¶ … Monetary and Fiscal Policies in Malaysia
Malaysia is a small, trade-dependent economy with a high amount of foreign presence in both the real and financial sectors; globalization and capital flows have therefore had a considerable impact on the operation of monetary policy in the nation. Over the last decade, Malaysia has had quite a diverse experience in its monetary policy operations, with the alterations in the monetary framework being made mostly in response to global developments (Cheong, n.d.).
During the 1970s, the Malaysian government played a key function in the economy. The government ventured beyond its customary functions and took on a more direct and active role in the nation's overall social and economic development process. This era saw the government's direct contribution in the private sector through the founding of large commercial enterprises. Government contribution in the economy expanded further in 1980-82 as it pursued an expansionary countercyclical fiscal policy designed at stimulating economic action and supporting growth to ride out the effects of the global recession. The countercyclical policy led to double deficits in the government's fiscal position and the equilibrium of payments. When confronted with this double deficit problem, the government put into practice widespread structural programs to decrease spending and rearranged national objectives consistent with domestic resource accessibility and to make sure carefulness in its recourse to external borrowing (Vijayaledchumy, n.d.).
The development of the monetary policy framework can be roughly characterized by the following developments:
The move in monetary policy strategy from monetary targeting towards interest rate targeting in the mid-1990s
The in-between changes in introducing more market-based monetary policy implementation procedures since the crisis.
Prior to the mid-1990s, the monetary policy strategy had been founded on targeting monetary aggregates. This was an inside strategy and was not officially announced to the public. The employment of this strategy was founded on evidence that the monetary aggregates were closely connected to the final objectives of monetary policy....
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