Abstract

Malaysia has received much attention since September 1998 when, in response to a deteriorating economic situation emanating from the Asian crisis, it introduced capital and exchange controls. Also, Prime Minister Mahathir Mohamad rebuked policy advice from the IMF that Malaysia had followed up to then.1 Initially there was concern that these controls might be used to avoid needed policy adjustment, and investors and market analysts reacted negatively. Market assessment turned more positive, however, as it became clear that Malaysia’s macroeconomic policies were not out of line, that the undervalued pegged exchange rate was contributing to the rapid recovery of exports and output, and that financial sector reforms were being vigorously pursued.

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