ABSTRACT
Until recently, prevailing economic orthodoxy held that the free movement of capital was critical to the development process. Capital account liberalisation formed a central part of the so-called Washington consensus of policy recommendations for developing countries, and the International Monetary Fund (IMF) actively sought to enshrine it in its Articles. Over the last two years, this orthodoxy has been severely challenged. The notion that restrictions may be needed, particularly on short-term capital flows, has been canvassed not only by prominent economists (Krugman 1998a; Rodrik 1998) but also by central bankers (Greenspan 1998; McFarlane 1998); speculators (Soros 1998) and the international institutions themselves (IMF 1998; World Bank 1998). The Malaysian government issued a more direct challenge in September 1998, introducing extensive exchange controls against the advice of much of the international financial community.
