The severe economic downturns are some markers that illustrate how the 1997 Asian financial crisis

affected the region. As a result of the economic downturn, several economic indices in Malaysia,
including employment, investment, and corporate earnings, may have declined at the same time.
Falling prices are another significant phenomenon. The impact of the financial crisis on the
Malaysian economy is most visible in the state economy's decline, as measured by real GDP. Real
GDP growth was even negative in early 1998, a rare phenomenon since 1985.

Malaysian Prime Minister Tun Dr. Mahathir Mohamad announced a new economic policy aimed at
preventing the outside world from regulating the movement of the ringgit. Following that, the
Malaysian government said that any ringgits kept outside of Malaysia had to be repatriated, implying
that all ringgit trading would take place completely within the country's boundaries. Foreigners are
no longer permitted to sell stocks or repatriate cash unless a year has passed since the acquisition
date. As a result, the ringgit was formally pegged at RM3.8 to the US dollar. The currency control
approach targeted primarily at reducing Malaysian ringgit offshore trade. According to Prime
Minister Mahathir, monetary policy control was implemented to ensure the stability of the
Malaysian economy and to help Malaysia recover from the economic crisis.

The first issue caused by the Asian crisis is the depreciation of ringgit Malaysia and weakening the
currency. Panicked investors began to withdraw enormous amounts of short-term money, causing
the currency to depreciate sharply and forcing interest rates to rise. The Bank National Malaysia has
entered the foreign market to maintain the currency. Due to the speculative attacks by investors, the
ringgit fell from 2.57 to 3.77 and led to a decrease of 35%. On 7 January 1998, Malaysia currency
depreciated by nearly 50% against US dollar and reached at RM 4.88 against U.S dollar.

As a solution, the government announced the National Economic Recovery Plan to overcome the
negative effect of ringgit depreciation and restore the market’s confidence. The NERP directs the
attention and efforts of the whole nation toward a coherent course of action for recovery. The
recommendations cover a wide range of recommendations for macroeconomic stability and
structural changes, as well as socioeconomic priorities and crisis-affected sectors. Actions to restore
currency and capital market stability, as well as to enhance financial markets and economic
fundamentals, are high on the priority list. To stimulate the economy, the NERP also suggests
loosening fiscal and monetary policy, as well as cutting the cost of capital.

The total number of people laid off in 1998 was 83,865, a significant rise from the 19,000 laid off in
1997. Inflation also increased, peaking at 6.2 percent in June 1998 before declining. In 1998, the
inflation rate was 5.3 percent. The growth in unemployment and inflation has been transferred since
actual family income has decreased through these channels.The barrier effect of an estimated 2
million migrant workers, as well as maintained levels of government investment in the social sector,
helped to offset the unemployment and income consequences. However, a discernible and in some
cases dramatic, degradation of household income and wellbeing has been necessary.
For the action that government taken which was implemented a variety of extra policies and actions
to safeguard existing employment and generate new jobs during the crisis. In August 1998, the
Malaysian government issued layoff rules, requiring corporations to retain workers rather than
retrench them. Retraining, wage reduction, temporary layoffs, voluntary separation plans, and the
implementation of flexible working hours and part-time employment were as among method used.
From August to December 1998, 759 firms used salary cutbacks to save 22,719 employees from
losing their jobs. On 1 August 1998, the government also reduced public servant allowances and the
commitment needed of foreign workers to the Employment Provident Fund.

The first lesson that learned from the financial crisis to increase the country’s foreign currency
reserves in order to hedge against external shocks such when financial crisis. Many Asian countries
devalued their currencies and altered their economic systems in order to generate a current account
surplus. The surplus can be used to increase their foreign exchange reserves. This can preserve trust
in monetary and exchange rate policy, including the ability to intervene in defense of the national
currency.

The second lesson that can learned from the crisis in Malaysia is how crucial it is for developing
countries to effectively manage the interaction between global events and national policies,
particularly when building a country's financial system and policy. In a rapidly globalising world,
developing nations face enormous pressure from rich countries, international organisations, and
multinational corporations to completely open their economies. Liberalization may and has had a
constructive role in growth in some countries and under certain conditions.

The third lesson is have the efficient macroeconomic fundamentals is important for a country. A
strong macroeconomic fundamentals is helping to ensure financial stability and fiscal sustainability.
Malaysia economies must implement sensible macroeconomic policies, allow for flexible exchange
rate regimes, and develop appropriate fiscal space and sufficient foreign exchange reserves as a
cushion against future financial crises and the effect of external shocks.

The fourth lesson is the government should pay attention to the Malaysia’s foreign debts. At the
macroeconomic level, a fundamental lesson from the crisis is that the government must prioritize
foreign debt management. The administration must use extreme caution in order to keep the
country's foreign debt under control. The fast accumulation of external debt, rather than anything
else and having a large foreign debts puts the country under a situation of considerable risk. Even if
their export revenues are relatively high, developing countries should avoid incurring substantial
amounts of foreign debt, whether governmental or private.

In conclusion, we have acknowledge that important issues caused by asian financial crisis are decline
of economy, depreciation of riggit Malaysia and the rise in unemployment rate and inflation.
Malaysia government has implement some actions such as new economics policy, National
Economic Recovery Plan and a various of extra policy to solve the inflation and unemployement rate.
We learned that we must have a series of policy or solution to overcome the emergency situation
such as financial crisis.