While it alleviates domestic resource constraints, it could also destabilize the economy in two ways: one, excess capital inflows could result in asset price inflation and loss of competitiveness through over valuation of exchange rate; two, sudden outflow on risk aversion could trigger a currency crisis. Fifth, the earlier dominant view was tilted towards unfettered capital movement.
There is no disputing the major role played by the IMF in, for example, providing analytical insight into the crisis and managing adjustment programmes. However, global financial safety nets without adequate conditionality would weaken rather than strengthen the financial responsibility of the individual countries.