November 17, 2008

LEADERS of 20 countries met at the Finance Summit in Washington last Friday and Saturday and agreed to take a wide range of actions to counter the world economic recession and prevent future financial crisis like the one that almost engulfed the developed countries’ financial system. It was quite striking how some of the actions proposed — especially about the need to regulate financial speculation and cross-border capital flows — are similar to the proposals that Malaysia had made ten years ago in the midst of the Asian financial crisis.
At that time, Malaysian leaders were heavily criticized for the then unorthodox policies such as lowering interest rates, boosting government spending, fixing the exchange rate and imposing controls over the outflow of portfolio capital. Malaysian officials also advocated international financial reform, especially control over currency speculation, regulating the activities of hedge funds and credit agencies, and reducing the leverage that banks give in loans to speculators.