In July 1997, the Malaysian economy was caught in a currency crisis. The government responded by implementing a tight monetary and fiscal policy. This initially resulted in a major contraction in the economy and a deterioration in the country’s financial system. The next year, the country adopted a National Economic Recovery Plan (NERP) which recommended a complete overhaul of key policies. The plan also called for increased government spending and debt restructuring, and the establishment of special vehicles to buy non-performing loans from banks.
Following the financial crisis, Malaysia responded by implementing a series of policy packages aimed at improving the country’s financial system and maintaining a sustainable growth path. At that time, the country recognized the fundamental nature of the regional financial crisis and did not resort to aggressive interest rate hikes or intervention operations. This policy approach proved effective in helping the country maintain a stable economic environment and improve its financial performance.
The country’s government responded by banning speculative trading on the offshore market and introducing selective capital controls to discourage speculative short-term portfolios. A fiscal stimulus package was also implemented that encouraged capital spending and lowered interest rates. In addition to the fiscal stimulus package, the government also launched a comprehensive bank consolidation plan.
The Malaysian government also set up various agencies to help restore financial stability in the country. This included the creation of the Pengurusan Danaharta Nasional Berhad (PDB) Act in 1998. This law empowered a national asset management company to acquire bank NPLs. Moreover, it also set up Danamodal Nasional Bhd (DNB), a government-owned financial company, to recapitalize troubled financial institutions. Several other measures, such as mergers and acquisitions, helped strengthen the banking system.
Malaysia’s external reserves have been relatively strong in recent years. They are sufficient to finance 4.3 months of imports. The country’s short-term debt is only half of its total foreign currency reserves. As a result, the country is not very vulnerable to credit outflows. While the controls have slowed down international trade, they have not weakened the country’s reserves.
Malaysia’s economy was weakened by the global financial crisis. In the fourth quarter of 2008, the country’s GDP growth was only 0.1%. By the end of the year, GDP growth had devalued by -6.2% and -3.9%, respectively. In addition, the crisis has adversely affected Malaysian philanthropy activities and the work of civil society organisations.
The current leadership of Malaysia has recognized the vulnerability of developing countries in the global economy. However, it has taken steps to reduce this vulnerability by diversifying the economy, expanding its service industry, and implementing more prudent macroeconomic policies. These measures are in place to prepare Malaysia for the new global financial architecture.
While financial crisis is a major factor influencing philanthropy in Malaysia, it is not the most important factor. More often, motivation to give is a more significant determinant. In Malaysia, various incidents have illustrated the importance of philanthropy in the country.