The devaluation of the Thai baht on 2 July 1997 set in motion a large-scale reversal of capital flows that developed into the East Asian financial crisis.1 This was a capital-account crisis rather than a conventional current-account crisis caused by large budget deficits, high rates of inflation and real currency appreciation (Furman and Stiglitz 1998; Krugman 1998a, 1999a; Yoshitomi and Staff of ADB Institute 2003). The aggregate capital account surplus of the five countries that were most affected (Indonesia, Korea, Malaysia, the Philippines and Thailand) fell sharply by US$90.9 billion from US$100.6 billion (9.27 per cent of Gross Domestic Product (GDP)) in 1996 to US$28.8 billion (4.52 per cent of GDP) in 1997. Furthermore, the capital account recorded a deficit of US$0.5 billion (0.07 per cent of GDP) in 1998.