A Report to Malaysia Exchange Controls during the Asian Crisis Essay

A Report to Malaysia Exchange Controls during the Asian Crisis - Essay Example Hence it should learn lessons form this experience which would be used in formulation of future financial strategies. The present report discusses all these aspects in detail. In 1997-98 there was a severe financial crisis experienced by the countries of South East Asia famously known as tiger economies (Stephen Haggard, 2000). Malaysia also faced this crisis severely. The reasons for this crisis were many as felt by the researchers (Wing Thye Woo, 2000). The main causes are uncontrolled foreign investment in the country, allowing capital fight from Malaysia to other countries, magnifying the currency situation in international level and inefficient monitory policy. Reacting to the crisis in the initial weeks the Malaysian government has taken initiatives to regulate foreign exchange as the devaluation of Ringgit has been very fast. However its measures could not bring much equilibrium to the financial condition of Malaysia and hence it needs to be analyzed so that the loop holes can be identified and one can be accurate in formulating any exchange control measures in future. Keeping this in view the present report has been prepared with the objectives of finding out the reasons for the financial crisis, what happened and what was the extent of damage, measures to control the crisis, short comings and future strategies which are described as follows. In early 1997, the Malaysian stock market index began a downward spiral together with stock markets of several ASEAN countries like Thailand and Indonesia. On 14 July 1997, Bank Negara of Malaysia gave up the defence of the Malaysian ringgit after jacking up the short rate to 50% and spending US$10 billions on unsuccessful monetary operations. There were huge amounts of foreign capital has entered Malaysia in previous years (prior to 1997-98) which was uncontrolled in nature by the Malaysian government. This capital was mainly of short term in nature and was also highly conditional. The