When the Asian financial crisis hit Malaysia, the impact was traumatic. The stock market, the currency and the property market nearly collapsed.The crisis in Malaysia first began with developments in the Malaysian currency. As a result of the precipitate withdrawal of money from Malaysia, the value of the Malaysian Ringgit began to swing wildly. In July 1997, within days of the Thai baht devaluation, the Malaysian ringgit was "attacked" by speculators. The overnight rate jumped from under 8% to over 40%. This led to rating downgrades and a general sell off on the stock and currency markets. From a value of 2.52 to the US dollar in June, 1997, it went down to 3.2 to the US dollar in September, 1997, just three months after the crisis struck. It reached a new low of 4.5 Ringgit to the US dollar in January, 1998 (Tourres.2003,78,193). This severely exacerbated the decline of the Malaysian stock market, which already had been on a downward trend before the crisis, as the depreciation of the Ringgit led to panic selling by foreign investors.
The huge drop of the Ringgit and the stock market had a devastating impact on highly geared enterprises, particularly those companies that had taken loans from abroad. The sharp decline of the stock market and the spectre of many of these highly geared companies unable even to service interest on loans then created pressure on bank liquidity. This liquidity crunch resulted in a general loss of confidence in the Malaysian economy, and eventually precipitated a massive contraction in the Malaysian economy from 7.3% growth in 1997 to a low of -7.4% in 1998. Per capita income fell from RM9.1 billion to RM8.2 billion in the same period while foreign dire...
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...eal economy and the financial sector as well as the prompt and prudent measures introduced by the Malaysian government during the crisis.
Growth then settled at a slower but more sustainable pace. The massive current account deficit became a fairly substantial surplus. Banks were better capitalized and NPLs were realised in an orderly way. Small banks were bought out by strong ones. A large number of PLCs were unable to regulate their financial affairs and were delisted. Compared to the 1997 current account, by 2005, Malaysia was estimated to have a US$14.06 billion surplus. Asset values however, have not returned to their pre-crisis highs. In 2005 the last of the crisis measures were removed as the ringgit was taken off the fixed exchange system. But unlike the pre-crisis days, it did not appear to be a free float, but a managed float, like the Singapore dollar.
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