded to the financial crisis starting in mid-2007 by lowering interest rates and increasing the amount of money available to the global economy.

The action by the United States, the United Kingdom, the euro zone nations and Japan helped resolve the banking crisis and stem the recession.

But it also created conditions so that capital, especially investment money, moved to other countries, including developing nations, that had better short-term growth potential and offered higher interest rate returns.

Worried that the money flows could trigger inflation — or worse, hook economies on money that could flow out as quickly as it flowed in — some countries adopted taxes or reserve requirements to limit capital surges.

The Washington, DC-based IMF looked at controls in Brazil, Argentina, Colombia, Russia, Thailand and other countries and determined they can work in certain conditions.

If inflows are likely to be temporary, “capital controls may have a role in complementing the policy toolkit” that includes more flexible exchange rate policies and tightened fiscal policy, the report said. Permanent capital flow changes, however, “will require more fundamental economic adjustment”, it added.

Peter Morici, a professor at the Robert H Smith School of Business at the University of Maryland, disagreed with the report’s conclusions.

“If we had genuinely floating exchange rates, that is if China didn’t have an undervalued yuan, we wouldn’t be in the mess we’re in and we wouldn’t have these capital flow problems,” he said.

He added that “the IMF isn’t prepared to deal with capital flow issues,” which he said were the purview of central banks.