Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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of Nigeria’s 21 commercial banks have subsidiaries, mostly located in West Africa; several
Nigerian insurance companies have also opened offices in other parts of Africa over the past
decade. The expansion of Nigerian financial institutions into other West African countries is
transforming Lagos into a major financial centre. However, this movement towards regional
integration is likely to slow if Nigeria’s financial authorities continue to limit the capacity of
banks to deploy their capital abroad.
3.1.3. UPPER-MIDDLE INCOME COUNTRIES
Malaysia
Following the Asian financial crisis of 1997-98, Malaysia adopted strong measures to reverse
the subsequent sharp decline in economic growth, to stem the flow of domestic savings into
foreign markets, and to support the recovery of the banking sector, which had been hit by high
levels of non-performing loans. Where Malaysia had previously had fairly open financial
markets, these measures represented a reversal of some of the country’s liberal policies. To
stabilise the exchange rate and stem speculation, the ringgit was pegged to the US dollar, and
selective capital controls were introduced. The restrictions on capital markets were in line
with the OECD’s Article 7b) of the Clauses of Derogation. Some capital controls were eased in
1999 as financial markets stabilised. Once economic growth had stabilised, Malaysia’s
economy was back on track towards liberalisation.
Since 2001 financial markets have been the focus of the Malaysian government’s attention
through the Financial Sector Masterplan (FSM) and the Capital Market Masterplan (CPM). The
FSM had three stages: the first focused on capacity-building, the second promoted
deregulation and the third targeted deeper global integration. The FSM2 and the CMP2 will
now target the entrenchment of the liberalisation of the financial sector, the further
strengthening of infrastructure in the sector and the closer integration of domestic and global
financial institutions.
Malaysia’s progress towards capital and financial markets liberalisation is in line with the
IMF’s institutional guidelines on capital flows, particularly regarding the stipulation that
liberalisation should be well planned, timed and sequenced. Faced by risks associated with
inflow surges or disruptive outflows, Malaysia has used macroeconomic policies and sound
financial supervision and regulation as well as capital flow management measures in line with
IMF and OECD recommendations.
Turkey
The Republic of Turkey’s attitude to free capital flows has been influenced by its close
integration into Western alliances and institutions on the one hand, and by its long-standing
need to import capital – and hence attract foreign investors – on the other. Turkey was a
founder member of the OECD in 1961. Its Association Agreement with the European Union