Lessons from the crisis

Lessons from the - Lessons from the crisis THE 1997 East Asian financial crisis has been a source of invaluable lessons for emerging economies such

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Unformatted text preview: Lessons from the crisis THE 1997 East Asian financial crisis has been a source of invaluable lessons for emerging economies such as Malaysia. They include the virtues of having a liberalised financial system, strong foreign reserves, and a diversified debt market. THE MALAYSIAN FINANCIAL system has seen further liberalisation over recent years in an effort to strengthen it and reduce the risk of a systemic failure. One of the latest measures have been to issue more licences to foreign banks to operate in the country and to allow them to set up more ATM outlets or branches. In June 2010, five more licences were issued to conventional foreign banks. This was followed by new licences to mega Islamic banks to increase the competitiveness of the banking system. Foreign equity limits to investment banks, Islamic banks and insurance companies were also further relaxed. The Employees Provident Fund was allowed to increase its proportion of investments overseas. The Foreign Exchange Administration was relaxed to reduce transaction costs. The lesson learnt from the 1997 East Asian financial crisis is that it is not sufficient to have a well-functioning banking system with a high capital adequacy ratio and low ratio of non- performing loans. All this could be undone by a sudden reversal of capital inflows as the Malaysian economy is part of a larger global economy and has far less resources than hedge funds and the economies of the G7 or G8 nations. A large build-up of reserves may not be sufficient to stop the rapid depreciation of the ringgit if external forces use financial instruments at their disposal to extract resources from the local stock market, the capital market and the banking system....
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This document was uploaded on 02/20/2011.

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Lessons from the - Lessons from the crisis THE 1997 East Asian financial crisis has been a source of invaluable lessons for emerging economies such

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