The East Asia Currency Crisis

The Malaysias Case

Presented by:

Pedro A. & Samen Son

Agenda
A quick look at Malaysia's history
Malaysia's path before the crisis
Malaysia's Economic Situation before the Crisis
Malaysia's Economic Decline
Causes to the Malaysia's Economic Decline
The Crisis
The IMF Intervention
Malaysia's Policy Taken
Conclusion
Questions & Comments (please leave them to the end)
A quick look at Malaysias history
1957 independence (from Great Britain).
Malaysias path
1955 The Import substitution industrialization
(ISI) strategy
1970 New Economic Plan (geographic integration/land reform)
Poverty rate 49 % in 1970; 17% in 1990
1971-1975 Second Malaysia Plan (export-oriented
industrialization; FDI)
Electronics/technical textile/apparel
1981-1985 Fourth Malaysia Plan (public sector
investment/Heavy Industries Corporation of Malaysia)

1990 New Development Plan

Economic situation prior to the crisis
4 decades after Malaysia independence
Industrial oriented economy
Manufactured exports more than 80% of exports
Foreign direct investment (Japanese firms)
Malaysias performance caused by external factors
Economic situation prior to the crisis
Cont
Economic Decline
A decline in export growth (caused by the East Asia Crisis)
High concentration on certain manufactured
goods (as shown on next slide; risky in cyclical turndowns)
Economic Decline (cont)
High degree of ownership as FDI in Malaysia

Industrial activity in final stage (relative t0 design, development, etc)

Economic Decline (cont)

Human resource (relatively small investment)

Causes to the economic decline
The sharp appreciation of the dollar
June 1995 April 1997 from 85 yen/dollar to
127 yen per dollar.
East Asian currencies were pegged to the dollar
Malaysias competitiveness slowed
Causes to the economic decline
Other argue from another perspective
Devaluation of the Yuan against the US dollar (in
1994)
Tax rebates on exports
Therefore, China was the first domino to fall

Other arguments
Slow down of demand for electronics (1995-96)
The crisis
Asset price bubble and over inflated market
Investors predicted untenable exchange rate
and asset markets.
Capital disinvestment
Currency devaluation
Financial crisis!
High unemployment
Deep recession
The IMF intervention (The Washington Consensus)

1980s & 1990s Open capital markets

Exchange rate stability
Higher interest rate to attract investors
Bankers & investors poured money in real estate
and equity shares
Privatization
Malaysias policy taken
Banking and Financial Institutions Acts of 1989
Restrictions on foreign borrowing
Malaysias external liabilities did not exceed its
foreign exchange reserves
Malaysia did not submit to IMF conditionalities
The government played an important role in
foreign borrowing
Conclusion
Developing countries should monitor their
economic policies independently from external
organizations such as the IMF
The government should play important roles
when its necessary like the case of Malaysias
government during its crisis
Questions?
Comments

Thanks for keeping your questions and comments

until here