Capital Flows: Another Look

In the aftermath of the east Asian crisis, the need to reassess and understand the role of capital flows has become imperative. In this context two sets of questions arise. The first set centres on whether some forms of capit al flows are preferable to others. This issue has to be addressed from the angles of volatility and impact on capital formation and growth. The second set of questions relates to the extent and forms of controls that can be imposed on capital flows. Opening up of capital account need not preclude the imposition of moderate controls, either price based or regulatory, on capital flows. Controls should be selective, designed to achieve the specific objective of containing speculative flows. The Asian crisis is not an argument against capital account liberalisation. Capital account liberalisation is not a discrete event. It is a process and should be done in stages.