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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Main Author:	Hood, Ronald D.
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	CAPITAL FLOWS CAPITAL CONTROLS CAPITAL OUTFLOWS EXCHANGE RATE DEPRECIATION CAPITAL FLIGHT FOREIGN DIRECT INVESTMENTS CAPITAL ACCOUNT FINANCIAL CRISES COST-BENEFIT ANALYSIS ADMINISTRATIVE COSTS FINANCIAL REGULATION ADMINISTRATIVE COSTS ARBITRAGE ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK NEGARA MALAYSIA BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKRUPTCY LAWS BANKS BENCHMARK BILLS OF EXCHANGE CAPITAL ADEQUACY CAPITAL GAINS CAPITAL MARKETS CENTRAL BANK COMPLIANCE COSTS CONTROLS CORRESPONDENT BANKS CPI CURRENCY RISK DEBT DEPOSITS DEVALUATION DIRECT INVESTMENT DIVIDEND DISTRIBUTIONS DIVIDENDS ECONOMIC EFFICIENCY ECONOMIC PERFORMANCE EFFECTIVE USE EMERGING MARKETS EXCHANGE CONTROL EXCHANGE CONTROL MEASURES EXCHANGE CONTROLS EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLEXIBILITY EXCHANGE RATE SYSTEMS EXCHANGE RATES EXCHANGE SYSTEMS EXPORTS EXTERNAL ACCOUNTS EXTERNAL DEBT FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL RESTRUCTURING FINANCIAL SECTOR FINANCIAL TRANSACTIONS FLEXIBLE EXCHANGE RATES FLOW OF CAPITAL FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE CONTRACTS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE RISK FOREIGN INVESTMENT FOREIGN INVESTORS GDP GOVERNMENT SECURITIES IMPORTS INCOME INCOME TAXES INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LENDING RATES LIQUIDITY LOAN LOSS PROVISIONS LOCAL CURRENCY MERCHANT BANKS MONETARY POLICY NOMINAL EXCHANGE RATES PORTFOLIO RESERVE REQUIREMENT RESERVE REQUIREMENTS RISK PREMIUM SECURITIES SHORT TERM DEBT SOVEREIGN RISK SPECULATION SPECULATORS STABILIZATION SUPERVISORY FRAMEWORK SWAP TRANSACTIONS SWAPS TRADERS TRANSPORT TREASURY UNDERVALUATION VOLATILITY VULNERABILITY WAGES WEALTH
Online Access:	http://documents.worldbank.org/curated/en/2000/01/1000459/malaysian-capital-controls http://hdl.handle.net/10986/15741

id	okr-10986-15741
recordtype	oai_dc
spelling	okr-10986-157412021-04-23T14:03:19Z Malaysian Capital Controls Hood, Ronald D. CAPITAL FLOWS CAPITAL CONTROLS CAPITAL OUTFLOWS EXCHANGE RATE DEPRECIATION CAPITAL FLIGHT FOREIGN DIRECT INVESTMENTS CAPITAL ACCOUNT FINANCIAL CRISES COST-BENEFIT ANALYSIS ADMINISTRATIVE COSTS FINANCIAL REGULATION ADMINISTRATIVE COSTS ARBITRAGE ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK NEGARA MALAYSIA BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKRUPTCY LAWS BANKS BENCHMARK BILLS OF EXCHANGE CAPITAL ADEQUACY CAPITAL FLIGHT CAPITAL FLOWS CAPITAL GAINS CAPITAL MARKETS CENTRAL BANK COMPLIANCE COSTS CONTROLS CORRESPONDENT BANKS CPI CURRENCY RISK DEBT DEPOSITS DEVALUATION DIRECT INVESTMENT DIVIDEND DISTRIBUTIONS DIVIDENDS ECONOMIC EFFICIENCY ECONOMIC PERFORMANCE EFFECTIVE USE EMERGING MARKETS EXCHANGE CONTROL EXCHANGE CONTROL MEASURES EXCHANGE CONTROLS EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLEXIBILITY EXCHANGE RATE SYSTEMS EXCHANGE RATES EXCHANGE SYSTEMS EXPORTS EXTERNAL ACCOUNTS EXTERNAL DEBT FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL RESTRUCTURING FINANCIAL SECTOR FINANCIAL TRANSACTIONS FLEXIBLE EXCHANGE RATES FLOW OF CAPITAL FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE CONTRACTS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE RISK FOREIGN INVESTMENT FOREIGN INVESTORS GDP GOVERNMENT SECURITIES IMPORTS INCOME INCOME TAXES INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LENDING RATES LIQUIDITY LOAN LOSS PROVISIONS LOCAL CURRENCY MERCHANT BANKS MONETARY POLICY NOMINAL EXCHANGE RATES PORTFOLIO RESERVE REQUIREMENT RESERVE REQUIREMENTS RISK PREMIUM SECURITIES SHORT TERM DEBT SOVEREIGN RISK SPECULATION SPECULATORS STABILIZATION SUPERVISORY FRAMEWORK SWAP TRANSACTIONS SWAPS TRADERS TRANSPORT TREASURY UNDERVALUATION VOLATILITY VULNERABILITY WAGES WEALTH 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. 2013-09-09T20:48:01Z 2013-09-09T20:48:01Z 2000-01 http://documents.worldbank.org/curated/en/2000/01/1000459/malaysian-capital-controls http://hdl.handle.net/10986/15741 English en_US Policy Research Working Papers;No. 2536 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research East Asia and Pacific Malaysia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	CAPITAL FLOWS CAPITAL CONTROLS CAPITAL OUTFLOWS EXCHANGE RATE DEPRECIATION CAPITAL FLIGHT FOREIGN DIRECT INVESTMENTS CAPITAL ACCOUNT FINANCIAL CRISES COST-BENEFIT ANALYSIS ADMINISTRATIVE COSTS FINANCIAL REGULATION ADMINISTRATIVE COSTS ARBITRAGE ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK NEGARA MALAYSIA BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKRUPTCY LAWS BANKS BENCHMARK BILLS OF EXCHANGE CAPITAL ADEQUACY CAPITAL FLIGHT CAPITAL FLOWS CAPITAL GAINS CAPITAL MARKETS CENTRAL BANK COMPLIANCE COSTS CONTROLS CORRESPONDENT BANKS CPI CURRENCY RISK DEBT DEPOSITS DEVALUATION DIRECT INVESTMENT DIVIDEND DISTRIBUTIONS DIVIDENDS ECONOMIC EFFICIENCY ECONOMIC PERFORMANCE EFFECTIVE USE EMERGING MARKETS EXCHANGE CONTROL EXCHANGE CONTROL MEASURES EXCHANGE CONTROLS EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLEXIBILITY EXCHANGE RATE SYSTEMS EXCHANGE RATES EXCHANGE SYSTEMS EXPORTS EXTERNAL ACCOUNTS EXTERNAL DEBT FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL RESTRUCTURING FINANCIAL SECTOR FINANCIAL TRANSACTIONS FLEXIBLE EXCHANGE RATES FLOW OF CAPITAL FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE CONTRACTS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE RISK FOREIGN INVESTMENT FOREIGN INVESTORS GDP GOVERNMENT SECURITIES IMPORTS INCOME INCOME TAXES INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LENDING RATES LIQUIDITY LOAN LOSS PROVISIONS LOCAL CURRENCY MERCHANT BANKS MONETARY POLICY NOMINAL EXCHANGE RATES PORTFOLIO RESERVE REQUIREMENT RESERVE REQUIREMENTS RISK PREMIUM SECURITIES SHORT TERM DEBT SOVEREIGN RISK SPECULATION SPECULATORS STABILIZATION SUPERVISORY FRAMEWORK SWAP TRANSACTIONS SWAPS TRADERS TRANSPORT TREASURY UNDERVALUATION VOLATILITY VULNERABILITY WAGES WEALTH
spellingShingle	CAPITAL FLOWS CAPITAL CONTROLS CAPITAL OUTFLOWS EXCHANGE RATE DEPRECIATION CAPITAL FLIGHT FOREIGN DIRECT INVESTMENTS CAPITAL ACCOUNT FINANCIAL CRISES COST-BENEFIT ANALYSIS ADMINISTRATIVE COSTS FINANCIAL REGULATION ADMINISTRATIVE COSTS ARBITRAGE ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK NEGARA MALAYSIA BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKRUPTCY LAWS BANKS BENCHMARK BILLS OF EXCHANGE CAPITAL ADEQUACY CAPITAL FLIGHT CAPITAL FLOWS CAPITAL GAINS CAPITAL MARKETS CENTRAL BANK COMPLIANCE COSTS CONTROLS CORRESPONDENT BANKS CPI CURRENCY RISK DEBT DEPOSITS DEVALUATION DIRECT INVESTMENT DIVIDEND DISTRIBUTIONS DIVIDENDS ECONOMIC EFFICIENCY ECONOMIC PERFORMANCE EFFECTIVE USE EMERGING MARKETS EXCHANGE CONTROL EXCHANGE CONTROL MEASURES EXCHANGE CONTROLS EXCHANGE RATE EXCHANGE RATE APPRECIATION EXCHANGE RATE FLEXIBILITY EXCHANGE RATE SYSTEMS EXCHANGE RATES EXCHANGE SYSTEMS EXPORTS EXTERNAL ACCOUNTS EXTERNAL DEBT FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL RESTRUCTURING FINANCIAL SECTOR FINANCIAL TRANSACTIONS FLEXIBLE EXCHANGE RATES FLOW OF CAPITAL FOREIGN BANKS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE CONTRACTS FOREIGN EXCHANGE MARKET FOREIGN EXCHANGE RISK FOREIGN INVESTMENT FOREIGN INVESTORS GDP GOVERNMENT SECURITIES IMPORTS INCOME INCOME TAXES INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LENDING RATES LIQUIDITY LOAN LOSS PROVISIONS LOCAL CURRENCY MERCHANT BANKS MONETARY POLICY NOMINAL EXCHANGE RATES PORTFOLIO RESERVE REQUIREMENT RESERVE REQUIREMENTS RISK PREMIUM SECURITIES SHORT TERM DEBT SOVEREIGN RISK SPECULATION SPECULATORS STABILIZATION SUPERVISORY FRAMEWORK SWAP TRANSACTIONS SWAPS TRADERS TRANSPORT TREASURY UNDERVALUATION VOLATILITY VULNERABILITY WAGES WEALTH Hood, Ronald D. Malaysian Capital Controls
geographic_facet	East Asia and Pacific Malaysia
relation	Policy Research Working Papers;No. 2536
description	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.
format	Publications & Research :: Policy Research Working Paper
author	Hood, Ronald D.
author_facet	Hood, Ronald D.
author_sort	Hood, Ronald D.
title	Malaysian Capital Controls
title_short	Malaysian Capital Controls
title_full	Malaysian Capital Controls
title_fullStr	Malaysian Capital Controls
title_full_unstemmed	Malaysian Capital Controls
title_sort	malaysian capital controls
publisher	World Bank, Washington, DC
publishDate	2013
url	http://documents.worldbank.org/curated/en/2000/01/1000459/malaysian-capital-controls http://hdl.handle.net/10986/15741
_version_	1764429596362539008

Malaysian Capital Controls

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