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This paper examines the effects of the global financial crisis on the Malaysian economy.  Malaysia was hit on both the trade and financial fronts, suffering its largest fall in exports in almost 30 years and substantial outflows of capital. These adverse impacts translated into a decline in industrial output, job losses and economic contraction.
To counter the downturn, the Malaysian government introduced a massive economic stimulus programme amounting to 10% of GDP. While this fiscal boost has undoubtedly helped revive the economy, concerns have arisen that its full expansionary effect may be hindered by sluggish implementation, leakages and financial mismanagement.
Even more importantly, this paper says, the stimulus policy measures do not address the serious structural flaws in the Malaysian economy which have been exposed by the crisis. These include an over-dependence on exports – especially low-value-added exports to the industrial countries – to drive growth, a shortfall in investment and persistent fiscal deficits. Failure to remedy these weaknesses could affect  Malaysia ’s long-term growth prospects, the paper cautions, underlining the consequent need for policy actions to strengthen domestic demand through measures to increase productivity and wages, improve the investment climate and diversify export markets.
This paper was prepared as part of a Third World Network research project on financial policies in  Asia directed by Yilmaz Akyüz.

Publisher: TWN (ISBN: 978-967-5412-28-8), Year: 2010   No. of pages: 48

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