Stabilising Capital Flows to Developing Countries

Abstract

Summary The East Asian financial crisis is linked to volatile short?term capital flows. Restrictions on short?term inflows should be contemplated to cope with large surges in these capital flows. There is also a need to improve regulation of increasingly important institutional investors introducing risk?weighted regulation. The IMF could prepare for more rapid responses in the case of a crisis by maintaining ‘shadow programmes’ with countries before they are affected. It is also advisable to implement orderly workout procedures, involving private sector agents, for the case of insolvency. Further research is required on the behaviour of institutional investors, crisis contagion and changes in the international financial system.