Before the Asian currency crisis the Malaysian ringgit (RM) traded at about RM2.5000/S. In the initial months of the crisis the ringgit depreciated to above RM4.000/S. On September 1, 1998, 14 months after the crisis began, the Malaysian government introduced exchange controls intended to reduce the internationalization of the ringgit. These included: Requiring governmental approval for ringgit-denominated transactions with nonresidents. Requiring short-term inflows of capital to remain in the country for a minimum period of one year. Such funds could, however, be actively man aged in terms of ringgit assets. Restricting travelers from bringing into the country or taking out of the country more than RM1,000 approximately $26 at the new pegged exchange rate of RM3.8000/$. Limiting foreign investments abroad of more than RM10,000. Limiting Malaysians who are traveling abroad from carrying more than RM10,000 without prior approval. The exchange controls did not: Limit the repatriation of profits, dividends, interest, fees, commissions, and rental income from portfolio investments. Limit direct investment inflows and outflows. The essence of these controls was to restrict the inflow of short-term portfolio flows, sometimes called "hot money," while continuing to attract long-term foreign direct investment. At the time the controls were imposed, the interna- tional investment community generally reacted with dismay and predicted that the ringgit would soon fall to RM8.00 or RM10.00 per dollar.

a. Do you think it is possible to block short-term portfolio money flows while still making a country attractive to long-term direct investors?

b. Using web sources, assess the current success or failure of Malaysia's foreign exchange policies.