POLI 243 Chapter Notes - Chapter 25-End: United Malays National Organisation, Malaysian Ringgit, Classical Liberalism
4 Sep 2016
School
Department
Course
Professor
Power, Money, and Trade
April 9, 2016
Ch. 25 – Mahathir, Financial Crisis, and Malaysia's Capital
Controls
Objective: Explain Malaysia's alternate economic policies during the economic crisis in South
east asia in the late 90s
Argument: Malaysia imposed capital controls, completely countering traditional IMF, World
Bank policies. Capital controls during crisis have always been seen as extremely detrimental to a
country's economy, but they did not harm Malaysia, so the chapter looks into individual,
domestic, and system level factors to explain whether or not the capital controls were useful. In
conclusion, we see they were not detrimental, but it is difficult to say that they were necessarily
helpful.
Summary:
• IMF and World Bank encouraged liberalization prior to the economic crisis, but lacked
adequate attention to the interantional financial institutions (IFIs) and the national
government's regulatory practices
o Malaysia did the opposite: reversed market liberalization and instituted capital
controls (def: restrictions on the movement of invested capital in and out of the
country)
▪ Not recommended because: restrictions would drive investors out and
distort investors' decisions so they calculate risks based on non-market
factors
o Investments = short term flows (more than long term) -- money moving over
borders rapidly, capturing profits by exploiting shifting exchange rates
▪ Developing countries need long term investment
• IFIs suggested investments with longer time horizons (disagreed with capital controls that
would dampen investment), decrease govt spending, - imports, + exports, amass foreign
exchange
o Policies were not specialized to countries (S. Korea- liquidity crisis, Indonesia –
loosely regulated banks, Malaysia – current account deficit)
• Debate over capital controls
o Block inflow of capital to developing countries
o Domestic political actors achieve more autonomous policies
o Krugman: limited controls might make sense for developing countries to avoid
short-term currency fluctuations
Malaysia policy: FDI focused on local stock market, govt did not allow bank to borrow heavily,
redirected capital to sectors/firms it targeted in development plans (patrimony)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Objective: explain malaysia"s alternate economic policies during the economic crisis in south east asia in the late 90s. Argument: malaysia imposed capital controls, completely countering traditional imf, world. In conclusion, we see they were not detrimental, but it is difficult to say that they were necessarily helpful. Objective: explain the issues discussed in relation to ipe throughout the textbook. Argument: all theories and levels of analysis are significant, but one single theory cannot explain. Combining theories is the most effective way to construct the "big picture" in ipe. Summary: realism - waltz, neo-realism, classical liberalism. Institutionalism: constructivism, system level, anarchic nature preserve individual interests, generalizable, parsimonious, sometimes accurate, domestic, less generalizable, parsimonious, accurate, bureaucratic/organizational, less parsimonious, not generalizable, accurate. Conference questions: what led to the 1997 east-asian financial crisis? (for this one you may need to search some information on the internet or read books) 2)the solutions provided by the international financial institutions were rejected by malaysia.
