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During the Asian Financial Crisis, Malaysia faced several problems. First, began the period of short-selling currency speculation. The result, Malaysian ringgit fell down from MYR 2.50 per USD to MYR 4.80 per USD. Investments in the manufacture sector reduced on 26 per cent (Asia Times, 2000). Then Kuala Lumpur Stock Exchange's composite index fall from 1300 to 400 in several weeks. Malaysian government made a mistake refusing to take the financial aid from the World Bank and the International Monetary Fund. As a result, Malaysia’s GDP lowered in 7, 5, in 1998.
Malaysia is a strategic trading partner of the USA. In 1999, the amount of trade between both countries totaled almost U.S. $30.5 billion. The U.S. exports to Malaysia totaled $9.1 billion and the U.S. import from Malaysia increased to $21.4 billion (Investor’s, 2007). Due to it, Malaysia recovered from the crisis and reached the pre-crisis level of development. Today, the steps of economic development are not as fast as they were before, but still they are sustainable. The banking sector became more resilient to the external shocks. In general, asset prices have returned to their pre-crisis highs. Today, Malaysia remains the world's largest Islamic banking and financial center.
In July 2005, the fixed floating rate was abandoned. It led to the strengthening of the ringgit. In 2005, Malaysia faced another problem; the capital flight exceeded 10 billion usd. Since the initial capital flight, the Malaysia’s international reserves increased from 75, 2 to 125, 7 billion and it is all before the global credit crisis of 2008.
It is evident that if Malaysia wanted to get a flexible capital market, they had to remove a ban on short selling implemented during the crisis period. And in 2006, they removed the ban on short selling. Some other countries of the Asia region followed the Malaysian decision and also removed the ban.
Despite the fact that Malaysia plays an important role for China, their relations gradually worsen. The thing is that the Celestial Empire imports almost 77 per cent of oil import through the Strait of Malacca located between Malaysia and Indonesia. Not accidentally, in Beijing this strategically weak place is called “Malacca dilemma”. In case of blocking it, the Chinese economy will collapse immediately. But the problems between China and Malaysia are not limited only by “Strait”. Another issue is the struggle for the Spratly archipelago in the South China Sea. Important transportation routes pass through this archipelago. This area is also reach in fish and hydrocarbons reserves. Today, China competes with Vietnam and Philippines to control the northern and central islands, reefs and rocks. But there is a great risk that soon the Celestial Empire will openly claim for the southern part of the archipelago (belonging to Malaysia).
Thus, to make the economy more independent from export, the government had to find some other sources of income. To developing a tourist business became a successful decision. Munan (2002) states that in 2009, Malaysia introduced a new campaign called “Malaysia, truly Asia”. It was a successful decision as it brought over 7, 4 million of tourist’s worldwide (Munan, 2002, pp. 29). But now the tourist business is in danger as an ecological situation in the country has worsened greatly. Mongabay. com states:
Malaysia's deforestation rate is accelerating faster than that of any other tropical country in the world, according to data from the United Nations. Analysis of figures from the Food and Agriculture Organization of the United Nations (FAO) shows that Malaysia's annual deforestation rate jumped almost 86 per cent between the 1990-2000 period and 2000-2005. For comparison, the Southeast Asian country lost an average of 78,500 hectares, or 0.35 percent of its forests, annually during the 1990s.
Mining processes have also made an incredible damage on the environment of Malaysia. It resulted in water pollution. Siltation made a lot of agricultural areas unusable for growing crops. Furthermore, constant fires also inflict great damage. Every year, burn thousands hectares of Malaysian forests. In the result, many tourists panic and are afraid to travel to the country.
Malaysia also needs some fiscal discipline. Country got the budget surplus only seven times since getting its Independence. It means that country needs a counter-cyclical fiscal policy with surplus in nice years and deficit in bad years. Accumulated budget surpluses will support economic downturns without any borrowings. Unfortunately, Malaysian’s nation’s public debt increase every year. In 2011, the National debt increased to 430.2 billion dollars. It is almost 55 per cent of the gross domestic product. Interesting, in 2008 it was 41%. Thus, to fight this problem the government has to cut some expenditure and make some tax reforms. It is not wise to rely only on the oil and gas that brings almost 40 per cent if income. The growth of the federal revenue has also fallen as it could not keep pace with GDP growth. GDP has fallen up to 22 per cent (with 34% average in ten years).
Income disparity also grows incredibly in the country. According to statistics only 20 per cent of people account almost 50% of income, the rest 40% get only 14 % of the national income. Today, the income disparity in the country is greater than in the Philippines, Indonesia and Thailand.
Regional disparity also shocks. Nowadays, Sabah region is one of the poorest. There are more than 20 per cent of people are living below the poverty line. In Sabah live almost 43 per cent of the country’s poor. It is followed by Sarawak with 12% and Kedah with 9%. In order to fight this problem, the government should review and replan its actions and pay more attention to the poor regions, regardless of ethnicity.
No doubt, foreign workers made a great impact on the economic growth and development of the country. Unfortunately, today, their number has grown greatly and reached its maximum level. As a result, there increased a big abyss between the poor and the rich. In fact, formation of the middle class has stopped; as the presence of gest workers tends to suppress wages. In 1990s, there existed a delusion that Malaysia could keep wages low to stay rather competitive and be open for foreign workers. But in reality, such input-driven growth is unsustainable.