HONG KONG ­ Twice Mahathir Mohamad, the Malaysian prime minister, has threatened to impose discipline on market forces and twice he has failed.

First, he wanted to curb short-selling of the 100 designated blue-chip stocks on the Kuala Lumpur Stock Exchange after foreign investors wreaked havoc on them. Last week, the outspoken Mahathir went so far as to try to ban speculative currency trading.

He has since backtracked on both positions simply because it is the international investors or fund managers, armed with gigantic savings from the West, who really call the shots.

This feeling towards free capital flows, however, is shared by most policy-makers in Southeast and East Asia, all of whom have experienced currency turmoil and slower economic growth triggered by the baht float on July 2.

At this year's World Bank/International Monetary Fund meeting, finance ministers from the region took turns expressing their skepticism towards unrestricted flows of capital, which have proved both beneficial and devastating. During the boom years, Southeast Asia was fed short and long-term foreign capital, creating the highest economic growth rates in the world. When cracks appeared in the Thai economy, foreign capital flowed rapidly out of the region.

In the early 1990's Thailand accepted Article 8 of the IMF which represent only current account, which cover trade and services, liberalisation but not included capital account, which cover capital flows.

However, at the April 1997 interim committee meeting, members agreed that the IMF's Article should be amended to make the promotion of capital account and to give its jurisdiction over capital movement.

So far, at least 140 countries have been opening current account, while the concept of capital account liberalisation is still not complete.

Thanong Bidaya, the Thai finance minister, urged the IMF to proceed cautiously in its requirement for capital account convertibility.

''In view of the recent currency turmoil in Southeast Asia, we would be more comfortable if the fund would proceed in a more cautious and gradual manner," he said.

''In addition, we believe giving the fund jurisdiction over the capital account should not be construed as an obligation for members to liberalise, but rather for the fund to ensure the orderly and smooth operation of international flows," he added.

In mid-May, the Bank of Thailand became the first central bank in the world to reverse its policy on capital account convertibility. It plugged all loopholes in order to prevent baht from flowing out of the country with the aim of denying speculators access to the currency after they had fiercely attacked it.

The measure, which effectively gave rise to a two-tier foreign exchange market, was a hardball tactic to defend the baht. The two tiers remain, but Thanong has indicated that the measure is only temporary and will be lifted once Thailand succeeds in restoring a certain level of confidence in its macro-economic situation.

If the wall between the onshore and offshore baht market is to be demolished now, the baht will certainly come under renewed attack, causing the economy to be torn apart and unemployment to further skyrocket.

The Thai financial system is still suffering from capital outflows, which are creating a liquidity crunch and putting upward pressure on interest rates.

A US investment banker recently agreed that Thailand needs to impose a certain kind of capital control to make sure foreign money stays in the country for a specific period of time, a measure that might limit growth to 5 or 6 per cent in the future in return for stability.

Apart from calling for the IMF to work on disseminating information to enhance transparency by all market players, Anwar Bin Ibrahim, the Malaysian deputy prime minister and finance minister, urged the IMF to devise a framework to enable countries to adapt and cope more effectively with market excesses associated with destabilising capital flows.

Ibrahim said it is not enough for countries to observe ''international rules" and that similar rules must also be imposed on the financial market players in order ''to contribute towards the efficient functioning of market mechanisms".

''This framework could include rules and principles on ethical and professional standards, stronger disclosure requirements and regular contacts between the managers of leveraged funds and banking supervisors," he added.

''This framework should be facilitated by an agreement on the provision of information on leveraged fund activities and arrangements for the home country supervisors to share information with the host country supervisors on the activities of these funds."

Roberto De Ocampo, the Philippine finance minister, is more liberal on capital movements than his Asean counterparts. He said the challenge to countries in this region lies in how they manage foreign capital better, rather than controlling it.

''Key to this is a higher level of disclosure and transparency so that players act based on timely and accurate information," he said. ''If they act in partial darkness or subject to an information avalanche, they naturally act like herds in panic.

''On the other hand, market players themselves need to become more diligent in differentiating the countries in a region. There are few winners from contagious prophecies of doom that start with one country and spread like a virus."

The more powerful Western countries and the IMF, whose original Articles of Agreement put current account convertibility and trade liberalisation in the centre of its mandate, look at this issue from a different angle. Robert Rubin, the US treasury secretary, champions the cause of global financial integration and liberalisation of the capital account because the US is a global financial house.

''Liberalisation of the capital account must proceed carefully alongside our development of strong policies and financial system regulatory regimes, but proceed it must if the global economy is to realise its true potential for growth," he said.

''We believe the same end will be advanced by opening financial systems to foreign participation and all the capital and expertise which that implies."

Theo Waigel, the German finance minister, added: ''We must not conclude from the currency turbulence in parts of this region that capital transactions should be more strongly regulated or controlled. Rather, free international capital movements are a central element of an efficient resource allocation and therefore a precondition for rising global prosperity."

Stanley Fischer, the deputy managing director of the IMF, forcefully argued against the notion that capital accounts are more often sources of economic difficulties and risk rather than benefit and therefore capital account liberalisation should be put off as long as possible.