Comparison between policies of United State (US) in dealing subprime crisis and policies of Malaysia in dealing 1997 Financial Crisis

Similarities Interest rate Government spending Stock market Banking system y y y y

USA and Malaysia Reduction of interest rate Expansionary fiscal Purchasing nonperforming stock Each featured a liquidity run and rising insolvency in the banking system.

Differences Currency exchange y

USA Flotation y y

Malaysia Real effective exchange rate. Currency is pegs to US dollars

Monetary Policy

y

Continue to increase liquidity by reduced interest rate.

y

Implement the tight monetary policy before adopt the expansionary policy

Ways of financing/injection of capital

y

Capital injections by corporation of government and private sectors.

y

Injected new capital into the market by own reserve

05 in 1998. The reserve requirement of banks was decreased from13. US government aimed to increase the amount of money in circulation. For the US. the government will inject these funds into stock market. For any unprecedented condition. The measures included reduction of Federal Government expenditure by 8 percent.Comparison between policies of United State (US) in dealing subprime crisis and policies of Malaysia in dealing 1997 Financial Crisis Similarities In the aspect of interest rate. in order to reduce the losses. After scrutiny the implementation of contractionary fiscal policy. US government and Malaysia have been implementing the expansionary fiscal policy. Open market operation is the buying and selling of government securities by the government. we have known that the values of stock market of US and Malaysia have dropped sharply. In the aspect of government spending. with priority on agriculture. the base lending rate of commercial bank was reduced from 10. For US market through open market operation. rural development and poverty eradication. At the beginning.33 percent in 1997 to a rate of 8. Under this package the taxpayers enjoyed a total of $5 billion tax rebates. a $168 billion economic stimulus package had been introduced. US government and Malaysia Government had reduced their interest rate in dealing the subprime crisis and 1997 Financial Crisis respectively.25% and federal fund rate from 5. low and medium cost housing.5% to 4%. Federal Reserve cut its interest rate from 5. Malaysia had implemented a contractionary fiscal policy. the government was announcing a RM 60 billion standby facility to stabilize the stock market. other depository institution. and the government for loan. . For Malaysia. For Malaysia. In the aspect of stock market. Other than that. deferment of several mega. This interest rate is the interest rate charged by Federal Reserve (US) and Bank Negara (Malaysia) to member of banks. Malaysia had changed its policy into Expansionary Fiscal Policy same as the US government. The development expenditure of Malaysia Government was increased by about 23. the Federal Reserve purchased the billions of dollar worth of government securities.25% to 4. . For Malaysia. In 18 of September 2007.25% in response to the crisis. However. government had implemented a easing monetary policy.75% to 2. there are something different between Malaysia and US. For US case.

This cause the capital flow was limited and the liquidity was reduced. Government also injected US$2 billion into10 financial institutions. For Malaysia. US and Malaysia had restructured their banking systems. . In order to solve these problems. This solution is form to help the homeowner with a negative equity to have the money to move away from their property after failing to pay the monthly installment..In the aspect of banking system. The term repurchase agreements were introduced. It is expected to cumulate to 100 billion and these may enhance the ability of financial institutions to sell mortgage-backed and other debt. the Federal Reserve provided short-term loans of an amount up to 100 million to banks. Another solution applied by the Federal Reserve is reducing preventable mortgage foreclosures which including the reduction of loan principal amounts. we find that there are too many non-performing loan in the banking sectors of US and Malaysia during the time of crisis. For US. In order to maintaining financial market stability. Pengurusan Danaharta Nasional Bhd was established to purchase non-performing loans from the backing sector for the purpose of recapitalization and restructuring of the banking system.

September 2008. US is still using the floatation currencies exchange system. At 9 November 2007. US and Malaysia had used different way. they are Bank of American. For Malaysia. For Malaysia. its condition was unlike the US. In the aspect of ways of injection of capital. Malaysia Government also restricted the taking in or bring in of funds with Malaysian travelling aboard were limited to carrying RM 1000 to aboard. Morgan Stanley. Federal Reserve announcing that it will signing a currency swap agreements with five large central bank. Their value of currencies had continuously decreased. For example. mainly in capital control.80 to the US dollar from September 2. This Super Fund was under the leading of Bank American. In US. many corporations and companies did . there are many companies with large and ample capital. such as Citigroup. In the aspect of monetary policy. Swiss National Bank. it can maintain its currency value and counter the impacts of the subprime crisis. they have increased their scrutiny degree against the capital flow. three large banks in US. For Malaysia.Differences In the aspect of currency exchange. but generally they tend to liberalize their capita. the currencies of US and Malaysia have been greatly impacted during the time of crisis. Morgan Stanley and Citibank were signing a agreement to establish a total amount of $75 billion Super Fund in order to solve the subprime crisis. For US. Bank of England and Bank of Japan for adding a $ 180 billion currency exchange. the rules prescribed nonresidents who investing in Malaysia Stock Market only were allowed to withdraw from the country after a year of purchasing. Nevertheless. so the US government has continuously reduced the interest rate in a short intervene time to increase the capital flow among the market. they have the ability of rescuing the subprime crisis by injecting a large number of funds into the market. In 18. Europe Central Bank. US and Malaysia have different capital policy in dealing the crisis. Federal Reserve aimed with corporation with these large central banks. The ringgit¶s value was fixed at 3. 1998 (This policy was abolished at 21 July 2005). At the above we mentioned that US and Malaysia have both reduced their interest rate in order to increase the liquidity. in dealing the crisis. the capital control over funds became more severe that before. But US and Malaysia had take different types of action to curb this problem. While non-residents travelers can take out foreign currencies up to the amount they carried in. they are Canada Bank. for the US. the ringgit value in relation to other currencies will still fluctuate according to their values against the US dollar.

Malaysia tried to maintain its policy independence by did not adopt any bailout package introduced by the foreign organizations such International Monetary Fund (IMF). . Malaysia Government had tried to injected new capital into the market by its own reserve.not have strong fundamental in supporting the economic. Although at that time. they all at the startup period. As a result. many companies have the sound financial performance. they always need funds to finance their business. there was a high rate of budget deficit in Malaysia. In process of financing capital.

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