From crisis to recovery: the motivations for and effects of Malaysian capital controls

The East Asian currency crisis culminated in IMF packages for all severely affected Asian crisis economies except Malaysia. Malaysia received much attention when it introduced capital controls as part of its crisis management strategy. This paper examines the effectiveness of capital controls against its objectives of regaining monetary control without precipitating capital flight. The empirical evidence supports the view that interest rates were significantly lower after capital controls were imposed and further that capital controls were not significantly undermined by capital flight.