This chapter looks at trends and patterns in capital flows within emerging Asian countries1 in the midst of the Asian financial crisis and on through the subsequent period. There have been three distinct waves of private capital inflows into developing Asian countries over the past two decades. The first began in the latter half of the 1980s and gathered momentum in the early 1990s, before abruptly ending with the Asian financial trauma of 1997. The second wave ran through 2002 to 2007. However, the global financial crisis pronounced in late 2008 precipitated a deceleration in cross-border capital flows in developing Asia. The third wave commenced from 2009 until recent years, when such flows swiftly rebounded and started to bounce back. Thus, the first sub-section of this chapter discusses the first wave of capital inflows and how they were in response to the Asian crisis. Section 2.2 considers the second wave of capital inflows, especially their distinctive after the Asian financial crisis. Section 2.3 reviews how the current global financial malaise has affected trends and patterns in capital flows and whether the effects have been different from those during the Asian financial crisis. Section 2.4 turns to characterizing the third wave of capital flows. The final section uncovers our conclusions.

First Wave of Capital Inflows (1990–97) and the Asian Financial Crisis

Private capital inflows to developing Asian countries began in the latter half of the 1980s and accelerated at the onset of the 1990s (see Figure 2.1). Huge capital inflows during this period could be attributed to capital liberalization policies introduced by many central banks in the region in 1990–94. A landmark in capital liberalization came with the launch of Article VIII of the International Monetary Fund (IMF) in the early 1990s. Capital control measures previously imposed were progressively relaxed or removed entirely. For example, in Thailand commercial bank net foreign liabilities increased from 20 per cent to 25 per cent; while the central bank allowed authorized dealers to lend foreign exchange currency to non-residents without any limit and lifted the limit of US$5 million per individual on commercial bank lending to non-residents.