The fall of the baht led to a reversal of foreign investment flows. .
The IMF applied the "standard Fund prescriptions, developed and widely applied over many years- which "gave a central role to fiscal tightening in order to overcome fiscal and external deficits and stabilize external public debt."" (Harris, 202) However, in this case, the countries "had sound fiscal positions in terms of standard measures."" (Harris, 201) The crisis resulted from the international debt of Asian companies and banks rather than government debt. IMF justified the fiscal tightening in Korea on the basis that it was needed to offset the need for an injection of funds into the banking system. IMF intended its requirement of high interest rates to bolster confidence in the local currencies, but the rate increases may have initially signaled weakness and actually contributed to undermining confidence. (Harris, 202).
In fact, countries in need of IMF assistance generally suffer from budget and balance of payments deficits. This usually requires the same strong macroeconomic medicine for different countries just as doctors prescribe antibiotics for individual cases of pneumonia. However, the difficulty results when the IMF continues to require the same "medicine- even after the balance of payments and fiscal deficits are under control. At that point, macroeconomic concerns should become only one factor along with growth, poverty reduction and public education. This may require the World Bank rather than the IMF to administer long term loans while the IMF maintains its core competence in crisis lending and restoring macroeconomic stability. .
The IMF generally advises developing countries to liberalize their financial and capital markets. Stiglitz argues that small developing countries cannot withstand the volatility of large capital flows into and out of the country that result from liberalized markets.