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The Malaysian Capital Controls: A Success Story?

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  • Prema-chandra Athukorala

    (Research School of Pacific and Asian Studies, Australian National University, Canberra, ACT 0200,)

Abstract

This paper contributes to the debate on the use of temporary controls on capital outflows as a crisis resolution measure by examining the outcome of Malaysia's radical response to the 1997-98 financial crisis. The analysis suggests that carefully designed temporary capital controls were successful in providing Malaysian policymakers a viable setting for aiding the recovery process through the standard Keynesian therapy. Capital controls also assisted banking and corporate restructuring by facilitating the mobilization of domestic resources, and more importantly, by providing a cushion against possible adverse impacts on market sentiment of "national" initiatives. Of course other countries should be cautious in deriving policy lessons from Malaysia because a number of factors specific to Malaysia seem to have significantly conditioned the outcome of the capital-control based recovery package. (c) 2008 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Asian Economic Papers.

Volume (Year): 7 (2008)
Issue (Month): 1 (January)
Pages: 31-74

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Handle: RePEc:tpr:asiaec:v:7:y:2008:i:1:p:31-74

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  1. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  2. Reinhart, Carmen & Edison, Hali, 2001. "Capital controls during financial crises: The case of Malaysia and Thailand," MPRA Paper 13903, University Library of Munich, Germany.
  3. Richard N. Cooper, 1999. "Should Capital Controls be Banished?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 89-142.
  4. Stephan Haggard, 2000. "Political Economy of the Asian Financial Crisis, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 107.
  5. Miller, Merton H., 2000. "Reflections of a retiring Keynote Speaker," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 277-283, July.
  6. Prema-chandra Athukorala & Peter G. Warr, 2002. "Vulnerability to a Currency Crisis: Lessons from the Asian Experience," The World Economy, Wiley Blackwell, vol. 25(1), pages 33-57, 01.
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