[UPDATED] Current economic standing far better than 1997 financial crash: Zafrul

KUALA LUMPUR – Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz has downplayed concerns that the country might be witnessing a severe collapse of the economy in the same vein as the 1997 Asian financial crisis, saying the nation’s fundamentals are in a stronger position today.

Addressing the Dewan Rakyat, Zafrul said various reforms have been implemented since the crisis to ensure the country is in a better position to face future financial downturn.

“The country’s economic position today is far different from (the 1997 crisis). Our economic fundamentals and financial system are very different.

“This is a result of the various economic and financial reforms implemented following the Asian financial crisis, including a more diverse domestic economic structure that is supported by a good financial system model and strong external position.”   

He said this in response to a question from Wong Hon Wai (Bukit Bendera-Pakatan Harapan) on whether the country is headed towards a crisis following the crash of the ringgit against the US dollar, spiralling inflation and increasing national debt.

Zafrul said generally, an economic crisis is defined as when a country faces a dip in gross domestic product dips, increase in unemployment, closure of businesses and high bad debts that would have a negative impact on the financial institutions.

“Our country had faced such a situation before, which was during the Asian financial crisis in 1997 and 1998. Then, our economy shrank by 7.4%. In comparison, during the height of the Covid-19 pandemic crisis, our economy contracted by 5.5%. 

“I would also like to point out that the 1997 crisis is regarded as the worst economic crisis that Malaysia has faced to date. If we look back, our ringgit then crashed by 54%, with the ringgit standing at RM4.48 to the US dollar. 

“The stock market was also gravely affected. The KL stock exchange dropped by 800 points in just two months. We also faced a current account deficit of RM16.7 billion.” 

Zafrul added that throughout the crisis, more than 102,000 Malaysians lost their jobs, while the country recorded an inflation rate of 6.2% in June 1998. 

He said by the end of 1997, Bank Negara Malaysia was forced to increase the interest rate to 11% to address the crash of the ringgit then as well as control the inflation, with the rate continuing to remain at a high of 7% by the end of the following year. 

In comparison, Zafrul said the country’s financial market today remains very open, with high involvement of foreign investors and current account surplus. 

He added that as of this year, the current account remains positive at RM3 billion recorded in the first quarter and RM4.4 billion in the following quarter. 

“As such, while we are facing various challenges stemming from external factors that are beyond the government’s control, I would like to stress that our country is not facing or headed towards any economic or financial crisis.” – The Vibes, October 4, 2022