Thursday, March 04, 2010

The socialization of capital in Malaysia

A Tale of Two Recoveries: Malaysia vs Germany, part II gives us an example of the macroeconomic value of socializing capital, even partially:
Malaysia’s initial response to the [1997/98 Asian financial] crisis was a textbook illustration of how to exacerbate, not alleviate, a financial crisis. ...

The Malaysian economy experienced a contraction of credit growth from 30 percent in 1997 to minus 5 percent in 1998, reflecting a massive pullback of bank loans. The ringgit plunged, as capital outflows accelerated. A real estate collapse loomed.

Ultimately, seeing the failure in these policies, Prime Minister Mahathir sacked [Finance Minister] Anwar, and re-imposed capital controls to insulate his economy from the deleterious consequences of rapid hot money outflows... Monetary and fiscal policy became expansionary, the ringgit was pegged to the US dollar, and crisis credit conditions began to diminish as domestic rates were reduced drastically. Although Western finance ministries and institutional investors protested apocalyptically and predicted that Malaysia would remain beyond the pale of the investment world for the foreseeable future, six months later even The Economist, one of the IMF’s great apologists, was forced to acknowledge that the embrace of capital controls had done “short-term wonders” in assisting recovery.

No comments:

Post a Comment

Please pick a handle or moniker for your comment. It's much easier to address someone by a name or pseudonym than simply "hey you". I have the option of requiring a "hard" identity, but I don't want to turn that on... yet.

With few exceptions, I will not respond or reply to anonymous comments, and I may delete them. I keep a copy of all comments; if you want the text of your comment to repost with something vaguely resembling an identity, email me.

No spam, pr0n, commercial advertising, insanity, lies, repetition or off-topic comments. Creationists, Global Warming deniers, anti-vaxers, Randians, and Libertarians are automatically presumed to be idiots; Christians and Muslims might get the benefit of the doubt, if I'm in a good mood.

See the Debate Flowchart for some basic rules.

Sourced factual corrections are always published and acknowledged.

I will respond or not respond to comments as the mood takes me. See my latest comment policy for details. I am not a pseudonomous-American: my real name is Larry.

Comments may be moderated from time to time. When I do moderate comments, anonymous comments are far more likely to be rejected.

I've already answered some typical comments.

I have jqMath enabled for the blog. If you have a dollar sign (\$) in your comment, put a \\ in front of it: \\\$, unless you want to include a formula in your comment.