International Economic Policy in the Wake of the Asian Crisis

This paper discusses the policy challenges posed by the Asian crisis. It starts in Section 1 by reconsidering the controversy over capital mobility. Even before the crisis struck, the IMF was on record as favoring the liberalization of capital flows and had proposed amending its Articles of Agreement to make the promotion of capital account liberalization a purpose of the Fund and to give it jurisdiction over restrictions on capital movements. In the wake of a crisis characterized by volatile financial flows and contagious currency crises, capital mobility is increasingly seen as a mixed blessing. There is a feeling, especially in Asia, that amending the Articles giving the Fund jurisdiction over capital account restrictions would be a bridge too far. The first part of the paper therefore seeks to reconcile the fundamental case for international capital mobility with Asia's less-than-heartening recent experience.