352
The Great Recession and Developing Countries
through the financial channel, owing to turbulence in the international financial markets. As a result, the economy contracted in 2009 for the first time in more than a decade. Although the economy is beginning to rebound, helped by the global recovery and by expansionary domestic macroeconomic policies, its future course is uncertain, with weakness in export demand and battered investor confidence weighing heavily on its prospects. A key question confronting policy makers, therefore, is whether there is a set of policy reforms and structural changes that can be implemented in a timely manner to enable the Malaysian economy to regain its former dynamism and competitiveness. Some observers are concerned that the economy may suffer further deceleration in growth and loss of export market share over the medium term as a result of the crisis and in light of global economic conditions that likely will continue to be more difficult compared with the last decade.
Main Comments The chapter by Azrai and Zuefack provides a fairly detailed analysis of the macroeconomic and financial impact of the global crisis on Malaysia. By presenting a compelling story about how the global crisis affected the economy, the chapter attempts to respond to the abovementioned questions. The authors’ forward-looking analysis explores how the government’s policy responses are likely to affect the mediumterm growth prospects of the Malaysian economy. In my view, the discussion makes several timely contributions to the current policy debate on Malaysia. In this context, a key finding concerns the initial conditions of the Malaysian economy: it did not fully recover its dynamism in the post–Asia crisis period, it did not fully benefit from the rapid global economic and trade growth during 2002–07, and it was unable to regain its full potential or productive capacity before the onset of the current global crisis. Most important, the Malaysian authorities may have lacked the sufficient policy space that could have been used as a buffer against the external shock generated by the global crisis. This last point is a key finding of recent studies by the World Bank, the International Monetary Fund, and this volume, on how developing countries have coped with the global economic crisis (World Bank