Malaysia´S September 1998 Controls: Background, Context, Impacts, Comparisons, Implications, Lessons
AbstractUnlike the other East Asian economies which sought IMF emergency credit facilities after borrowing heavily from abroad, the Malaysian authorities simply never had to go to the Fund as prudential regulations introduced earlier had limited foreign borrowings, especially short-term credit. Instead, its crisis was due to massive portfolio investment inflows into the stock market. With the crisis, currency depreciation and stock market declines formed a vicious cycle, exacerbated by contagion and policy responses as well as official rhetoric undermining market confidence, especially in the latter half of 1997. From December 1997, the adoption of more orthodox pro-cyclical policies made the downturn worse. Before mid-1998, new fiscal measures were adopted to reflate the economy, later augmented by the currency and capital control measures from September. Looking at the crisis in August 1998, when the United States still showed little inclination to do anything to improve the situation, the Malaysian measures made good sense. The September 1998 Malaysian controls were undoubtedly well designed and effective in closing down the offshore ringgit market without discouraging greenfield foreign direct investment. The Malaysian experience shows that imposing emergency capital controls on outflows did not have the disastrous effects its opponents claim it would. But, coming 14 months after the crisis began, they were too late to stem capital flight, which had already taken place, resulting in the 80 per cent collapse of the stock market index. The capital controls were amended in February 1999 and ended in September 1999. They prevented more capital from leaving owing to the uncertainty induced by the economic and political developments of early September 1998. All the crisis economies turned around from late 1998, while Malaysia took longer, recovering from the second quarter of 1999. The recovery was stronger than in Thailand and in Indonesia in 1999 and 2000, although it lagged behind that in the Republic of Korea. The Governments of the Republic of Korea and Malaysia were bolder in their fiscal reflationary efforts, and also worked faster at bank re-capitalization and corporate restructuring. The pre-Y2K demand for electronics helped Malaysia and the Republic of Korea more than the others. Malaysia also benefited from higher petroleum and palm oil prices, while the depth of the 1998 recession in Southeast Asia was partly due to El Nino weather effects on agricultural output, and not just the currency and financial crises.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by United Nations Conference on Trade and Development in its series G-24 Discussion Papers with number 36.
Date of creation: 2005
Date of revision:
Contact details of provider:
Postal: Palais des Nations, CH - 1211 Geneva 10
Phone: +41 22 907 12 34
Fax: +41 22 907 00 43
Web page: http://www.unctad.org/Templates/Page.asp?intItemID=2101&lang=1
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ethan Kaplan & Dani Rodrik, 2001.
"Did the Malaysian Capital Controls Work?,"
NBER Working Papers
8142, National Bureau of Economic Research, Inc.
- Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," CEPR Discussion Papers 2754, C.E.P.R. Discussion Papers.
- Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," Working Paper Series rwp01-008, Harvard University, John F. Kennedy School of Government.
- Bongini, Paola & Claessens, Stijn & Ferri, Giovanni, 2000.
"The political economy of distress in East Asian financial institutions,"
Policy Research Working Paper Series
2265, The World Bank.
- Paola Bongini & Stijn Claessens & Giovanni Ferri, 2001. "The Political Economy of Distress in East Asian Financial Institutions," Journal of Financial Services Research, Springer, vol. 19(1), pages 5-25, February.
- Andrew Berg & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Esteban Jadresic & Paul R. Masson, 2000. "Exchange Rate Regimes in an Increasingly Integrated World Economy," IMF Occasional Papers 193, International Monetary Fund.
- Asli DemirgÃ¼Ã§-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
- Akira Ariyoshi & Andrei Kirilenko & Inci Ã–tker & Bernard Laurens & Jorge IvÃ¡n Canales Kriljenko & Karl Friedrich Habermeier, 2000. "Capital Controls: Country Experiences with Their Use and Liberalization," IMF Occasional Papers 190, International Monetary Fund.
- Stephen J. Brown & William N. Goetzmann & James M. Park, 1998.
"Hedge Funds and the Asian Currency Crisis of 1997,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
98-014, New York University, Leonard N. Stern School of Business-.
- Stephen Brown & William Goetzmann & James Park, 1998. "Hedge Funds and the Asian Currency Crisis of 1997," Yale School of Management Working Papers ysm84, Yale School of Management, revised 01 Apr 2008.
- Stephen J. Brown & William N. Goetzmann & James Park, 1998. "Hedge Funds and the Asian Currency Crisis of 1997," NBER Working Papers 6427, National Bureau of Economic Research, Inc.
- Rawi Abdelal & Laura Alfaro, 2003. "Capital and Control: Lessons from Malaysia," Challenge, M.E. Sharpe, Inc., vol. 46(4), pages 36-53, July.
- Timothy D. Lane & A. Javier Hamann & Marianne Schulze-Gattas & Ales Bulir & Steven Phillips & Atish R. Ghosh & Alex Mourmouras & Jack Boorman, 2000.
"Managing Financial Crises - The Experience in East Asia,"
IMF Working Papers
00/107, International Monetary Fund.
- Boorman, Jack & Lane, Timothy & Schulze-Ghattas, Marianne & Bulir, Ales & Ghosh, Atish R. & Hamann, Javier & Mourmouras, Alex & Phillips, Steven, 2000. "Managing financial crises: the experience in East Asia," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 1-67, December.
- Ghani, Ejaz & Suri, Vivek, 1999. "Productivity growth, capital accumulation, and the banking sector - some lessons from Malaysia," Policy Research Working Paper Series 2252, The World Bank.
- John Williamson, 1999. "Implications of the East Asian Crisis for Debt Management," CSGR Hot Topics: Research on Current Issues 05, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
- Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rachid Bouhia).
If references are entirely missing, you can add them using this form.