ABSTRACT
Malaysia did not look especially vulnerable when the floating of the Thai baht sparked the financial crisis in East Asia in July 1997. The Malaysian economy had experienced virtually full employment for the previous six years and modest inflation (4.5%). The country’s foreign currency sovereign credit rating was an A+, in the same league as Hong Kong.1 It also had a continuing high inflow of long-term capital, as opposed to Thailand’s short-term capital inflows. With a very low non-performing loan ratio and a high capital adequacy ratio, the Malaysian banking system looked fairly robust. In terms of political stability and policy continuity, Malaysia appeared much better off than Thailand and the other crisis economies.
