Balance of Payments-Related Restrictions on the Freedom of Investment

This chapter takes a closer look at the potential conflict between the freedom of investment and the relatively wide margin of manoeuvre of states to restrict transfers of funds and to impose balance-of- payments restrictions in the event of external financial difficulties. The chapter examines the evolving IMF and WTO perspectives in this field situated at the intersection of trade, money and foreign investment regulation. Furthermore, it analyzes the relevant legal framework for restrictions on foreign investment resulting from exchange controls and exchange reserve management. As part of its analysis, the chapter also takes a closer look at the evolving legal framework on capital controls post-Washington consensus in light of destabilizing phenomena such as hot-money flows. The chapter concludes that, as an exceptional, temporary policy tool, balance-of-payments restrictions remain vitally important. From the perspective of foreign investors, this does not necessarily entail negative consequences as long as reliable investment conditions, including with respect to both inwards and outwards flows of funds can still be ensured.