The Asian financial crisis and regional integration: 1990s∕2000s
The literature on privatization in Malaysia emerged beginning in the mid-1990s — more than ten years after the privatization was implemented. The early study by the World Bank (Galal et al., 1994) had a positive review of the privatization outcomes (MAS, KCT and Sports Toto).
Later studies by Malaysian academics were more critical of privatization programs (Jomo, 1995; Tan, 2008). These studies were part of the larger emerging literature on political economy in Malaysia, emphasizing the rent-seeking nature of the ruling coalition party in Malaysia (Gomez and Jomo, 1997). The literature on privatization in Indonesia is sparse as little progress was made in this area despite the announcement of ambitious plans in the late 1980s (McLeod, 2002).The key economic event in the 1990s was, without doubt, the Asian financial crisis in 1997. Analyses of the financial crisis have attributed the crisis to both economic factors (exchange rate system, private debt levels, and a weak financial system) which were compounded by political factors (Hill, 1999; MacIntyre, 1999). In the case of Malaysia, short-term capital flows, high leverage, and an equity bubble have been identified as factors contributing to the economy's vulnerability during this period (Athukorala, 2001). Factually, the impact of the crisis was more severe for Indonesia than on Malaysia. The different policy responses in Indonesia and Malaysia brought to light economic debates on the pro-market ideas dubbed the “Washington Consensus” (advocated by International Monetary Fund (IMF)/World Bank) as well as the role of political economy in development. Indonesia was forced to implement the IMF/World Bank's structural adjustment policies, which later brought about severe political crisis and the end of the Suharto regime. In Malaysia, a different policy response was adopted involving greater state intervention via capital controls, which was regarded as going against IMF-type policy prescriptions (Mahani, 2002; Dornbusch, 2002).
Political economists have also entered the debate by highlighting the role of politics (e.g. governing coalitions) in explaining the different policy response and subsequent developments (Pepinsky, 2009). The slower pace of growth in the period after the 1997 financial crisis has also prompted further analyses, especially on the role of institutions and politics. For example, the rent-seeking critique of government policies continues to have significant traction in the political economy literature in Malaysia (Hill et al., 2012). This trend is perhaps consistent with increasing interest amongst mainstream economists in the role of institutions and politics in longterm economic growth (Acemoglu et al., 2005).