Pathways to Sustainable Growth
Edited by Anis Chowdhury and Iyanatul Islam
Chapter 7: Malaysia's recovery from the burst bubble
7. Malaysia’s recovery from the burst bubble Rajah Rasiah INTRODUCTION Unlike the other crisis economies of Thailand, South Korea, Indonesia and the Philippines, Malaysia did not face default and therefore did not need to visit the International Monetary Fund (IMF), cap in hand. Malaysia managed to keep its short-term debt commitments below its serviceable limit. Thus Malaysia enjoyed the economic space to experiment with policies unconventional to IMF operations. While some of the strategies used by Malaysia are similar to those of the IMF packages, fundamental diﬀerences diﬀerentiate the former from the latter. Another point to note is that Malaysia allowed the crisis to wreak considerable damage before instituting capital controls, while Hong Kong, Taiwan and Singapore introduced diﬀerent scales of controls to shield their economies from the contagion. This chapter examines the causes of the ﬁnancial crisis and rescue eﬀorts made by Malaysia. It is divided into four main sections. The ﬁrst looks at pre-crisis macroeconomic conditions comparatively. The second presents the causes of the slowdown and crash. The third evaluates the capital control measures undertaken by the Malaysian government. The fourth draws implications for sustainable long-term growth. PRE-CRISIS MACROECONOMIC CONDITIONS A number of the macroeconomic fundamentals of Malaysia were sound at the time of the ﬁnancial rupture. As with other East Asian economies, rapid growth helped sustain low inﬂation and falling unemployment rates over the last decade (see Table 7.1). Only the Philippines faced low growth and high unemployment rates over that time....
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