Malaysia's 1998 Controls: Background, Context, Impacts, Comparisons, Implications, Lessons
By Jomo K. S. | January 1, 2003
In September 1998, the Malaysian authorities introduced capital and other currency controls. This was clearly an important challenge to the prevailing orthodoxy, especially as promoted by the Fund. While it is moot how crucial the controls were for the subsequent V-shaped recovery, it is nevertheless clear that they do not seem to have caused any significant permanent damage, as predicted by some critics. Different sides in the debate now invoke the 1998 Malaysian controls for all kinds of purposes, often contributing more heat than light.
This study seeks to explain the circumstances in which the controls were introduced as well as assess their nature and impact before drawing some general lessons of relevance to other emerging market economies. In considering the context, the paper considers the recent evolution of the Malaysian financial system and regulation in the decade preceding the outbreak of the crisis in mid-1997. Early Malaysian policy responses from July 1997 until September 1998 are then considered. This is followed by a detailed consideration of the nature of the control measures and an assessment of their efficacy. Finally, the actual significance of the Malaysian controls is emphasized before drawing some policy lessons.
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