Malaysia responded to the crisis by imposing capital controls in Sep 2008. The impact of capital controls on Malaysian economy is however ambiguous. Inspite of capital controls, Malaysia recovered from negative output growth after other crisis-ridden countries. However, its rate of growth in the recovery period was higher than other crisis countries with the exception of South Korea. Capital controls allowed Malaysian government to set lower interest rates to revive the economy. However the impact of lower interest rates was at best ambiguous as loan and money supply growth rates actually declined in the first few months after the new measures were introduced. Moreover, in response to reduction in interest rate in the US, interest rates in the entire East Asian region also fell. Also, IMF changed its stance and allowed East Asian countries to run budget deficit around the same period. This contributed to the revival of entire region from the last quarter of 1998. Malaysia and South Korea staged stronger recovery due to stronger fiscal reflationary efforts, effective debt restructuring as well as increased electronics demand in anticipation of the year 2000.