Global Financial Crisis

The Global Financial Crisis in 2008 has done a serious impact to the Malaysia Economy. Unlike the previous financial crisis Malaysia experienced in 1998 which is origin in Thailand, the Global Financial Crisis is originated from the United States due to the weaknesses of its financial industry. The United States is one of the country that owns a strong economy that any of the changes made by the United States will affect the global economy. As a country that is quite depends at the export business, Malaysia is also involved by the deep slump in global trade and the recession.

A stimulus package is implemented to decrease the burden on Malaysia economy and the confidence of private firms. This will also lead the gain of private investment in Malaysia that would increase consumer confidence and support the economy at facing external pressure of economy.

To cope the negative effect made, Malaysia’s government made an expansion on the fiscal policy in order to stimulate the Malaysia’s economy, ease the recession and to increase the employment rate. The Malaysia government injects 7 billion ringgit for its first stimulus package, the fiscal expansion policy which is for maintaining the domestic economy activities in November 2008. The stimulus package provides funds for several projects which is 1.2 billion ringgit for building low- and medium-cost houses, 500 million ringgit for upgrade and maintenance on police departments, and army camps, 500 million ringgit for the construction of roads, schools and other facilities, 500 million ringgit to construct new roads for the rural areas, million ringgit for improving the public transportation services in cities, 200 million ringgit to fix abandoned construction projects, 200 million ringgit to help small business. Throughout what we said, the stimulus package had made more benefit to the construction of facilities and low or medium cost housing but not spending for the economy. This is because the government hopes for the multiplier effect from where the stimulus package spends on.

Next, the government had implemented a second stimulus package which is announced with a 60 billion ringgit which is 9 percent of Malaysia’s GDP over 2009 and 2010. The fund which is implemented is used by the government to help the private firms which is in small and medium sized and as fiscal injection for 15 billion ringgit, 10 billion in equity investments, 25 billion ringgit in guarantee funds, 7 billion ringgit for off-budget projects and a 3 billion ringgit is used in tax incentives. Other than that, the government also uses some of the funds for subsidies, increasing the electricity and water supply coverage in rural areas.

Furthermore, the Government also made a restructuring on the economy to improve its competitiveness. The policies is announced with a liberalize of 27 services sub-sectors, removal of 25% bumiputra requirements for the listing purposes, removes the quota for bumiputra to participate in certain business and an additional which is setting up the Ekuiti Nasional Berhad and a deregulation of FIC guideline.

Financial stability has a very important role in the economy. For Malaysia, the one which take responsible to authorize and handle the potential risk of the country’s financial stability is the Bank Negara Malaysia. Malaysia’s economy has gain a knowledge after the Asia financial crisis in 1997 and this ease a lot when Malaysia gets involved to the Global Financial Crisis in 2008. With the experience from financial crisis 1997, Malaysia has been quite prepared before the impact of the Global Financial Crisis, so it could be said that the bank system of Malaysia had enough funds to stabilize and recover the damage done to the economy after the crisis and Malaysia’s firm doesn’t need to expose themselves for borrowing from foreign banks.