Table of content Page
1.0 Introduction 2
2.0 The Starting Point of the Financial Asia Crisis 3
3.0 The Impact that effect Malaysia and what the Government 8
4.1 Impact on the KLSE 10
4.2 Impact on Business Confident Level 11
4.3 Impact on foreign Direct Investment 11
4.4 Impact on monetary Policy 13
4.0 Conclusion 18
5.0 Reference list 19
Travel is the leading industry in many East Asian countries. Among them Thailand, Singapore and Hong Kong are also visited by tourists, but destinations such as ...view middle of the document...
The real causes of the 1997 Asian Financial Crisis, it is critical to note that the level of portfolio capital that rolled into the region from 1985 to 1997 was without notice. With the ascendance of President Reagan in the United States and Prime Minister Thatcher in the United Kingdom in the 1980s, deregulation, liberalization, privatization, and overall smaller government became the mantras of their economic policy, both at home and abroad. Although the Washington Consensus carried with it deep implications for reform in the U.S. and U.K., it was revolutionary when adopted by the newly named “emerging markets” of the developing world. The international trade of goods and services in Southeast Asia had been well established for decades, but the unchained flow of bank loans and portfolio capital was a large-scale, first-trial experiment. One school of thought blames senior policymakers at the U.S. Treasury, World Bank Group, and IMF for prematurely promoting capital account liberalization and precipitating a financial crisis. In truth, key financiers within the Asian Crisis countries themselves laid the groundwork for financial collapse via excessive foreign borrowing and impulsive regional investment.
First, the crisis started to attack in Thailand with the financial collapse of the Thai baht caused by the decision of Thai to float the baht and cutting its peg to the USD, there was huge pressure for devaluation. The Bank of Thailand initially sought to defend the baht by dumping its dollar reserves on the market, but by July 2, after losing at least 9 billion USD of its 39 billion dollar reserves, it had to throw in the towel.
Then it started to attack in Malaysia, Philippine, Indonesia, Hong Kong, Laos, and South Korea. Well, the most affected country is Indonesia, Thailand and South Korea. The country that also hurt by the crisis are Hong Kong, Malaysia, Laos and Philippine. But for the People’s Republic of China, India, Taiwan, Singapore, Brunei and also Vietnam were less to be effected.
Speculators spotted similar nervous behavior among foreign investors in Manila, Kuala Lumpur, and Jakarta, where the same conjunction of commercial bank over exposure in real estate, weak export growth, and a widening current account deficit was add up fears of a currency devaluation that could devastate their investments. By October 1997 the Philippine peso, the Malaysian ringgit, and the Indonesian rupiah were still on a downspin as capital continued to exit, resulting in a terrible combination of increase rapidly trough import bills, reduction costs of servicing the foreign debt of the private sector, sensitive interest rates spiking economic activity, and a chain reaction of bankruptcies.
In this project, we focus more on crisis that happen in Malaysia. Before the crisis started in Malaysia, Malaysia had a large current account deficit of 5% of its GDP. At that time Malaysia was a popular investment target, this was reflected in KLSE activity...