Domenico Lombardi noted that the author's presentation suggested an Asian mistrust of the IMF; also, a number of Asian central banks reacted asymmetrically to the crisis. He wanted to know to what extent this lack of coordination between Asian central banks was a factor in dealing with the crisis. Hyunduk Suh, on the other hand, asked why the Bank of Thailand was so slow in cutting the interest rate during the crisis. Ding Lu was curious about the relevance of the “trinity” of open macroeconomics in dealing with the Asian financial crisis since 1997. How exactly did the countries handle the trade-off predicted by the framework—or did it matter at all?

Maria Soccoro Gochoco-Bautista drew attention to the work of Hélène Rey, which suggests that, contrary to previously held notions, flexible exchange rates are not enough to guarantee monetary autonomy in the face of shocks from large capital flows, even in economies with large financial markets. Monetary authorities therefore cannot follow fixed prescription and are constrained to use whatever it is that works for them. The focus should be to deepen financial markets in the region. Gochoco-Bautista pointed out that the Chiang Mai Initiative Multilateralization (CMIM) that replaced a complex network of bilateral swap agreements into a single, uniform facility to help with managing regional financial crises has not succeeded because approaching it was seen as admitting to having a crisis. She stressed the need to think of alternative sources that can facilitate borrowing without suggesting that an economy is in crisis. The other aspect that deserved thought was how to prevent funds fleeing an economy overnight.

Doo Yong Yang, in agreeing with Gochoco-Bautista that alternative safety net schemes should be considered, pointed out that Korea had over 45 months of capital account surplus and yet feared foreign capital flight and exchange rate instability. And when Korea needed help, the CMIM was not approached for fear of admitting to a crisis. Instead, Korea turned to the United States in secret for help. Sisira Jayasuriya also agreed that it was no longer a choice between fixed or flexible exchange rates, because China and some Asian countries who had held on to a fixed exchange rate regime for a long time found that even small adjustments can trigger a crisis-like atmosphere and initiate capital flight. Therefore, if a flexible exchange rate does not work, pegging is not the answer, either. Something in between might be needed, along with some amount of reserves to respond to at least short-term fluctuations. Lars Oxelheim noted that even the European Central Bank was in a quandary not knowing what to do. He said the Mundell-Fleming framework was tested with data from 50 countries and it was found that flexible exchange rate did not matter.

In responding to the comments from the floor, Sussangkarn said that the focus of his paper was on short-term scenarios. He agreed that the policy toolkit must go beyond exchange rate policies to include capital controls when needed, preferably with a new name. He also agreed that a new facility must be developed so that countries can access funds without the stigma of being a country in crisis. He agreed with Jayasuriya and said that Thailand was a good example. It had a fixed exchange rate for a long time; in wanting to be an Asian financial center, it opened up the financial markets and offered interest rates that were higher than in the United States. The inflow of capital eventually overheated the economy and when exchange rate adjustments were made it triggered a crisis of confidence. Exchange rate management requires more than a surplus in the capital account. It needs flexibility in the exchange rate (not necessarily a flexible exchange rate) and the willingness to resort to capital controls when needed. In short there is no hard and fast rule to manage large capital inflows and outflows.