Constraints on the Free Movements of Funds Internationally
International flow of funds refers to the movement of money and money equivalents between countries. Funds refer to money or money equivalents that are given for a purpose (Dawson). For example, funds may be given to a country to facilitate a development project in a country. Governments, individuals, and organizations can, therefore, give or receive funds depending on the needs and their financial abilities.
A government may place various constraints on flow of funds internationally. One of the constraints could be in terms and conditions of providing funds (Sharan). If a provider of funds has varied interest in the country or organization to which it seeks to fund, stringent terms may make the provider shy away from the endeavor. Similarly, if governments or organizations seeking funds cannot adhere to the set conditions, funding arrangements are likely to be avoided altogether. Such conditions, therefore, create constraints to international flow of funds.
The government would impose such constraints due to a myriad of reasons. One imperative reason would be to prevent its citizens from exploitation by foreign financiers. This might be through the conditions sought after by providers of the funds.
For example, a financier may demand certain unreasonable stakes in the endeavor, or even demand for contracts that would otherwise be given to citizens of the country. Another reason would be to ensure that the government, not foreigners, remains in control of key sectors of the economy.
Managers of multinational companies may argue that the constraints may not be favorable for the government as it might be viewed as lack of trust or hostility towards providers of finance. As a result, providers of finance may decide to charge higher interests in case of loans given to the government. Such retaliatory actions may not be favorable for the government presently or in the future.
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