Asian Financial Crisis, 1997-98

The Asian financial crisis originated in heavy international currency speculation leading to
major slumps in exchange rates beginning with the Thai baht in May 1997, spreading rapidly
throughout East and Southeast Asia and severely affecting the banking and finance sectors.
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 especially compared to neighbouring Indonesia.
Asia-Pacific Region: Growth of Real GDP (annual average percent)

1960-69 1971-80 1981-89
Japan 10.9 5.0 4.0
Asian Tigers

Hong Kong 10.0 9.5 7.2
South Korea 8.5 8.7 9.3
Singapore 8.9 9.0 6.9
Taiwan 11.6 9.7 8.1
ASEAN-4

Indonesia 3.5 7.9 5.2
Malaysia 6.5 8.0 5.4
Philippines 4.9 6.2 1.7
Thailand 8.3 9.9 7.1
The Malaysian economy contracted by nearly 7 percent in 1998, recovered to 8 percent
growth in 2000, slipped again to under 1 percent in 2001 and has since stabilized at between
4 and 5 percent growth in 2002-04.