The Malaysian financial crisis: Capital expansion, cronyism and contraction

Rajah Rasiah

Journal of the Asia Pacific Economy, 1998, vol. 3, issue 3, 358-378

Abstract: The Malaysian economy crashed following a sharp drop in the ringgit and the stock market from late 1997, which came in the wake of a regional financial crisis triggered by the baht crisis that started in July 1997. Many have since begun to question the merits of Malaysia as a model of successful development. This paper traces systematically the causes of the late 1980s and early 1990s boom, and the slowdown subsequently. The boom is argued to have been shaped by increased flows of foreign direct investment through a combination of pressures forcing East Asian investment abroad and liberalisation of domestic policies and favourable depreciation in exchange rates and introduction of export‐oriented incentives, which even helped pad crony ventures. The slowdown was triggered by an appreciation of exchange rates, falling tariffs and scrapping of export‐oriented incentives, which encouraged imports and discouraged exports, slowdown in foreign investment inflows, slow technological progress in the face of rising costs, expansion in debt‐driven investment into property and real sectors and unsustainable growth in unproductive crony ventures. The bust consequendy took place following speculation, regional contagion effect, and massive capital flight influenced by herd behaviour and confidence wrecking policy statements.

Date: 1998
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/13547869808724657 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rjapxx:v:3:y:1998:i:3:p:358-378

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rjap20

DOI: 10.1080/13547869808724657

Access Statistics for this article

Journal of the Asia Pacific Economy is currently edited by Leong Liew

More articles in Journal of the Asia Pacific Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().