This report is made as required for the completion of the macroeconomic subject. It investigates economy events for the last decade and its impacts to Malaysia and Australia economy performances.
Asian Financial Crisis event is chosen merely because this event is arguably the most influencing global economy event during the last decade.
Analysis will start from both countries economy performances and conditions during the crisis (1997-1998). Sources of information are mostly gathered from internet researches and other relevant materials such as economic journals and books. Data collected are analyzed and hypotheses drawn are based on my understanding of macroeconomic subject.
Table of Contents
Introduction
1. Malaysia
1.1 Economic Performances.
1.2 Asian Financial Crisis (1997-1998)
1.2.1 Investors’ confidence
1.2.2 Capital outflow
1.2.3 Stock market
1.2.4 External Debt
1.2.5 Correcting problems
2. Australia
2.1 Foreign Direct Investment (FDI)
2.2 Monetary Exchange Policy
2.3 Balance of Payment (BOP)
3. Conclusion
Research Objectives and Themes
This report investigates the economic events of the last decade, specifically the Asian Financial Crisis (1997-1998), and evaluates its distinct impacts on the economic performances of Malaysia and Australia.
- Comparative analysis of economic resilience during financial crises
- Impact of foreign direct investment and capital flows on national economies
- Role of monetary policy and exchange rate regimes in crisis mitigation
- Consequences of economic openness and vulnerability to external fluctuations
- Evaluation of corrective measures and fiscal policy adjustments
Excerpt from the Book
1.2.1 Investors’ Confidence
Asia crisis which started from the depreciation of Thai’s bath and then spread to its neighbor’s countries began to affect Ringgit (RM). Malaysia which is in the same region was perceived to have similar weaknesses with those countries because of the country’s huge amount of current account deficit, so currency traders believed that RM would also lose its value to USD. The fact that FDI inflows into country in the first 6 months of 1997 has declined by about 45 per cent have strengthened this belief. This led to fears about Malaysia’s ability to finance the deficits. The loss in investors’ confidence was the root of large capital outflows, declined in reserves, stock market collapses and large currency depreciations.
Summary of Chapters
Introduction: Provides the scope of the study, focusing on the impact of the Asian Financial Crisis on Malaysia and Australia using secondary research data.
1. Malaysia: Details the economic state of Malaysia prior to and during the 1997-1998 crisis, highlighting vulnerabilities such as current account deficits and the negative impacts of capital flight.
1.1 Economic Performances.: Analyzes the structural economic conditions in Malaysia during the 1990s, including high growth rates, labor dependency, and the role of FDI.
1.2 Asian Financial Crisis (1997-1998): Discusses the mechanisms and spread of the financial contagion to Malaysia, focusing on investor sentiment and currency pressure.
1.2.1 Investors’ confidence: Explains how the loss of market trust triggered a cycle of capital outflows and currency devaluation.
1.2.2 Capital outflow: Describes the panic-driven movement of funds and its subsequent impact on money supply and corporate debt sustainability.
1.2.3 Stock market: Examines the sharp decline in Malaysian equity markets correlated with currency depreciation and regional uncertainty.
1.2.4 External Debt: Analyzes the burden of foreign borrowing and the increased costs of debt repayment caused by Ringgit depreciation.
1.2.5 Correcting problems: Reviews initial IMF-led strategies and subsequent policy reversals, including capital controls and fiscal expansion.
2. Australia: Contrasts the Australian economic experience, noting its relative stability during the same crisis period.
2.1 Foreign Direct Investment (FDI): Highlights Australia's status as a secure investment destination, which protected it from the capital flight seen elsewhere.
2.2 Monetary Exchange Policy: Attributes Australia's stability to institutional reforms and a floating exchange rate system.
2.3 Balance of Payment (BOP): Discusses the lower volatility and current account deficit in Australia compared to its Southeast Asian neighbors.
3. Conclusion: Summarizes why Malaysia was more vulnerable to the crisis than Australia, citing differences in openness, institutional strength, and exchange rate management.
Keywords
Macroeconomics, Asian Financial Crisis, Malaysia, Australia, Foreign Direct Investment, GDP, Ringgit, Exchange Rate, Capital Outflow, Investors' Confidence, Balance of Payment, Economic Performance, Fiscal Policy, Monetary Policy, Debt
Frequently Asked Questions
What is the primary focus of this research?
The research explores the macroeconomic consequences of the Asian Financial Crisis (1997-1998) and compares how two distinct economies, Malaysia and Australia, weathered the event.
What are the central themes of the analysis?
The central themes include the impact of capital flows, exchange rate policy, investor confidence, and the role of institutional frameworks in maintaining economic stability during regional crises.
What is the core research objective?
The objective is to understand why the crisis affected Malaysia severely while Australia remained relatively unscathed, specifically by analyzing their differing economic structures and policy responses.
Which methodology is employed in this study?
The study utilizes a qualitative approach, gathering data from internet research, economic journals, and academic books to analyze economic performances during the crisis period.
What topics are covered in the main body of the text?
The main body covers the economic status of Malaysia before the crisis, the specific mechanics of the crisis in Malaysia, corrective policy attempts, and a comparative analysis of Australia's economic performance and policy framework.
Which keywords characterize this report?
Key terms include Macroeconomics, Asian Financial Crisis, FDI, Balance of Payment, capital outflow, and exchange rate policy.
Why did Malaysia suffer more from the crisis compared to Australia?
The report concludes that Malaysia's economic openness, reliance on foreign short-term capital, and initial banking transparency issues made it more vulnerable to external fluctuations than the Australian economy.
How did the floating exchange rate benefit Australia?
According to the text, a floating exchange rate allowed Australia's currency value to adjust, acting as a buffer against economic shocks, whereas Malaysia faced more direct pressure on its real economy.
What was the outcome of Malaysia’s initial effort to follow IMF methods?
Initial attempts to increase interest rates and tighten fiscal policy led to a reduction in induced investment and ultimately resulted in a decline in GDP, prompting Malaysia to later shift to a more expansionary approach.
- Quote paper
- Johnsen Chen (Author), 2004, Macroeconomics. A Study on Economy Events and their Impact on Malaysia and Australia, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/200944
