Capital mobility, crisis and adjustment: evidence and insights from Malaysia
Every major economic crisis stimulates rethinking of the fundamental economic paradigms. A key focus of the brainstorming triggered by the East Asian crisis of 1997-9 has been the role of international capital mobility in making countries susceptible to crises and the rationale behind the use of capital controls as a crisis management tool. This chapter contributes to this debate by examining the Malaysian experience through the crisis. Malaysia provides an interesting case study given its significant capital market liberalisation prior to the onset of the crisis, and its bold move to break with the ideological consensus in crisis management that has governed international financial relations over much of the post-war period. A key theme running through the chapter is the role of domestic macroeconomic policy in determining the developmental gains that a country can reap from international capital mobility, while maintaining domestic economic stability.