Emerging Market Essay Malaysia
Emerging Market Essay
Economic History (Pre-Independence)
Malaysia is situated along the Straits Of Malacca, connecting the Indian Ocean with the South China Sea and Pacific Ocean so trading in this area has been around for centuries. Spices were the main goods traded in the 15th century and as the Malacca Sultanate grew from strength to strength, it eventually gained a monopoly on all trade passing through the straits1. The Straits Of Malacca is still one of the most vital shipping lanes in the world.
Later centuries would see the Portuguese, Dutch and British dominating trade in Malaysia. The British invested and developed the tin mining industry for exports in Peninsular Malaysia during the 19th century, by 1883 Malaysia
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However on 2 July 1997, it announced that it would no longer intervene and would allow the baht to float. The sharp depreciation of the baht against the US dollar began that same day. This immediately triggered a panic among investors, and other regional currencies such as the Philippine peso, Indonesian rupiah and Malaysian ringgit also began to experience selling pressure. Soon, foreign investors lost confidence in not only the currencies but in those economies that had what they saw as weak fundamentals. In countries most affected by the crisis, banks and other companies collapsed or had to be rescued and many others were forced to downsize, resulting in massive unemployment13. The Malaysian ringgit exchange rate fell from RM 2.42 to 4.88 to the U.S. dollar by January 1998. There was a heavy outflow of foreign capital. To counter the crisis the International Monetary Fund (IMF) recommended austerity changes to fiscal and monetary policies. Some countries (Thailand, South Korea, and Indonesia) reluctantly adopted these. The Malaysian government refused and implemented independent measures; the ringgit became non-convertible externally and was pegged at RM 3.80 to the US dollar, while foreign capital repatriated before staying at least twelve months was subject to substantial levies. Despite international criticism these actions stabilized the domestic situation quite effectively, restoring net growth. The Malaysian economy contracted by nearly 7 percent in 1998,