World Bank senior vice-president Joseph Stiglitz says Malaysia's controversial capital controls appeared to have worked well for the country.

"Malaysia has done very well," Stiglitz told Reuters Television in an interview today.

"We worked with Malaysia to convert capital controls into an exit tax... it was very carefully designed, designed in a way that would not have adverse effect on foreign direct investment and it was clearly targeted to stabilise their flows of speculative money."

Malaysia had also used the time to have lower interest rates, an important ingredient in the country's ability to recover quickly from the regional crisis, he said.

"These capital controls, these exit taxes, seem to not have had the adverse effects that critics have worried about," Stiglitz said, adding it was a reasonable precautionary action for the country to have taken.

The capital controls took effect on September 1 1998 and included fixing the ringgit currency at 3.8 to the US dollar.

Turning to Thailand, the World Bank official said the country's restructuring problems were difficult as it had to simultaneously reform its corporate and financial sectors.

"The financial system is one part of the economy and corporate restructuring is another part," Stiglitz said.

"If you have a large number of firms that are in very bad economic shape, it's very hard to restructure the financial system because as those firms go bankrupt the banks get into trouble."

On Indonesia, Stiglitz said corruption has to be dealt with.

The World Bank and other multilateral institutions have withheld loan disbursement to the country in the wake of the Bank Bali scandal and a government refusal to publish an audit of the case by PricewaterhouseCoopers.

The Indonesian Government appointed PricewaterhouseCoopers to probe the circumstances involving a transfer of around US$70 million (US$1 = RM3.80) from PT Bank Bali to a company controlled by a senior official in the ruling Golkar Party.

"Clearly what is at stake is a view of the honesty of the Government and the honesty of the whole system. It isn't just World Bank funds. It is a question of the pervasiveness of corruption in the economy," he said.

What the World Bank would like to see is structural changes that would remove corruption, he added.

"It is not just dealing with one system or another, it is about getting to some of the root causes."

Stiglitz said the greatest risk facing Asia at present is "what happens outside of Asia".

"If the US economy remains strong, that will have enormous benefits for Asia. If something should happen to put its amazing economic boom off track it will obviously have reverberations for the whole world, including Asia." - Reuter