Policy reaction to the 1997-98 Asian Financial Crisis for the Malaysian Bond Market

After 13 years, it is interesting to look back in history to under how the authorities faced the crisis and the strategies used to improve the situation. Below is a short write-up on the history behind the policy reaction to the Asian Financial Crisis for the Malaysian Bond Market.
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•The National Economic Action Council (“NEAC”) was established on 7 January 1998 - at the height of the Asian financial crisis - to make recommendations to the Government vis-à-vis arresting the deteriorating economic conditions and revitalising the domestic economy. To this end, the NEAC launched the National Economic Recovery Plan (“NERP”) on 23 July 1998.

•The NERP’s objectives had included the short-term focus of stabilising the ringgit, restoring market confidence, and maintaining financial stability. These had been complemented by the objectives of structural reform via strengthening economic fundamentals, maintaining the country’s socio-economic agenda, and rejuvenating adversely affected sectors. It had also contained 40 courses of action and more than 580 detailed recommendations. Furthermore, the NERP had recommended the easing of the country’s fiscal and monetary policies.

•All these measures had exerted a direct, positive effect on the local bond market. Given the floundering equities market and an overly conservative banking sector, the post-crisis environment had been more conducive for the bond market, which offered lower interest rates and an abundance of surplus liquidity. Moreover, the enhanced regulatory framework and market infrastructure had cultivated a broader investor base that sought better returns.