Thillainathan; and Ms Rosliza Musa for the graphic presentations in this paper. The usual disclaimers apply. Chapter present financial crisis is very different from the one Malaysia experienced in 1998. In 1998, Malaysia suffered a contraction in Gross Domestic Product (GDP) growth due to the Asian financial crisis which originated from Thailand. In contrast, the present crisis did not start in Asia or Malaysia but is due to the weaknesses in the United States financial industry which escalated into a severe international financial crisis and deep slump in global trade and global recession by late 2008. The world? major economies, in particular the US, the European countries and Japan, are experiencing the worst economic contraction since the Great Depression of the 1930s. Being a small open and export-dependent economy, Malaysia has not been spared from this external shock. The negative shock was transmitted to the Malaysian economy in the fourth quarter of 2008. Exports and industrial output deteriorated and investments declined. Consumer sentiment was also adversely affected. As a result, GDP growth in the fourth quarter of 2008 was significantly lower at 0. 1% compared with an average of 5. 9% in the first nine months of the year.
It is fortunate that Malaysian banks have negligible exposure to securities linked to US subprime loans, and Malaysia? s financial institutions and banks are in a better shape today than they were during the Asian financial crisis. 1 However, prominent local economists 1 Bank Negara Malaysia Annual Report 2008. 1 forecast that though Malaysia may not witness sharp downturns as compared with that of 1998, this may be a longer recession than the one in 1998. 2 This paper intends to examine the impact of this global financial crisis on the Malaysian real economy sector and discuss the policy implications for the economy.
The Term Paper on Financial System Crises Finance Minsky
The financial distress of the last two decades has revived interest on the question of the stability of the financial system. On the one hand, the "pessimist" view, associated primarily with Minsky argues that not only that the financial system is prone to such crises ("financial fragility" in Minsky's terms) but also that such crises are inherent on the capitalist system ("systemic fragility"). ...
Chapter 2 presents an overview of the Malaysian economy after the Asian financial crisis (AFC).
This chapter shows that after the AFC, Malaysia became more export-dependent, with the external sector overtaking private investments as the main driver of growth in GDP. Private investments, both domestic and foreign, declined in the aftermath of the AFC. Despite the government? s continued efforts to provide new investment incentives to a broad range of industries, investment as a percentage of GDP has not returned to its pre-crisis level. Chapter 3 identifies the channels through which the current global crisis affected Malaysia.
There are two key channels through which the US financial crisis has been transmitted to Malaysia, namely, the trade channel and the finance channel. This chapter also shows how the global crisis is then transmitted to the Malaysian real economy, leading to a fall in consumer spending, job losses and a fall in the country? s income. Chapter 4 describes the government policies adopted in response to this global crisis. Chapter 5 provides concluding remarks and policy implications. 2 StarBizWeek, roundtable discussion on the impact of the global crisis on Malaysia, 28 February 2009.
