In the mid-1990s, mainstream economists of nearly all stripes commonly recommended capital account liberalization-that is, allowing a free flow of funds in and out of a country's economy-as an essential step in the process of economic development. Indeed, in September 1997, the governing body of the International Monetary Fund (1997) sought to make "the liberalization of capital movements one of the purposes of the IMF and extend, as needed, the IMF's jurisdiction . . . regarding the liberalization of such movements." But then came the East Asian financial crisis of 1997-98, in which even seemingly healthy and well-managed economies like those of South Korea were engulfed by massive capital outflows and tremendous currency volatility, and capital account liberalization became quite controversial in the economics profession. For example, Fischer (1998) and Summers (2000) continued to make the case for capital account liberalization, while Rodrik (1998) and Stiglitz (2000) were skeptical.
展开▼
