Malaysia: Was it Different?

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...

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Bibliographic Details
Published in:Policy File 2001
Main Author: Dornbusch, Rudi
Format: Report
Language:English
Subjects:
Banking/Finance
Economic policy
Government
International/Economic development
National Bureau of Economic Research
Online Access:Request full text
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Summary: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 grandstanding 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.