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The East Asia Currency Crisis The Malaysias Case

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A decline in export growth (caused by the East Asia Crisis) ... East Asian currencies were pegged to the dollar. Malaysia's competitiveness slowed ... – PowerPoint PPT presentation

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Title: The East Asia Currency Crisis The Malaysias Case


1
The East Asia Currency Crisis?The Malaysias
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 Malaysias history
  • 1957 independence (from Great Britain).

4
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

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)
  • Malaysias performance caused by external factors

6
Economic situation prior to the crisis Cont
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 (cont)
  • High degree of ownership as FDI in Malaysia
  • Industrial activity in final stage (relative t0
    design, development, etc)


9
Economic Decline (cont)
  • 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
  • Malaysias 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 down of 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)
  • 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

14
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

15
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

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