Capitalistic setup in Malaysia AFTER east asian financial crisis

Malaysia after Asian Crisis

Malaysia entered the Asian financial crisis due to many reasons . One of the problems was the set of regulations and restrictions on capital flow , which the government instituted in 1989 /1994 . Malaysia short-term debt was lower than its foreign exchange reserves which made the country vulnerable to run out of its reserves . Malaysia was also in very high level of debt , which created panic among the investors . The 1997 created a drastic situation for Malaysian economy . The major change was fall of the FDI (foreign direct investment ) that

depreciated the Ringgit value as capital flew away . In response to the crisis Malaysian government pegged Malaysian Ringgit at 3 .80 to US dollar while refusing economic aid from IMF . The reason for such refusal was the tough conditions that are normally part of the lending term . Such posture by the Malaysia government created less critical scenario compared to Indonesia , Thailand and Philippines . However the GDP suffered a sharp contraction of 7 .5 percent in 1998 , which rebounded back to 5 .6 in 1999 Malaysian government predicted 5 .8 percent GDP growth in 2000 which was a realistic prediction

In response Malaysia government announced a pre-emptive measure to counter the financial crisis in 1998 . For example the government made it essential for banks to shore up their capital adequacy position at the first sign of trouble . This structural reform in financial sector included greater transparency and disclosure of banks . Even though government did not apply for foreign loans , but it took RM 1 billion loan to reduce poverty related issues

The government also increased minimum weighted capital ratio of finance companies from 8 to 10 percent with interim compliance of 9 percent . It also increased the minimum capital funds from RM5 million to RM300 million and subsequently RM600 million . The government also addressed the capital adequacy framework to incorporate the market risk . It also reduced the single customer limit from 30 to 25 percent . There was also more rigorous monthly supervision of individual banking institutions . It was decided that the financial institutes were to report and publish key indicators of financial soundness consistently

These steps helped in rejuvenating the economy . The government did massive spending to ensure the economic recovery mainly led by strong growth in exports specifically the export of electronic products to US Malaysia main trade and investment partner . The central Bank Negara followed low interest policy , which kept the inflationary pressure low These steps ensured the swift economic recovery compared to its neighbours in many ways , but the pre-1997 financial affluence has yet to be achieved . In 2000 there was also a revival in domestic investment that created not only employment , but also helped Malaysia in exporting its products along with lower inflation . Learning lesson from the past certain restriction were relaxed from FDI . The government promoted corporate and financial restructuring to address the structural weaknesses that were evident during the crisis

One main issue in Malaysian economy is the tariff at imports , which was...