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Indonesia and other Asian countries may benefit from capital controls to help limit inflows that pose a risk to their economies and financial systems, the Asian Development Bank said in a report released on Tuesday.

Authorities should consider “the full array of policy measures available in their toolkit,” the Manila-based multilateral lender said. The bank’s Asia Capital Markets Monitor suggested “temporary and targeted” restraints on incoming investment, in addition to encouraging outflows.

“Volatile capital flows pose a significant risk, affecting both macroeconomic management and overall financial stability,” vice president B.N. Lohani said in a speech in Seoul. “The return of capital flows is welcome. But large and sudden capital movements can put the sustainability of economic recovery at risk.”

The recommendation comes after the International Monetary Fund last month voiced its support for taxes on capital inflows to help stem excessive appreciation in some Latin American currencies. A United Nations agency this month also touted similar measures, saying China, India, Singapore, Indonesia and South Korea were most at risk from swings in short-term capital.

Bank Indonesia officials have said in recent months that the central bank was considering implementing capital controls.

Last month, a senior central bank official said the stock market had formed a “bubble” and the bank was considering controls on inflows. This week, acting BI governor Darmin Nasution reportedly said the outflows caused by the European debt crisis were another cause for concern and consideration of controls.

Demand for higher-yielding assets in Asia has helped drive gains of more than 25 percent for Indonesia’s rupiah and South Korea’s won since the start of December 2008, the month the Federal Reserve cut its benchmark interest rate to near zero.

The MSCI Asia Pacific Index of equities has risen 41 percent over the same period, while government bonds gained 22 percent, based on HSBC Holdings’ composite index of 10 Asian markets.

The amount of money pouring into the region may strengthen as central banks from India to Malaysia start raising borrowing costs to fight inflation, widening the interest-rate differential with the US, Europe and Japan, the ADB said.

The bank estimates that foreign funds hold about 20 percent of stocks by value in Asia’s emerging markets. They owned 22.3 percent of local-currency government bonds in Indonesia, 13.3 percent in Malaysia and 3.9 percent in Thailand as of March 31, the report said.

Purbaya Yudi Sadewa, chief economist at state-owned brokerage PT Danareksa Sekuritas, said the assumption that both the JCI and the rupiah are too high currently has caused worry that short-term “hot money” from international investment funds will retreat quickly.

Recent capital inflows have boosted the JCI to a record 3,000 points and the rupiah to briefly breach 9,000 against the dollar.

“Some people have argued that the government should implement limited capital controls in order to prevent the rupiah and the economy from instability caused by capital outflows,” Purbaya said.

But, he said, the high capital inflows entering Indonesia’s financial market were mainly driven by foreign investors’ high confidence in the country’s economic prospects and its success in minimizing the impact of the global recession.

“I think the important point is the consistency of the government in implementing prudent fiscal and monetary policies, not capital controls,” Purbaya said, warning the market could react negatively to such curbs.