The international capital flows came, as a normal part of the working of markets, to avail themselves of these opportunities. These capital flows were not some aberration which could be avoided by better macro policies or by enhanced policy transparency, but were the normal manifestation of the working of capital markets.10 The inflows, nevertheless, presented an intractable dilemma for policy.
While-ever domestic interest rates were high, this encouraged more foreign inflow which made credit control difficult and was costly to sterilise; but lower interest rates would have fuelled excess domestic demand. More exchange rate flexibility has been suggested as the panacea in these difficult circumstances, but I have argued elsewhere11 that, while it would have helped, the problems were more fundamental.