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Wednesday, 2 May, 2001, 11:43 GMT 12:43 UK
Malaysia lifts foreign investment controls
skyline of Kuala Lumpur
Growth on the horizon: Malaysia's economy has gone its own way
The last remaining controls over foreign investment in Malaysia's stock market have finally been lifted.

A 10% tax, levied on investment profits which were sent out of the country, has been scrapped.

The tax was part of a set of measures put in place to stop investors selling shares and taking their money out of the country after the Asian financial crisis of 1997/98.

Dr Mahathir Mohamad, Malaysia's prme-minister
Dr Mahathir Mohamad: the architect of Malaysia's economic controls

The stock market rose on Wednesday as a result, but investors said an immediate inflow of foreign investment was unlikely.

Malaysia is keen to lure foreign investors back to its markets.

The abolition of the levy was the culmination of a series of steps towards full liberalisation, which began in 1999, Malaysia's Finance Ministry said.

Asian currency crisis

In September 1998, a year after the Asian currency crisis first hit, Malaysia's Prime Minister Mahathir Mohamad introduced controversial new controls on currency trading.

He was keen to crack down on international speculators whom he blamed for destabilising the Malaysian economy during the crisis.

Part of a move towards economic protectionism, the raft of measures effectively isolated Malaysia from the global economy.

Foreign investors were told they would have to keep their money in Malaysia for a year.

The government demanded that all foreign holdings of the Malaysian currency, the ringgit, would have to be liquidated and repatriated to Malaysia within a month.

And tight restrictions were imposed on the amount of currency Malaysians could take out of the country.

At the time, the measures were roundly criticised, as they went against all financial and IMF orthodoxy.

There were also dire warnings that they would only cause investors to shun the country in the future.

In fact Malaysia - and Dr Mahathir - emerged from the Asian crisis in sounder shape than several of the country's neighbours, such as Indonesia, Thailand and the Philippines.

The controls have since then gradually been eased.

A slowing economy

As with its neighbours in Asia, Malaysia has been affected by the slowdown in the US economy.

The country recently cut its growth forecast for this year from 7% to 5%-6%.

Prime Minister Mahathir continues to strike an independent path.

At a meeting last month of Asean finance ministers, he fiercely resisted any involvement of the IMF in a swop arrangement to protect Asian currencies, which have come under pressure again as the US economy slows.

The Malaysian currency, the ringgit, has been pegged at 3.80 to the dollar since September 1998 and is not convertable outside the country.

It is likely to remain so for the time being at least, although many currency traders believe the ringgit is overvalued.

Foreign investors, who got their fingers burned when Malaysia originally introduced the capital controls, remain still cautious.

"It [the lifting of the controls] is positive news for the market," said Yuen Chak, analyst with Merrill Lynch.

"But there are some lingering concerns among foreign investors - a slowing economy and the perception of weak corporate governance."

See also:

02 Sep 99 | Business
19 Apr 01 | Business
03 Apr 01 | Business
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