Another Asian financial crisis? Unlikely. But one country looks especially vulnerable

With China’s economic slowdown roiling much of Asia—and indeed the world—the question is being asked: Will we see a repeat of the 1997 Asian financial crisis? The general consensus among economists and analysts seems to be that no, we won’t. Unlike 17 years ago, Asian economies today are not trying to defend doomed exchange rate pegs that protect their companies’ foreign currency borrowing.
But one Asian nation does seem especially vulnerable: Malaysia.
Investors have fled the nation’s stock markets and currency, with foreign funds dumping more than $3 billion of the nation’s shares this year. The ringgit is near 17-year lows, the worst-performing currency in Asia.

Daniel Martin, an analyst at Capital Economics, told CNN Money that currency weakness is not a major risk to any economy in the region—with the exception of Malaysia, which has high levels of US dollar debt.
Malaysia is the only major net oil exporter in Asia, but that’s no longer the advantage it was. Investors are fleeing emerging markets around the globe, fearing the impact of slower growth in China, a possible US interest-rate hike (leading to a stronger dollar), and plunging prices for commodities, including oil.
Political uncertainty also plagues Malaysia. Last month the Wall Street Journal reported that almost $700 million may have moved through government agencies and companies linked to state investment company 1Malaysia Development Bhd. (1MDB) before ending up in accounts under the name of prime minister Najib Razak.
The amounts involved in those alleged transfers have captivated Malaysians being asked to tighten their belts to help reduce the nation’s budget deficit. Late last year Najib’s administration removed subsidies for gasoline, diesel, and sugar, and it plans to continue cutting others, including for liquefied petroleum gas and cooking oil. In April it implemented a highly resented consumption tax of 6% on all goods and services.
Najib’s reaction to the 1MDB allegations was to silence critics. When deputy prime minister Muhyiddin Yassin called for the truth on 1MDB, Najib removed him from his cabinet. When publications run by the Edge Media Group reported on the 1MDB matter, the company’s publishing permits were suspended.
Publishing licenses have been removed before under Najib’s rule. In 2013 local publication The Heat likened the extravagant shopping trips of Najib’s wife Rosmah Mansor—dubbed “the first lady of shopping”—to those of Imelda Marcos. Its publishing license was soon suspended.
Meanwhile an arrest warrant is out for Clare Rewcastle-Brown, a UK-based editor of the website Sarawak Report, which published multiple articles on corruption allegations linked to the prime minister, including on 1MDB. And Najib’s office is expected to sue Dow Jones, the Wall Street Journal’s parent company, for defamation.
Such behavior only pushes away the foreign investors Malaysia needs.
“By sacking everyone who criticizes him, prime minister Najib is putting himself more in the spotlight from an international investor perspective,” Anders Faergemann, who helps manage $10.6 billion of emerging-market debt at PineBridge in London, told Bloomberg. “We are increasingly worried about the outlook for Malaysian government bonds due to the ongoing 1MDB scandal and have recently reduced our exposure further.”

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