Malaysia During The East Asian Crisis

1630 Words Mar 16th, 2015 7 Pages
The twentieth century economics was built on the foundations of liberalization and globalization to encourage emerging capital markets, open new avenues for financing and put developing economies on the global map. Needless to say, this policy requires a blatant need to reduce capital controls to reduce foreign investment and increased spending within domestic sector. Traditionally international organizations like the IMF have criticized the imposition of capital control measures by countries during unfavorable economic situations. However, upon close examination and analysis of developing economies that have undergone economic crises, I propagate a need for capital controls. This will be demonstrated through the course of my essay by examining the case study Malaysia during the East Asian crisis in the late 1990s. The themes addressed in the case of Malayisa include the economic, political and monetary background of the country, followed by the policy tools of capital controls, its effectiveness and lessons.

The East Asian Crisis started in 1997 due to a buildup of a large amounts of capital in the early 1990s inflows not due to foreign direct investments but because of bank loans and portfolios capitals which had reversed and led to great amount of macroeconomic pressures on the economie of east asian countries affected, leading to an appreciation of exchange rate, high interest rates, financial instability and stress.(Dornbusch, 2001). In reviewing Malaysia, we have to…
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