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The Malaysian Capital Controls: A Success Story?

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  • Prema-Chandra Athukorala

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Abstract

This paper aims to contribute to the debate on the use of temporary controls on capital outflows as a crisis resolution measure my 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 policy makers 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 impact 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.

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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2007/wp-econ-2007-07.pdf
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Bibliographic Info

Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2007-07.

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Length: 62 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:pas:papers:2007-07

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Keywords: Asian financial crisis; Capital controls; Malaysia;

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  1. Hali J. Edison & Carmen M. Reinhart, 1999. "Capital controls during financial crises: the cases of Malaysia and Thailand," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  2. Stephan Haggard, 2000. "Political Economy of the Asian Financial Crisis, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 107.
  3. Miller, Merton H., 2000. "Reflections of a retiring Keynote Speaker," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 277-283, July.
  4. 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.
  5. 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.
  6. 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.
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