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Mr. Akira Ariyoshi, Mr. Andrei A Kirilenko, Ms. Inci Ötker, Mr. Bernard J Laurens, Mr. Jorge I Canales Kriljenko, and Mr. Karl F Habermeier


Malaysia is a highly open economy; and its approach to economic development has traditionally included the liberalization of capital flows.39 Following the periodic reviews of exchange controls and their elimination in 1986–87 and 1994–96, the capital account was generally opened. Portfolio inflows were free of restrictions; portfolio outflows were also free except for resident corporations with domestic borrowing; and no restrictions, except for net foreign exchange open position limits, applied to banks’ foreign borrowing or lending in foreign exchange. Net open positions, however, were monitored closely and residents’ foreign currency borrowing was subject to limits. Borrowing in excess of these limits required approval, which was conditional on a project’s foreign exchange earning potential. Cross-border activities in ringgit were also treated liberally, including the use of ringgit in trade, financial transactions with nonresidents, and offshore trading in securities listed on local exchanges. As a result, an active offshore ringgit market developed, with the bulk of ringgit cross-hedging taking place offshore. Until 1997, local banks could provide forward cover against ringgit to nonresidents, facilitating arbitrage between domestic and offshore markets.

Mr. Atish R. Ghosh and Miss Mahvash S Qureshi
This paper investigates why controls on capital inflows have a bad name, and evoke such visceral opposition, by tracing how capital controls have been used and perceived, since the late nineteenth century. While advanced countries often employed capital controls to tame speculative inflows during the last century, we conjecture that several factors undermined their subsequent use as prudential tools. First, it appears that inflow controls became inextricably linked with outflow controls. The latter have typically been more pervasive, more stringent, and more linked to autocratic regimes, failed macroeconomic policies, and financial crisis—inflow controls are thus damned by this “guilt by association.” Second, capital account restrictions often tend to be associated with current account restrictions. As countries aspired to achieve greater trade integration, capital controls came to be viewed as incompatible with free trade. Third, as policy activism of the 1970s gave way to the free market ideology of the 1980s and 1990s, the use of capital controls, even on inflows and for prudential purposes, fell into disrepute.
Andrés Fernández, Mr. Michael W Klein, Mr. Alessandro Rebucci, Mr. Martin Schindler, and Martin Uribe

100 Countries, 1995-2013 Table 5A: Cross-Category Correlations, 47 Gate Countries, 1995-2013 Table 5B: Cross-Category Correlations, 53 Open and Wall Countries, 1995-2013 Table 6: Correlation between Nine-Asset Aggregate Capital Controls and Excluded Asset Category Table 7: Correlations among Aggregate Capital Controls Measures Figures Figure 1: Proportion of Observations with Controls Figure 2A: Average Controls on Inflows by Income Groups Figure 2B: Average Controls on Outflows by Income Groups Figure 3: Inflow Controls vs. Outflow Controls

International Monetary Fund

Economies III. Financial Openness in Emerging Market Economies and the Global Crisis IV. International Agreements and Liberalization of Capital Flows V. Korea — Gradual Liberalization of Capital Flows VI. Iceland—Capital Controls and Crisis VII. Russia—Liberalization of Capital Flows and the Crisis VIII. Ukraine—Experience with Capital Controls During the Crisis IX. Effectiveness of Capital Outflow Controls X. Measuring Openness to Capital Flows References Tables 1. Countries that Liberalized During 1995-2010 2. Panel Regressions—Full Sample 3

Andrés Fernández, Mr. Michael W Klein, Mr. Alessandro Rebucci, Mr. Martin Schindler, and Martin Uribe

categories of controls on inflows, including Purchase Locally by Non-Residents (plbn) and Sale or Issue Abroad by Residents (siar); and two categories of controls on outflows, which are Purchase Abroad by Residents (pabr) and Sale or Issue Locally by Non-Residents (siar). The Real Estate category includes the inflow transaction category plbn and the outflow control transaction categories pabr and Sale Locally by Non-Residents (slbn). There is only a broader classification of inflow controls or outflow controls for the three categories of Financial Credits (fci