Malaysia’s response on the IMF during the Asian Economic Crisis
When the Asian financial crisis hit Malaysia, the impact was severe. There was economic and political instability. The stock market, the currency and the property market nearly collapsed. That in turn affected the overall economy. After Malaysia’s president rejected to receive loans from the International Monetary Fund (IMF), So far, Malaysia was not that badly affected as compared to some of its neighbors. It did not experience the extent of the socio-political distress as occurred in Indonesia. Nor was its economic sovereignty that deeply compromised as happened in Indonesia and Thailand when both countries were forced to accept the conditions imposed by the IMF for the acceptance of their loans Athukorala (2001). Malaysia was the only severely affected crisis country not to adopt an IMF program during the Asian crisis that began in 1997. This thesis seeks to determine whether this was a wise decision. The research analysis begins with the arguments of principle for and against Malaysia adopting the IMF’s suggested economic policies, and then proceeds to consider the results for Malaysia of adopting the course it did. The reasons for Malaysia’s decision may have been emotive as well as economic. Nonetheless, with the benefit of hindsight, our analysis suggests that Malaysia’s choice was demonstrably right for it in terms of principle and of rationality. Malaysia’s policies saw it recover from the crisis at least as fast as countries that implemented IMF policies. The poor in Malaysia are significantly better off today than they would have been under IMF policies and Malaysia has benefited, in a number of other ways, from having followed its own course through the crisis. The main contribution of the research, is how the Malaysian experience in achieving sustainable economic growth, is not being examined as a lead for other countries to follow in overcoming their financial crisis Abidin (2002).
Research Problem With acceptance of the IMF conditions is meant that the country was offered financial loans combined with conditions which consist of policy recommendations, and that the country accepted both the loans and the corresponding conditions. These two always go hand in hand as the one cannot be accepted without the other. Malaysia received policy recommendations, but it did not want to implement these exact policies and therefore it rejected the financial loans. Because of its relatively low level of foreign obligation, Malaysia did not apply for any IMF assistance. Nevertheless, it followed the standard IMF prescription in facing the crisis. Unfortunately, with the implementation of certain Macroeconomic policies, what started as a financial and currency crisis soon became a full-blown economic crisis. This thesis will try to answer the question which is what is the impact of the Malaysian decision of rejecting the IMF loans during the Asian crisis in 1997, on the economic growth of the state?
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