Custom «Malaysia Currency Crisis» Essay Paper Sample
Malaysia was growing first before 1997 and investor saw the country full of potential opportunities for investments. However, in 1997 the country was hit by the first financial crisis (Mohamad, 2001). The first cause of this crisis is the Thai Baht Devaluation. Not only it did affect Malaysia, it also affected other countries in Asia like Indonesia (Abidin & Ahmad, 1997). The second cause can be attributed to speculation. People speculated that the capital market was going to fall causing the economy to fall. Lastly, capital flight was the cause of Malaysia financial crisis (Hasan, 2003). As a result, this led to many companies closing and people losing their jobs. Additionally, the stocks turnover went down with the values of different stocks falling. Finally, the Malaysian ringgit fell in value.
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The Malaysian Government decided to use the orthodox methods of the IMF styles. The first was to allow the currency to float with minimal intervention. Opening a capital account regime. The Government increased the interest rates. This is where the banks increased their interest rates sharply. The Government vowed to tighten the monetary policies and it reduced the Government expenditure entirely. They did not consider loans from the IMF because they did not have foreign intervention in their economy and other sectors of the country (Khor, 2005).
Currently the country is experiencing a steady growth in the economy. The stocks are increasing in value, the ringgit is increasing in value and the country is experiencing a growth in the industrial sector thus people are getting employed. This is contrary to the global financial crisis experienced all over the world where many countries including the use are suffering (New Zealand Government, 2008). Therefore, due to Malaysian ability to come from a financial crisis there are several lessons that can be learned. The first being the other methods apart from the loan package from the IMF. It is of immense importance, if developing countries have flexibility and freedom from the IMF. Financial openness of a country makes a developing country vulnerable to speculation. I believe these lessons are helpful to the developing countries.