Jury Still Out on Effects of KL Capital Controls

I refer to the recent decision by Kuala Lumpur to relax capital control for the country.

It is a move that is to be applauded, apart from the fact that it should have come sooner rather than later. Unfortunately, the damage to investor confidence in the economy seems to have been done, and Malaysia, so in need of foreign capital in its bid for increased competitiveness and industrialisation, seems to have sounded its own death knell.

In our increasingly integrated global economy, capital flows are the single most important factor for accelerating economic growth, especially for developing countries.

The attempt by the Malaysian authorities to restrict capital flows in order to stabilise the economy seems to have achieved its purpose, but at what cost? Will their actions have a permanent effect on the willingness of foreign investors to channel funds into the country? Or was Dr Mahatir's stroke of genius one that deserves emulation when similar crises arise in other countries?

That remains to be seen.

This article was published in the Straits Times on the 9th February 1999.