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According to Nanto (2009), the action coping with the global financial crisis must first aim to restore confidence in financial institutions and instruments, as well as lubricate the whole economy into full capacity. The national government had implemented massive stimulative monetary and fiscal policies, as well as increased *lending from international financial institutions (April 2009 G-20 declaration to increase International Monetary Funds (IMF) funding) Problems of global recession, including rising unemployment, decreased tax revenues and declined exports. IMF has suggested various measures that can guide and design measures aimed at restoring confidence in the international financial system. They included employ measure that are comprehensive, timely and operationally transparent, aim for consistent and coherent policies to stabilize the global financial system across countries, assure the emergency government interventions are temporary and taxpayer interest are protected and pursue the medium-term objective of a more competitive and efficient financial system In the problem of bankruptcy of financial institutions, the action taken is through capital injection through loans or stock purchases which will lead to increase capital requirements. Government or other company also can takeover of the bankruptcy company. Furthermore, problems in credit market freeze the central banks/federal reserve has been coordinated lowering interest rates, guarantee short-term, uncollateralized business lending and also capital injection through loans or stock purchase. Besides that, there in temporary ban on short-sales of stock by investor or short sellers due to declining stock market.
In India, volatility of capital flows have been a central issue during the crisis and Emerging market economies (EMEs) saw a sudden stop and reversal on the capital flow in the country as consequence of global deleveraging. India has implemented consistent policy capital account convertibility and capita account management. Besides, managing capital flows has been transparent and contestable. Policy on equity flows been liberal compare to other EMEs which liberalized and then reversed the liberalization when the capital flow become volatile, the policy has been quite stable. They also practice a harmonizing monetary and fiscal policy. The goals of monetary policy initiatives were three-fold: to provide sufficient liquidty, to provide dollar liquidity for business financing in external market, and to ensure credit flow to those productive firms (Viswanathan, 2010). Both the nation government and reserve have begun to exit from expansionary stances of the crisis period. There is a reduction in gross fiscal deficit from 6.8 % of GDP in fiscal year 2009/10 to 5.5% of GDP in 2010/2011. The Reserve Bank began with terminating sector-specific liquidity facilities; increase the cash and liquidity reserve ration and policy interest rate (Subbarao, 2010). Vishwanatahn (2010) founded that the Reserve Bank joint with the governments has implemented additional credit facilities to the Small and Medium Enterprises (SMEs) which particularly affected by the non-availability of credit. There is also a bailout package implemented in agricultural sectors for the farmers to continue operating their business due to the heavy debt burden. In the response on fiscal policies is to stimulate the demand for country output and bailout those industries that are more vulnerable to crisis. Starting from December 2008governments implemented stimulus packages like lowering the tax rates and increase in subsidies, increase in government spending and also provide incentives that encouraged growth in demand and consumption. Besides that governments also announced plan fort additional public spending in capital expenditure projects, expanded assistance to SMEs and exporters and provided government guarantees for infrastructure spending. Finally we can see that the strength of India economy with timely and appropriate monetary and fiscal policy implemented b y the government helped mane the adverse effects of the crisis.
3.2) Policies implemented by the less affected countries
Malaysia government has implemented fiscal and monetary policy to recover from the global financial crisis. Firstly, Malaysian governments implemented expansionary fiscal policy to boost up the domestic demand since November 2008, with focus on government policies in response to the crisis. For example the first and second stimulus package which has been channeled through out various agencies and ministry to funding various government projects. As we know theoretically, an expansionary fiscal policy will stimulate aggregate demand, investment and consumption through multiplier effects. This in turn will create employment opportunity and offset fall in export demanded. Moreover, Malaysia also recovered from crisis due to the stability of its banking system with good corporate governance and practices with effective monetary policies implementation (Wang, 2010). Bank Negara had cutting the overnight policy rate from 3.5% to 3.25 in November 2009 and further decrease until 2% which has been maintained until January 2010 (source: http://www.ransanganekonomi.treasury.gov.my). This policy has facilitated the ability of the banking system to lend out money which will increase investment and boost up economic growth. The strong fundamental of the banking system performance is the key factors to prevent Malaysia drag further into deep crisis. We can see that Malaysia did not need much time to out from the crisis as the financial sectors not badly affected as compare to Asian Financial crisis in 1997.
In China, the Chinese government has taken few effective steps to respond to the global financial crisis. Firstly, the Chinaâ€™s stimulus program which amounted 4trillion Yuan ($580 billion) which is a package worth 12% of GDP (Nanto, 2009; Yongding, 2009; Lardy, 2010) announced by the government in November 2008 to curb the economic slowdown is substantial. This stimulus package largely focused on infrastructure development (including railways, highways, airports, and ports), generate employment, and foster construction and related industries. The Chinese stimulus packages included steps governments to assist in 10 pillar industries to promote their long term competitiveness. The industries that involve are autos, shipbuilding, steel, textiles, machinery, electronics and information, light industry, petrochemicals, non-ferrous metals, and logistics (Morrison, 2009). Chinaâ€™s stimulus programs were effective to make China the first globally significant economy to begin to recover from global economic recession. Chinaâ€™s financial conditions are varying from US and Europe in the global financial crisis. China jus completed an overhaul its banking system by writing off nonperforming loans and large scale capital injection (Yongding, 2009). During the global crisis fall in 2008 the authorities reversed economic course by launching a policy of monetary easing in order too offset the drag on China growth rate caused by the sharp drop in global trade. Firstly, they canceled the lending quotas which previously was restricted the bank fully meet the demand for loan from customers. Second is ensure sufficient supply of fund provided in the meet for demand, the share of deposits by the bank are reduced to place in the central bank. In 2009, Banks were not necessarily forced to expand their lending. Thus governmentâ€™s first step in monetary easing was to increase the supply of loanable fund and the dramatic increase in liquidity in the inter-bank money market has been duly translated into rapid increase in bank credits and broad money (Yongding, 2009)