The turning process of financial crisis: Malaysia capital control vs. IMF supported programmes

The severity of the Asian financial crisis of 1997-98 had induced Thailand, South Korea, and Indonesia to request aid from the International Monetary Fund(IMF). Malaysia, however, announced capital control measures by imposing broad controls on capital-account transactions, fixing the exchange rate at RM3.80 per US$, cutting interest rates, and embarking on a policy of disinflation.This paper tries to resolve this particular research problem: which of these two corrective measures was more successful in calming down the financial woes? Although there were efforts to compare the effectiveness of the Malaysian capital control against the IMF measures in the immediate term, no attempt has been made to look into the intermediate effects.Therefore, the objective of this paper is to compare the effectiveness of the Malaysian capital control vis-a-vis IMF-supported programs (in South Korea, Thailand, and Indonesia) in terms of intermediate macroeconomic conditions.This research extends the immediate period defined by Kaplan and Rodrik (2001) and measures the financial market pressure index (FMPI) and several macroeconomic variables in order to compare" the effectiveness of the Malaysian capital control versus the IMF program in the other three countries.The results show that compared to the IMF measures, the Malaysian capital control is more effective in controlling the consumer price index, leveling the imports, and curbing excessive employment