The first is sustained macroeconomic policy discipline and the credibility this engenders among investors. We have seen the severity of market judgements when this credibility is lost, and the rewards when it is maintained. Second, the largest portion of the inflows in the Asian economies went not to consumption, but to investment, which has a longer-term economic benefit. And third, these economies have not chosen the short-sighted option. They have not reversed the ongoing liberalization of capital flows.
Continued liberalization is the correct choice.
Reversing the progress achieved to date could do major damage to investor confidence. Some economies have used the tool of selective controls to discourage speculative short-term capital flows. While that approach has an attraction, the practical impact is uncertain beyond the very short term. It is impossible to halt speculative inflows without affecting the constructive investment inflows that are based on economic fundamentals. And, investors are adept at finding ways around controls.