Malaysia: Prospects Depend on Fiscal Discipline, Investor Confidence
Figure 7.14. International Reserves and MYR/US$ Exchange Rate 140
3.9 3.8
120 100
3.6 3.5
80
3.4
60
3.3
US$ bn
MYR per US$
3.7
40
3.2 20
3.1 3.0 Jan-03
0 Jan-04
Jan-05
Jan-06
Jan-07
external reserves (right axis)
Jan-08
Jan-09
MYR per US$
Source: CEIC; BNM.
Employment Malaysia’s output losses have been large, and portfolio investment has fallen sharply; however, the excess capacity generated by the demand shock did not have much impact on unemployment, as foreign unskilled workers served as a buffer (see annex 7B). The adjustment in the labor market took the form of a shedding of foreign labor. The Malaysian economy has been operating at full capacity since the 1990s. The expansion of manufacturing and plantations was therefore possible only with the influx of foreign labor from Indonesia, southern Thailand, Sri Lanka, and the Philippines. Interestingly, the unemployment rate did not change significantly during the crisis (figure 7.15). The prohibitive retrenchment costs required by Malaysian labor law may have forced firms to adopt more creative solutions to managing the downturn than just firing staff. The Banking Sector Malaysia’s banking sector as a whole held up well in the face of the global financial crisis. The reforms instituted in the years after the Asian financial crisis had clearly strengthened the sector. The crisis affected only the higher-end residential property sector, credit cards, and purchases of
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