TWN Global Economy Series no. 26 The Impact of the Global Financial Crisis: The Case of Malaysia By GOH SOO KHOON and MICHAEL LIM MAH-HUI Publisher: TWN (ISBN: 978-967-5412-28-8) Year: 2010   No. of pages: 48

ABOUT THE BOOK

This paper examines the effects of the global financial crisis on the Malaysian economy. Malaysia was hit on both the trade and financial fronts, suffering its largest fall in exports in almost 30 years and substantial outflows of capital. These adverse impacts translated into a decline in industrial output, job losses and economic contraction.

To counter the downturn, the Malaysian government introduced a massive economic stimulus programme amounting to 10% of GDP. While this fiscal boost has undoubtedly helped revive the economy, concerns have arisen that its full expansionary effect may be hindered by sluggish implementation, leakages and financial mismanagement.

Even more importantly, this paper says, the stimulus policy measures do not address the serious structural flaws in the Malaysian economy which have been exposed by the crisis. These include an over-dependence on exports – especially low-value-added exports to the industrial countries – to drive growth, a shortfall in investment and persistent fiscal deficits. Failure to remedy these weaknesses could affect Malaysia’s long-term growth prospects, the paper cautions, underlining the consequent need for policy actions to strengthen domestic demand through measures to increase productivity and wages, improve the investment climate and diversify export markets.

This paper was prepared as part of a Third World Network research project on financial policies in Asia directed by Yilmaz Akyüz.

ABOUT THE AUTHORS

GOH SOO KHOON is a Senior Lecturer at the Centre for Policy Research and International Studies in Universiti Sains Malaysia (Science University of Malaysia).

MICHAEL LIM MAH-HUI is a senior fellow at the Socio-economic and Environmental Research Institute (SERI) in Penang, Malaysia. He was previously a post-doctoral fellow at Duke University and Assistant Professor at Temple University in the US, and an international and investment banker.

Contents

1   INTRODUCTION                                                                                                    

2   MACROECONOMIC PERFORMANCE PRIOR TO THE 2008

     GLOBAL FINANCIAL CRISIS                                                                            

     Export-Dependent Economy After the Asian Financial Crisis                  

     Inadequate Investments After the Asian Financial Crisis                          

     Gross National Savings, Gross Capital Formation and Current Account Balance                                                                                                     

     Persistent Fiscal Deficits                                                                                       

3   IMPACT OF THE GLOBAL CRISIS                                                                

     Impact on Finance                                                                                                   

     Impact on Trade                                                                                                      

     Impact on the Real Economy                                                                                 

4   NATIONAL RESPONSE TO THE CRISIS                                                    

5   CONCLUSIONS AND POLICY IMPLICATIONS                                     

References

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