emerging markets not been allowed to borrow freely in foreign and international creditors could not have demanded repayment just as liquidity was drying up and foreign currency was becoming very expensive. Although I was not at the ImF during the Asian crisis, my sense from reading archives and speaking with fund old-timers is that although this charge has some currency, the fund was more eclectic in its advice on this matter than most critics acknowledge. For example the months leading to thailands olla 1997.IMF eports on the Thai economy portrayed in stark terms the risks of liberalizing capital flows while keeping the domestic currency(the baht)at a fixed level against the U.S. dollar. As Blustein vividly portrays in The Chastening, Thai authorities didnt listen, still hoping instead that Bangkok would become a financial center like Singapore Ultimately, the Thai baht succumbed to a massive speculative attack. Of course, in some cases--most famously South Korea and Mexico- the fund didn 't warn countries forcefully enough about the dangers of opening up to international capital markets before domestic financial markets and regulators were prepared to handle the resulting volatility However one apportions blame for the financial crises of the past two decades, misconceptions regarding the merits and drawbacks of capital-market liberalization abound. First, it is simply wrong to conclude that countries with closed capital markets are better equipped to weather stormy financial markets. Yes, the relatively closed Chinese and Indian economies did not catch the asian flu or at least not a particularly bad case. But neither did Australia nor New Zealand, two countries that boast extremely open capital markets Why? Because the latter countries' highly developed domestic financial markets were extremely well regulated. The biggest danger lurks in the middle, namely for those economies--many of which are in east asia and latin america-that combine weak and underdeveloped financial markets with poor regulation Moreover, a country needs export earnings to support foreign debt payments, and export industries do not spring up overnight. That's why the risks of running into external financing problems are higher for countries that fully liberalize their capital markets before significantly opening up to trade flows. Indeed, economies with small trading sectors can run into problems even with seemingly modest debt levels. This problem has repeatedly plagued countries in Latin America, where trade is relatively restricted by a combination of inward-looking policies and remote location Perhaps the best evidence in favor of open capital markets is that, despite the international financial turmoil of the last decade, most developing countries still aim to liberalize their capital marketsemerging markets not been allowed to borrow freely in foreign currency, they would not have built up huge foreign currency debts, and international creditors could not have demanded repayment just as liquidity was drying up and foreign currency was becoming very expensive. Although I was not at the IMF during the Asian crisis, my sense from reading archives and speaking with fund old-timers is that although this charge has some currency, the fund was more eclectic in its advice on this matter than most critics acknowledge. For example, in the months leading to Thailand's currency collapse in 1997, IMF reports on the Thai economy portrayed in stark terms the risks of liberalizing capital flows while keeping the domestic currency (the baht) at a fixed level against the U.S. dollar. As Blustein vividly portrays in The Chastening, Thai authorities didn't listen, still hoping instead that Bangkok would become a financial center like Singapore. Ultimately, the Thai baht succumbed to a massive speculative attack. Of course, in some cases—most famously South Korea and Mexico— the fund didn't warn countries forcefully enough about the dangers of opening up to international capital markets before domestic financial markets and regulators were prepared to handle the resulting volatility. However one apportions blame for the financial crises of the past two decades, misconceptions regarding the merits and drawbacks of capital-market liberalization abound. First, it is simply wrong to conclude that countries with closed capital markets are better equipped to weather stormy financial markets. Yes, the relatively closed Chinese and Indian economies did not catch the Asian flu, or at least not a particularly bad case. But neither did Australia nor New Zealand, two countries that boast extremely open capital markets. Why? Because the latter countries' highly developed domestic financial markets were extremely well regulated. The biggest danger lurks in the middle, namely for those economies—many of which are in East Asia and Latin America—that combine weak and underdeveloped financial markets with poor regulation. Moreover, a country needs export earnings to support foreign debt payments, and export industries do not spring up overnight. That's why the risks of running into external financing problems are higher for countries that fully liberalize their capital markets before significantly opening up to trade flows. Indeed, economies with small trading sectors can run into problems even with seemingly modest debt levels. This problem has repeatedly plagued countries in Latin America, where trade is relatively restricted by a combination of inward-looking policies and remote location. Perhaps the best evidence in favor of open capital markets is that, despite the international financial turmoil of the last decade, most developing countries still aim to liberalize their capital markets as a