This paper examines the relative effectiveness of bailouts and capital controls in the context of financial
crisis experienced by Malaysia and Indonesia in 1997-98. Using a financial pressure index (FPI) similar
to that of Kaplan and Rodrik (2001), the paper shows that financial pressure can be effectively and
immediately released through capital control measures. Capital controls, therefore, provide the economy
with breathing space necessary to implement the required economic policy changes. Overall capital
controls can act as circuit breakers in today’s global financial environment, hence they can be
considered as effective tools to deal with financial crises.