Malaysia’s and Indonesia’s Recovery from the Asian Financial Crisis : Comparison and Causes behind the Recovery
Ranta, Paula (2017)
Metropolia Ammattikorkeakoulu
2017
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2017060111721
https://urn.fi/URN:NBN:fi:amk-2017060111721
Tiivistelmä
This paper concentrates on the 1997 Asian financial crisis, and more specifically compares the very different means Indonesia and Malaysia used to handle the crisis. Malaysia was the only country who refused IMF’s help during the crisis, and its methods to overcome the crisis are compared to Indonesia’s methods which borrowed funds from the IMF. The paper aims to study how Malaysia’s policies helped them to distribute wealth more evenly and led to rapid recovery from the crisis.
Indonesia’s recovery took longer than Malaysia’s, but it has been able to over-grow from its pre-crisis levels in financial indicators, such as GDP growth and foreign direct investment. However, the equal income distribution has been inadequate. When recovering from the crisis, the IMF cut government spending in subsidies and projects, which led to more poverty and unemployment. Alternatively, Malaysia did just the opposite: it boosted the economy, lowered interest rates and improved liquidity.
The US and the IMF had advertised towards open economies for years and one of its cures to the crisis was to open the economies even more to foreign investors, in the hope that the markets would correct themselves. They failed to understand that the rapid opening of the Asian markets had led to the crisis at the first place. Malaysia disagreed and imposed governmental control towards capital markets, and increased government involvement in other areas as well. Malaysia’s cure seemed to work, since the signs of recovery were already seen quickly after the crisis and its economy was not affected as much as Indonesia’s.
The IMF has had a rough path explaining the differences, since the Malaysian policies worked better than Indonesia’s and as it was able to recover quicker and distribute its wealth more evenly. Thus, the IMF has been forced to admit some of its mistakes. The IMF’s ability to change has been somewhat slow and most of the critiques feel that advances should be made in the organizations openness, transparency and power distribution.
Indonesia’s recovery took longer than Malaysia’s, but it has been able to over-grow from its pre-crisis levels in financial indicators, such as GDP growth and foreign direct investment. However, the equal income distribution has been inadequate. When recovering from the crisis, the IMF cut government spending in subsidies and projects, which led to more poverty and unemployment. Alternatively, Malaysia did just the opposite: it boosted the economy, lowered interest rates and improved liquidity.
The US and the IMF had advertised towards open economies for years and one of its cures to the crisis was to open the economies even more to foreign investors, in the hope that the markets would correct themselves. They failed to understand that the rapid opening of the Asian markets had led to the crisis at the first place. Malaysia disagreed and imposed governmental control towards capital markets, and increased government involvement in other areas as well. Malaysia’s cure seemed to work, since the signs of recovery were already seen quickly after the crisis and its economy was not affected as much as Indonesia’s.
The IMF has had a rough path explaining the differences, since the Malaysian policies worked better than Indonesia’s and as it was able to recover quicker and distribute its wealth more evenly. Thus, the IMF has been forced to admit some of its mistakes. The IMF’s ability to change has been somewhat slow and most of the critiques feel that advances should be made in the organizations openness, transparency and power distribution.