Asian financial crisis

The Asian financial crisis was a financial crisis that started in July 1997 in Thailand, and affected currencies, stock markets, and other asset prices of several Asian countries, many part of the East Asian Tigers. It is also commonly referred to as the Asian currency crisis or locally, although inaccurately, as the IMF crisis.

Malaysia

In 1997, Malaysia had a large current account deficit of over 6 percent of GDP. In July, the Malaysian ringgit was attacked by speculators by illegally short selling derivatives of Malaysian shares in Singapore. Four days later, Standard & Poor's downgraded the debt rating of Malaysia. A week later, the rating agency downgraded the rating of Maybank, the largest bank of Malaysia. The same day, the Kuala Lumpur Stock Exchange plunged to 856 points, its lowest point since 1993. On October 2, the ringgit dropped again and Prime Minister Mahathir bin Mohamad immediately introduced capital controls. However, the currency collapsed again in late 1997 when Mahathir bin Mohamad announced that the government would spend 10 billion ringgit in a road, rail and pipeline project.

Related Topics:
Malaysia - Current account - GDP - Ringgit - Speculators - Singapore - Standard & Poor's - Debt rating - Maybank - October 2 - Mahathir bin Mohamad

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In 1998, the output of the real economy declined. The construction sector contracted 23.5 percent, manufacturing shrunk 9 percent and the agriculture sector 5.9 percent. Overall, the country's gross domestic product plunged 6.2 percent in 1998.

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Malaysia however emerged as the fastest country to overcome the crisis after declining IMF assistance. It did this by pegging MYR 3.8 to USD, stopping illegal derivative trades of Malaysian securities outside Malaysia, restricting outflow of money from the country (effectively setting up some form of foreign exchange restrictions) and setting up asset management companies to facilitate the orderly recovery of non performing loans.

Related Topics:
MYR - USD

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