Malaysia must learn from its economic crises

Malaysia has lived through repeated economic crises in less than three decades, and each one has challenged more than government policy. They have tested institutions, businesses and ordinary people as well.

The Asian financial crisis of 1997 and 1998 brought a sharp fall in the ringgit, capital outflows, a weakening stock market and mounting corporate debt. In September 1998, Malaysia introduced selected capital controls and fixed the ringgit at RM3.80 to the US dollar. It also strengthened financial and corporate restructuring through institutions including Pengurusan Danaharta Nasional Berhad, Danamodal Nasional Berhad and the Corporate Debt Restructuring Committee.

That experience produced a clear lesson: bold decisions during a crisis require institutions capable of carrying them out. A decade later, the global financial crisis of 2008 and 2009 began in the financial systems of developed economies, particularly the United States, but Malaysia felt the impact as international demand and exports weakened.

Malaysia entered that crisis with a stronger financial system because of reforms introduced after 1997-98. The government announced two economic stimulus packages worth RM67 billion. The first, worth RM7 billion, came in November 2008, followed by a RM60 billion package in March 2009. Bank Negara Malaysia also reduced the Overnight Policy Rate from 3.50% to 2.00% between November 2008 and February 2009, a total cut of 150 basis points.

The COVID-19 crisis brought a different kind of disruption. It did not begin with a weak currency or a banking-system failure. Economic activity had to be restricted to protect health and lives. Businesses could not operate normally, people’s movement was limited, supply chains were disrupted and incomes were affected.

The broader lesson is that economic stability cannot be treated as permanent. It must be built, maintained and defended continuously, particularly as geopolitical uncertainty continues to shape the global economy.