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The East Asia Currency Crisis  The Malaysia’s Case 

The East Asia Currency Crisis  The Malaysia’s 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

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The East Asia Currency Crisis  The Malaysia’s Case 

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  1. The East Asia Currency CrisisThe Malaysia’s Case  Presented by: Pedro A. & Samen Son

  2. 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)

  3. A quick look at Malaysia’s history • 1957 independence (from Great Britain).

  4. Malaysia’s 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

  5. 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) • Malaysia’s performance caused by external factors

  6. Economic situation prior to the crisis Con’t

  7. 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)

  8. Economic Decline (con’t) • High degree of ownership as FDI in Malaysia • Industrial activity in final stage (relative t0 design, development, etc)

  9. Economic Decline (con’t) • Human resource (relatively small investment)

  10. 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 • Malaysia’s competitiveness slowed

  11. 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 downof demand for electronics (1995-96)

  12. 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

  13. The IMF intervention (The Washington Consensus) • 1980’s & 1990’s Open capital markets • Exchange rate stability • Higher interest rate to attract investors • Bankers & investors poured money in real estate and equity shares • Privatization

  14. Malaysia’s policy taken • Banking and Financial Institutions Acts of 1989 • Restrictions on foreign borrowing • Malaysia’s 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

  15. Conclusion • Developing countries should monitor their economic policies independently from external organizations such as the IMF • The government should play important roles when it’s necessary like the case of Malaysia’s government during its crisis

  16. Questions? • Comments Thanks for keeping your questions and comments until here

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