Capital account liberalization and capital controls remain important issues. It is noteworthy that economies with wide-ranging capital controls such as China and India did not suffer much during the Asian crisis. This implies that capital account liberalization should be carried out in a well-sequenced manner in emerging economies. Moreover, the liberalization of direct investment should be preceded by the liberalization of short-term capital flows. When liberalizing the capital account, authorities need to strengthen their monitoring of the banking and other sectors.
Capital controls are no substitute for sound macroeconomic and structural policies.
Nevertheless, when combined with appropriate policies, capital controls can restrain short-term speculative capital movement in case of crisis. The possibility of direct regulation of hedge funds should also be considered if these measures do not adequately address the market dynamics concerns arising from the activities of HLIs. Although Asian economies had ample savings, because their domestic and regional capital markets were not well developed, those savings were invested overseas and then reinvested in Asia in the form of short-term capital flow. By developing a regional capital market, Asia will be able to use its ample savings within the region, and thereby a more stable supply of capital. The information and communication technology revolution is providing opportunities for increased growth and employment through enhanced productivity and the creation of new services.