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Malaysia: Was it Different?

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  • Rudi Dornbusch

Abstract

In the Asian crisis of 1997-98 some countries followed IMF prescriptions for stabilization and recovery. Malaysia went another route, placing an emphasis on capital controls. Did this strategy work out to lower the costs of the crisis and foster a more rapid recovery as claimed by some observers and notably the Malaysian authorities? It remains to explore whether that claim is indeed appropriate or whether it is primarily domestic grand standing of a weakened and challenged leadership which uses the international issue to deflect from severe domestic political problems. In evaluating the Malaysian experience it must be understood that for this country two crises were unfolding simultaneously. One was the Asian financial crisis that brought down countries with vulnerable financial structures. The other one was the domestic political. The paper concludes that there is no evidence of a better performance and not surprisingly so. Capital controls were imposed after the crisis was over, as interest rates in all Asian crisis economies, including Malaysia, were already declining rapidly and as US interest rate cuts fostered a more stable environment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8325.

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Date of creation: Jun 2001
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Handle: RePEc:nbr:nberwo:8325

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  1. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc.
  2. Brock,W.A. & Durlauf,S.N., 2000. "Growth economics and reality," Working papers 24, Wisconsin Madison - Social Systems.
  3. Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," CEPR Discussion Papers 2754, C.E.P.R. Discussion Papers.
  4. Hali J. Edison & Carmen M. Reinhart, 1999. "Capital controls during financial crises: the cases of Malaysia and Thailand," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  5. Rudi Dornbusch, 2002. "A Primer on Emerging-Market Crises," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 743-754 National Bureau of Economic Research, Inc.
  6. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
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