But more often the problem is more deep-seated and the remedy more difficult. Part of the problem here is that the market’s view of exchange rate fundamentals (“the model”) is nebulous and fragile. As well, there may be a lack of policy credibility, which can only be redressed over time. •  The transition from regulated to liberalised financial systems is a vulnerable period.
Careful sequencing may help, but it is difficult to create the necessary infrastructure quickly. •  Massive capital flows (inflows prior to the crisis, and outflows after) were a dominant factor. For example, Thailand experienced inflows equal to 13% of GDP in 1996.