ABSTRACT
Timing, pace, and sequencing are vital to the process of financial reform. The Asian financial crisis can be traced back to the premature liberalization of the financial sector in troubled Asian countries. The currency crisis and financial instability are interrelated. Internal financial liberalization involves abolishing interest rate ceilings, reducing entry barriers, and reducing regulation on priority-sector lending. External liberalization implies an integration of domestic and global financial markets by permitting free flows of capital. It is possible that external liberalization may increase the vulnerability of countries that maintain the fixed exchange rate system.
