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How Malaysia Coped During Economic Crisis

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Published: Tue, 25 Apr 2017

During economic crisis in 2008, all countries especially Malaysia turned more to Keynesian Approach. This Keynesian approach was formed by the famous economist of twentieth century’s, John Maynard Keynes. Keynesian stated that there will be inflation if investment exceed saving and if saving exceed investment, there will be recession. Aggregate demand influenced the productive activity in the short run and it does not necessary the aggregate demand equal to aggregate supply. The most significant influence aggregate demand is expectations, or what Keynes himself called it ‘animal spirit’. This is the reason why

most of countries turned to Keynesian approaches, such as bailing out banks, stimulus packages, and creating jobs, are more popular these days particularly.

There are three main ways of Malaysia government cope the crisis; a) fiscal and monetary policy; b) Stability of banking system; and c) Positive economic outlook.

Fiscal and monetary policy

Since November 2008, the Malaysia government has carried out an expansionary fiscal policy. The main goal of expansionary fiscal policy is drive up the domestic demand, stimulate the economy, to close the recession gap, and decrease the unemployment rate. The government has introduced the fiscal expansion policy through the injection of RM 7 Billion. This injection of Rm7 billion has become first economic stimulus package and has been channelled to various ministry and agencies. The main purpose implementation of the first economic package is to maintain and support domestic economic activities. Such as inspired private sector activities and ensuring the well being of citizen in Malaysia. Other than the RM7 billion stimulus package, Malaysia government also pursue some of the approaches. The approaches are the effectiveness of government expenditure increased, conducive environment for business and investment are provided, citizen’s disposable income increased and to strengthen nation’s sustainable development.

The first economic stimulus package has been criticized because of too slow to balance the export demand and less aggressive. Then, on March 2009, the Malaysia government have announced the second stimulus package. These second stimulus package is to balance the deteriorating of economy condition. One of the components in second package is to reduce the unemployment. Government are proving training and creating job opportunity. Both of these two stimulus package must perform and executed instantaneously and objectively to wind down the burden on Malaysians and emphasizes private sectors confidence. Consumer confidence will enhanced because of the private confidence increase. Besides, it is also help to keeping up the economy to challenge the external economic pressure.

Monetary policy means the monetary authority of the country to control the amount of supply money, the quantity of money available and the interest rate. In order to achieve a few of objective oriented towards the growth and stability of economic. There are two part Malaysia monetary policy, expansionary and concretionary. Expansionary is by reduced the interest rates during recession to combat the unemployment. While, concretionary is by increasing the interest rates in order to combat the inflation. During the economic recession, Malaysia banking systems remain absolutely stable and strong to cushion any unfavourable external shock. The banking sector is the most laboriously regulated industry in our country, Malaysia. Bank Negara Malaysia has performed well in regulating the financial system. The financial systems are under control. Bank Negara Malaysia has announced a pre-emptive way to increased or maintain the level of confidence in consumer towards banking sector and cultivate the banking system stability. This announcement made is to prevent the further impact that might arise and increased from the global financial stress. Malaysia government are supporting the fully guaranteed of all ringgit and foreign currency deposits through Perbadanan Insurans Deposit Malaysia (PDIM).Besides that, when there is an unsuccessful in controlling the capital adequacy at the target level. Bank Negara Malaysia has guaranteed interbank obligations of banking institutions and going to provide an enough of capital for banking institutions.

Stability of banking system

Over the last decade, financial stability has become one of the key focuses among the policy makers because financial instability can be costly on the economic. Bank Negara Malaysia is the key authority promoting the financial stability, while Central Bank responsible to handle up risk of financial stability. Bank Negara Malaysia effort is to transform and strengthen the banking sector through a massive consolidation. Malaysia has learned from the Asean financial crisis in 1997/1998 and much stronger position when entered the global financial crisis in 2008. Besides, during the economic crisis in 2008, the bank system has a sufficient capital to recovery from the crisis and Malaysian authorities had limited exposure to foreign bank borrowing. The quality of banking system loan’s folio has show an improvement and it is one of the evidence about the stability financial banking system in Malaysia. Malaysia also does not need as much as time to recover from the crisis in 2008 compared to the Asean financial crisis in1997/1998. This is because crisis in 2008 is not seriously affected financial crisis. The main key factor that anticipates Malaysia from slipping in a deep recession is a strong banking sector’s performance. In addition, demonstrations from the equity, money, foreign exchange and derives market have show an improvement over the last decade.

C) Positive economic outlook

As stated and explain before. The fiscal stimulus package and easing monetary policy is one of the components of Malaysia to ride out from the crisis. Malaysia is one of the major’s export market and positive economic outlook across the region. Even though the global has expected the slowdown in growth, Malaysia takes an action to be remains resilient. Remains resilient will effects of increasing unemployment on the public’s expectations and the ensuing uncertainties may undermine the capacity of domestic demand to spur economic growth. Bank Negara Malaysia in 2009 stated that, there was a rising from 97.7 to 105.2 from Jun to July in industrial production. Since July 2009, various economic indicators suggest improvement.

Based on table 1, in 2008, the CEO confidence index has dropped down from 64.5 to 52.3 toward business sector and continuously drops till Q1 in 2009 (47.6). But during 2009, from Q2 to Q3 shows the increased drastically by 35.5 point (102.7-67.2) of CEO confidence index and it was further increased to 122.9 in Q4. Another 6 component such as current economic condition, expected economic condition, expected change employment, planned fixed investment, expected revenue growth and expected profit growth also recorded the positive forecast during 2009 after the economic crisis in 2008.


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