Asian Values and Western Finance: International Capital Flows and Malaysia’s Future Development

Malaysia s foreign exchange reserves currently represent approximately 150 per cent of her total external debts. These substantial foreign currency holdings reflect a pattern in the region that has been interpreted as an attempt by countries to insure against a recurrence of the external financial crises of the late 1990s. The amounts involved are excessive for this purpose, however, and it is argued below that they are more indicative of a fundamental difficulty confronting the country s development aspirations. With reference to the exceptional period leading up to the crisis of 1997-98, it appears that the foreign currency accumulations reflect a growing inability to find productive domestic use for Malaysia s growing pool of savings. While it is certainly possible to save too much the approach adopted here emphasises that the country should re-orientate her external investments (including some of the reserve holdings) with a view to enhancing the potential return on subsequent domestic capital formation