Since the beginning of the 1990s, current account imbalances in a number of the countries of the Association of South East Asian Nations (ASEAN) have widened considerably, generating concern in some quarters that policy measures may be required if costly and destabilizing shifts in market sentiment are to be avoided.1 This case has been made with respect to both Malaysia and Thailand, whose deficits widened to over 8 percent of GNP in 1995. In Indonesia, the external deficit, at about 4 percent of GDP in 1995, is significantly smaller than in Malaysia or Thailand. Concerns have nevertheless been raised relating to the impact of the widening deficit on the country’s external debt and debt service levels, which are significantly higher than elsewhere in the region (Table 1).2 It is important to note that concern about the current account deficit in these countries comes alongside a more general awareness that several years of very rapid growth have absorbed whatever initial slack existed in domestic markets and that overheating may now have become a problem. Left unchecked, large external deficits combined with generalized overheating could increase vulnerability to external shocks and to policy reversals in the future.