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The Malaysian Capital Controls: A Success Story?

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  • Prema-Chandra Athukorala

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.

Suggested Citation

  • Prema-Chandra Athukorala, 2007. "The Malaysian Capital Controls: A Success Story?," Departmental Working Papers 2007-07, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2007-07
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    References listed on IDEAS

    as
    1. Prema-chandra Athukorala, 2001. "Crisis and Recovery in Malaysia," Books, Edward Elgar Publishing, number 2340.
    2. Stephan Haggard, 2000. "Political Economy of the Asian Financial Crisis, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 107, April.
    3. Edwards, Sebastian & Frankel, Jeffrey A. (ed.), 2002. "Preventing Currency Crises in Emerging Markets," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226184944, September.
    4. 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, pages 1-36.
    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, January.
    6. Prema-chandra Athukorala, 2007. "Multinational Enterprises in Asian Development," Books, Edward Elgar Publishing, number 12632.
    7. 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.
    8. Sebastian Edwards & Jeffrey A. Frankel, 2002. "Preventing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number edwa02-2.
    9. Miller, Merton H., 2000. "Reflections of a retiring Keynote Speaker," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 277-283, July.
    10. 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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    Cited by:

    1. Chokri Zehri, 2022. "Conditions for the success of capital controls: The elasticity approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 893-910, January.

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    More about this item

    Keywords

    Asian financial crisis; Capital controls; Malaysia;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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