Malaysia During The East Asian Crisis

The early 1990s exhibited a boom in many economies throughout the world due to factors such as globalization and other trade liberalization practices, but this boom was quickly halted in the latter half of the decade when bad investments nearly sent the entire world into economic turmoil. With the introduction of free trade practices such as the North American Free Trade Agreement, or NAFTA, the economies of many of the worlds “developing countries” skyrocketed due to an influx of foreign investment. At, first this exponential boom in small countries with emerging economies seemed like it would never end. However, this all changed when investors “caught wind” that these developing countries did not have the means to keep up with the massive inflow of investments. This led to what we know refer to today as the Asian Financial Credit Crisis. In order to understand how to prevent such a disaster from happening again, we must first examine how exactly this event was triggered, and what should have been done differently.

The events of World War Two such as the failed Malaya campaign, the fall of Singapore, the bombing of Pearl Harbour and the stretched resources of Britain, led to Australia developing a more independent foreign policy however, independent of Britain. The changing of alliance between Britain, Australia and the United States of America has led to a substantial impact on shaping Australian society and where Australia are today. The fall of Singapore and the Malaya campaign brought the war extremely close to Australia even reaching Australian soil for the first time and generated new opinions and perspectives on the war for all Australians. Furthermore, with its greatest military defeat of all time, Britain had to recover and Australia had to

He contends that when the East Asian companies opened up their markets to allow in foreign capital and appease citizens who wanted globalization, they unintentionally doomed themselves for the future (Wade 107). Before they opened up their markets, bankers in East Asian countries were very cautious about whom to give loans to, and as a result, banks often had a very good relationship with those they chose to lend money. As a result, loans were only given out to safe investments. This changed when these countries opened up to the international economy, which allowed inflows of foreign capital (95). The United States in the 80’s financed its debts by selling Treasury Bills, which were commonly bought by foreign banks and then resold for additional capital. When the United States went into a recession, these foreign banks decided to invest in East Asian markets because these markets had expansive room for growth, which allowed investors to get a high return on investment (100). With the new capital, the East Asian countries invested in industry and asset bubbles, which require constant capital to pay off debts. When the United States became a good investment again in the mid-1990s, foreign investors started investing back in the United States. The capital needed to finance the East Asian countries was gone, and these economies with high debt-to-equity

After analyzing and evaluating the international and domestic economy and financial developments in international and domestic, Bank Negara Malaysia can forecast the economic condition of the country and hence introduce the policy suggestion to the Minister of Finance and economic policy making forums at national level. Furthermore, regular financial advices on the management of domestic and external debts and the terms and timing of Government loan programs are given to Government. Besides, Bank Negara Malaysia is responsible in handling the Government securities including trading, registering, settlement and redemption through systems such as RENTAS, Fully Automated System for Tendering (FAST) and Bond Information and Dissemination

The United stated financial crisis has greatly influenced aspects of the GCC economic and financial market. Generally the crisis leaded to a negative economic development, high unemployment rate across industries. Moreover the crisis has affected the overall liquidity level among GCC countries hence the regulatory bodies took all the measures to impose policies to reduce the negative effect of the crisis on their various sectors however, the policies caused more negative inflation pressures and negative economical outcome. The negative effects were due to the strong relationship between the national economy sectors with financial institutions in which their role

The government in most developing countries intervened to provide more socially-optimal levels of capital, synchronized with government development planes, and to provide finance for government budget deficits through domestic financial markets (Alam,1989;Amsden,1989; Bradford,1986,1987;Cho and Kin 1991; johnson,1985; and Lee,1992).The financial regulations were designed and implemented to restrain market forces in the allocation of resources , to encourage economic growth ,ensure financial stability and achieve other national goals.

One of the most important lessons from the Asian crisis is that it is prudent and necessary for developing countries to have measures that reduce its exposure to the risks of globalization and thus place limits on its degree of financial liberalizations. In a globalized world, developing countries often face tremendous pressures coming from developed countries, international agencies, transnational and national companies to completely open up their economies. It is proven that liberalization can and has played a positive role development, however; the Asian crisis has shown up that in some circumstances, liberalization can play havoc, especially on small and dependent economies. This is more so prominent in the field of financial liberalization, where lifting of controls over capital flows can lead to such extreme results as a country accumulating a mountain of foreign debts within a few years, the sudden sharp depreciation of its currency, and a sudden rush of foreign owned and local owned funds out of the country in a few months. So,

Another example of a financial crisis that occurred in the BRC economies was the 1997 Asian Financial Crisis. This financial crisis differed greatly from the Latin American Crisis, as this financial crisis entailed a speculative attack on a currency . Defined, a speculative attack on a currency is a devaluing of the exchange rate brought upon by a large sell off of a country’s currency. In the late 1980s and early 1990s, Thailand and other Asian countries had experienced growth due strong trade flows, which lead to an increase in most asset classes. Accompanied with high-interest rates(Figure 5), foreign investment flowed into the Asian regions. Taking advantage of the high-interest rates, Thai banks had started to accumulate large

Today, it is considered to be a common knowledge, that the deregulation of domestic financial sector and opening of capital account of the balance of payments played a major role in the recent economic crisis of 2007-08. Policies, that have been stated above can be put together and named as the liberalization of the capital account. Liberalization stands for lessening of government regulations and restrictions in the economy. It offers a certain sector of the economy an opportunity to compete internationally. However, there are a number of risks connected with liberalization, which will be discussed later in this paper. Thus, the question is as follows: is liberalization worth the risk, or a wise implementation of capital controls leads to potentially more positive outcomes for the global economy?

Capital control is defined as a type of measure governments can use to regulate and restrict the amount of money flowing from capital markets in order to keep inflation under control while maintaining a competitive real exchange rate. International Monetary Fund (IMF) has been slowly shifting its beliefs to where capital control policies can be deemed useful for countries during a potential crisis. Some countries, especially the developing ones that implemented capital control policies have experienced success in the recovery of the economy upon the face of unfavorable economic conditions. This paper will explore on the cost and benefits of developing countries adopting capital controls during a recession, a case study on Malaysia’s

Those capital directly or indirectly affect the stock and estate market that result in house price and stock rose sharply. Then bubble economy is formed. At the same time, the production cost increased and make investment environment got worse. Thai Baht was depreciated greatly, the unemployment rate increased and then economic recession. On November 1997, South Korean also get the influence on their exchange currency. Moreover, lots of banks and security companies went bankrupt in Japan. At this point, Asian financial crisis started. At the second stage, in Indonesia, financial crisis broke out again in 1998. They faced the most serious economic recession in their history. The International Monetary Funds had made a strategy to deal with it to help Indonesia, but failed to achieve the desired results. Indonesia government have to implemented a new monetary policy, yet International Monetary Funds and America against it. Indonesia have a big trouble on Political and economy: sharply fall in exchange rate, interest rate volatile, inflation increase rapidly and government deficit increase and so on. After the crisis spread to Japan, Japanese yen also depreciated. And the problem of financial became more serious. Many large industries were forced shut down. At the last stage of crisis, a increasing number of countries got the economic problem. International speculator George Soros is a currency speculator and stock

The financial liberalization adopted by Thailand government has loosened control of the capital. Loosen control on capital inflow reduces the costs of borrowing and leads to excessive lending and borrowing at the same time (Hansanti, 2005, p171). In Thailand, capital inflows went to unproductive and inflated sectors such as the real estate, not benefiting the country’s economies in the long run. Poor control of capital outflows has weakened the domestic financial sector when there is no cost for fund movement out of the country (Hansanti, 2005, p171). To improve the stability of domestic financial market, government should have certain degree of control on capital inflows and outflows. For instance, according to Oliver, control on capital outflows can be used to limit the downward pressure on currencies and it is “mainly applied to short-term capital transactions to counter speculative flows that threaten to undermine the stability of the exchange rate and deplete foreign exchange reserves” (u.d.). In summary, capital control is used to insure monetary and financial stability during

The four Asian Tigers turned out to be an imperative role model for many of the developing countries and these countries include the “Tiger Cub Economies” comprising of Malaysia, Indonesia, Philippines and Thailand. Subsequent to the 1997 Asian Financial Crisis and the western Financial Crisis of 2007-2008, at the time there was a continuing decline in GDP (Gross Domestic Product-market assessment of all absolute commodities and services, compared to the populace, in any given year). For all the Asian Tiger countries, however each one bounced back easily because of their stable banking policies, government incentive measures and diffident or no communal

In 1997, the Thai baht came under speculative attack from international investors and the Thai government was eventually unable to support its currency peg. Due to the interconnected nature of the global economy, contagion occurred and the problems affecting Thailand spread to countries such as Malaysia, Indonesia, the Philippines, and South Korea. This event came to be known as the Asian Financial Crisis in the West. However, in South Korea it is known as “the IMF,” as misguided policies of the International Monetary Fund (IMF) led to a deep and more painful recession, inequality and an gutted the nation’s middle-class. Below is an overview of the IMF’s “rescue” of Korea in 1997/1998, a description of my opinion on the situation, and my opinion of the fairness and effectiveness of international financial institutions (IFIs) in general.

Capital account liberalization process in Indonesia started under Soeharto’s New Order presidency which was remarked by the introduction of Foreign Investment Law in 1967. Prior the issuance of this law, under President Soekarno regime (1945-1967), the government initiated self-sufficiency policy and Indonesia was administered as a socialist economy. In Soekarno era, investors from western countries were strictly restricted to invest in Indonesia (Fitriandi et al 2014, p.81). As a consequence, Indonesia was not an attractive place for foreign investors (Lindblad 2015, p.221). The absence of rule of law concerning foreign direct investment in the period of 1945-1967 has made investment environment in Indonesia became uncertain and had high business risks which were unfavourable for businesses. The business parties were became unconfident and faced uncertain and unpredictable of