Malaysia is internationally recognized for its economic performance and the currency crisis it went through in the year 1997. Malaysia is seen as a success story and recognized for its successful management strategy. Prior to the 1997 economic crisis, Malaysia had experienced a recession in the 1980s that led to a negative GDP in the year 1985. Malaysia, however, reversed this negative growth by the year 1987. Malaysia proceeded to grow economically from 1987 through the 1990s up to the year 1996.
In the year 1997, the currency crisis hit the country though it still recorded economic growth in GDP. From the year 1988 to the year 1997, the Malaysian economy had sustained a rapid growth while experiencing diversification. In the year 1999, Malaysia’s nominal per capita GDP was at $3,238. The Malaysian economy was transformed by the domestic and foreign investments. Manufacturing sectors grew in terms of GDP. Mining and Agricultural sectors fell in terms of GDP. Mining and Agricultural sectors had previously being relied upon by the country as the main economic sources. The manufacturing industries started producing products such as electronics. Malaysia started exporting semiconductor devices to other countries all over the world. Today Malaysia is one of the major exporters of electrical appliances and electrical goods.
The increase in foreign investment resulted in the KLSE Composite index trading at 1,300 and above in the year 1994. The Malaysian currency Ringgit traded above 2.5 in the year 1997. There were many times when KLSE was the top ranking active stock exchange in the world. The trading volume of KLSE exceeded that of NYSE. Some of the projects that were started during the 1990s include the Petronas Towers, Bakun dam, Putrajaya, and Multimedia Super Corridor. Other projects were cancelled by the government so as to focus on handling the currency crisis. There were concerns that Malaysia could not sustain the rapid economic growth. Arguments for the continued growth suggested that the deficit was not permanent and that it would be reversed once the imports started producing commodities for exports. Despite these arguments, Malaysia decided to moderate the growth. The government placed restrictions on foreigners regarding ownership of local assets (The Economist, 2014). There were also rules on banks regarding loans on real estate.
The financial crisis experienced by Malaysia in the year 1997 had brought a lot of changes to the country. The Malaysian currency was short-selling speculatively. The capital of the country diminished leading to a fall in the foreign direct investment at a very high rate. The value of Ringgit in relation to $1 fell from 2.50 to 4.80. Malaysia was alarmed by these changes and decided to take action for it to recover. The finance minister was sacked, and the National Economic Action Council was formed to handle the financial crisis. Capital controls were imposed by the Bank Negara, and the ringgit was placed at 3.80 per 1$. The Bank Negara also put a suspension on Central Limit Order Book (CLOB) counters (The Economist, 2014). This suspension froze the shares of approximately 172,000 investors. Malaysia refused financial aid from World Bank and IMF. The refusal of financial aid protected Malaysia from the full effect of the Asian Financial Crisis as experienced by other countries such as Thailand, Indonesia, and the Philippines. Malaysia, therefore, recovered from the financial crisis faster than the other countries (Mankiw, 2014).
Conclusion
Malaysia is internationally recognized for its economic performance and the ability to handle economic crisis. In the 1990s its economy grew rapidly and attracted many foreign investors. The financial crisis that hit the country in 1997 went on to prove the success of the management strategy employed by Malaysia. It refused financial aid from World Bank and IMF, and as a result was not affected by the conditions laid out by the financial organizations. Malaysia was, therefore, able to recover quickly from the financial crisis, and has grown to be one of the major exporters of electronics.
References
Mankiw N. G., (2014). Principles of Economics. 7th Edition. Boston: Cengage Learning
The Economist, (2014). Daylight Clobbery. Retrieved from: http://www.economist.com/node/221572
