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Abstract
Capital Controls introduced by Malaysia during the Asian crisis have been a subject of much debate. Contrary to the views that the controls would have serious detrimental effects on the economy, only limited economic costs of the Controls have been identified. At the same time, the benefits of the Controls cannot be clearly established. Together with the pegging of the exchange rate, the Controls had been designed to enhance monetary independence, thereby facilitating economic recovery and providing breathing space for the implementation of structural reforms. Given the return of confidence to the region shortly alter the introduction of the Controls, however, it appears expost that Malaysia’s strong fundamentals would have made a more accommodating monetary policy and economic recovery possible without resorting to these measures.1
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