New Financial Politics in Thailand and Malaysia

Abstract

This paper provides apolitical-institutional explanation for why the relatively dynamic economies of both Thailand and Malaysia suffered devastating blows from the 1997 financial crisis, and why Malaysia seemed to suffer less and recovered faster than Thailand. The financial crises in Thailand and Malaysia originated from the rise of new financial politics, a form substantially different from industrial politics. Attributes of major financial actors and their institutional relationships contributed to the vulnerability of the financial systems of both countries. However Thailand’s financial institutions contained more serious institutional problems than Malaysia`s, problems that have continued to impede Thailand`s recovery. Thailand`s institutional problems have included: the country`s central bank and securities exchange regulators both have lacked political autonomy,` political parties have been personality-based, ecliptic, turncoat, and regional; private conglomerates have been politically influential; and strong local factions have exerted strong influence on politicians. However, various institutional reforms introduced after the crisis may have sign fl cant, positive impact on the health of Thai financial politics. By contrast, the Malaysian state has always been relatively efficient. The central bank enjoys strong political autonomy while the securities exchange regulators lack comparable autonomy. The ruling coalition, Barisan Nasional (National Front), dominates both its members and opposition parties. Influential conglomerates, including those belonging to the United Malays National Organization (UMNO), are active participants in financial politics. However local factions are much weaker in Malaysia than in Thailand. Finally, the conclusion suggests several institutional reforms for these countries to consider.