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In: Economics

explain 5 rule by government of Malaysia (general rule) to prevent public and economic from financial...

explain 5 rule by government of Malaysia (general rule) to prevent public and economic from financial attack

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Expert Solution

During the end of 20th century, many countries fell into debt crisis which are fueled by various reasons like increase in oil import prices, reduction in exports, depreciation of money, foreign debt, etc. One such country that got affected was Malaysia. Following that crisis, the Malaysian government adopted several strategies so as to protect the public and the economy from the financial attack. Some of them are mentioned below:

1) Reduction in interest rates:
The interest rates for loans were as high as 25 percent, which had a bad impact on business. Bringing down this interest rate was the primary concern for the government, that was achieved mainly by introducing capital control.


2) Expansionary monetary or credit policy:
Measures where taken to increase the liquidity in banking system. Banks were urged to increase credit to private system. Also the statutory reserve requirements were reduced by the government.


3) Fixing exchange rates:
A fixed exchange rate system was adopted i.e. ringgit fixed to US dollars. It stabilized the financial situation.

4) Restructuring the corporate debt:

The corporate debts and foreign debts are risk to country's economy and need to be restructured safely. The government securities should be issued limited in numbers.

5) Closure of overseas trade in Malaysian securities:

As a crisis occurs due to foreign debt, closure of securities and restrictions in stock markets need to be introduced for the sake of economy.

6) Regulations in capital outflow:

Regulations to be introduced in capital outflows by promoting the ease of doing business and changes in interest rates. Thus the GDP of the country should not get affected.


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