Malaysia Boley

Managing Capital Outflows. The case “Malaysia: Capital and Control” (HBS No. 702-040), explores how the Malaysian government managed the financial crisis that swept Asia in 1997-1998, with a focus on Malaysia’s imposition of controls on capital outflows. This episode sent shock waves through policy and academic circles around the world, and reopened the debate about the pros and cons of unrestricted capital flows and the effectiveness of controls. The case focuses on the content of Malaysia’s internal debate about capital controls, the reasons for the decision to impose them, the reaction of the international financial community, and lessons for other developing countries. Similarly, the case highlights that the implementation of capital controls is neither easy nor trivial. The case is a useful complement to the previous discussion.

“Malaysia: Capital and Control” (HBS No. 702-040) Case Synopsis On September 1, 1998 Malaysia imposed strict currency and capital controls, banning offshore trading of the Malaysian ringgit and restricting outflows of capital. The Malaysian capital controls sparked an enormous controversy in the world of international finance, and they remain at the center of debates among economists and policy makers. These debates include the following questions: Did the Malaysian capital controls successfully insulate the country’s economy from the crisis? Did the capital controls promote an economic recovery that outpaced Malaysia’s more orthodox neighbors, such as Korea? Does the Malaysian experience hold lessons for other developing countries facing financial crises? The case is designed to encourage students to engage each of these debates. Malaysia: Capital and Control was written for use in Business, Government, and the International Economy (BGIE), a required first-year course at Harvard Business School. The note “Capital Controls” (HBS No. 702-082) is a useful complement to the case.

Teaching Objectives Explore the relationships among...