Malaysian Capital Controls
Malaysian authorities implemented controls on international capital flows late in the Asian crisis, when most of the portfolio outflows had already occurred. The exchange rate had depreciated sharply and was fixed at an undervalued level, making fu...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2000/01/1000459/malaysian-capital-controls http://hdl.handle.net/10986/15741 |
| Summary: | Malaysian authorities implemented
controls on international capital flows late in the Asian
crisis, when most of the portfolio outflows had already
occurred. The exchange rate had depreciated sharply and was
fixed at an undervalued level, making further capital flight
unlikely. The turnaround in the stock market, the return of
positive GDP growth, the building of reserves, and the
relaxation of interest rates all coincided with the
imposition of controls. But the same changes took place in
other crisis countries that did not follow the same control
policies. However, the controls provided insurance against
the consequences of possible further disturbances. They
created a breathing space for making needed reforms, and the
authorities made good use of this time, stabilizing the
financial system and pushing ahead with regulatory and
supervisory reform for the financial sector and capital
markets - a prerequisite for fully liberalizing the capital
account. Malaysia incurred a cost: an additional 300 basis
point spread paid on floating rate debt for a period after
the controls were instituted. But the exit strategy has so
far not resulted in lasting flight of portfolio capital.
Foreign direct investment remains below precrisis levels,
but it is not possible at this stage to attribute this to
the effect of controls. On balance, it appears that both the
benefits from and the costs of the controls have been modest. |
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