Create a 12 pages page paper that discusses malaysia exchange controls during the asian crisis. Even though the government of Malaysia had implemented some exchange control measures, they could result in partial success only. It is mainly due to the accumulation of several global and domestic factors and lack of contingency planning. Hence it should learn lessons from this experience which would be used in the formulation of future financial strategies. The present report discusses all these aspects in detail.
In 1997-98 there was a severe financial crisis experienced by the countries of southeast Asia famously known as tiger economies (Stephen Haggard, 2000). Malaysia also faced this crisis severely. The reasons for this crisis were many as felt by the researchers (Wing Thye Woo, 2000). The main causes are uncontrolled foreign investment in the country, allowing capital flight from Malaysia to other countries, magnifying the currency situation at the international level and inefficient monitory policy. Reacting to the crisis in the initial weeks the Malaysian government has taken initiatives to regulate foreign exchange as the devaluation of Ringgit has been very fast. However, its measures could not bring much equilibrium to the financial condition of Malaysia and hence it needs to be analyzed so that the loopholes can be identified and one can be accurate in formulating any exchange control measures in the future.
In early 1997, the Malaysian stock market index began a downward spiral together with stock markets of several ASEAN countries like Thailand and Indonesia. On 14 July 1997, Bank Negara of Malaysia gave up the defense of the Malaysian ringgit after jacking up the short rate to 50% and spending US$10 billion on unsuccessful monetary operations. There were huge amounts of foreign capital has entered Malaysia in previous years (prior to 1997-98) which was uncontrolled in nature by the Malaysian government. This capital was mainly of short term in nature and was also highly conditional. .