KL budget woos foreign investors

KL budget woos foreign investors

KUALA LUMPUR (Reuters): Malaysia on Friday unveiled a budget
for 2001 aimed at boosting foreign investment and infrastructure
spending to keep it among the fastest growing economies in the
world.

Finance Minister Daim Zainuddin proposed to allow foreign
companies to take equity in the national carrier Malaysian
Airline System, the car maker Proton, and said foreign
participation in airports will also be considered.

He said Malaysia would also seek strategic partners in
information, communications and technology sectors, as well as
energy, ports and financial sectors as part of its drive to bring
in more foreign direct investment (FDI).

"We must acknowledge that in a borderless world, large
conglomerates have greater choices in their investment decisions
while countries are keenly competing to attract FDI," Daim said.

He said the government would take stakes in foreign firms to
develop Malaysian interests in new technology and also proposed
to set up a 500 million ringgit venture capital fund.

Daim also called for the abolition of a 10 percent levy on the
repatriation of profits held for one year by foreign portfolio
investors.

The move will partially ease capital controls Malaysia imposed
in 1998 after a mass exodus of foreign money in the wake of the
Asian financial crisis, which crippled the country's markets.

"As the capital market environment has improved, I propose
that the levy on portfolio profits repatriated after one year be
abolished," Daim told parliament.

The move was welcomed by domestic as well as foreign
investors.

"The removal of the 10 percent exit levy will lift a major
hurdle for the entry of more foreign funds into the market," said
Loke Chee Kien, research manager at Sarawak Securities Sdn Bhd.

But in a late trading session after the budget the Kuala
Lumpur share index fell 5.14 points, or 0.65 percent, at 791.08
as investors registered disappointment that the 28 percent
corporate tax was not cut, and boosts to consumers' disposable
income were less than hoped for.

Chia Woon Khien, regional economist for SE Banken in
Singapore, said that further moves to relax capital controls
could eventually mean Malaysia will give up its fixed exchange
rate regime.

The Finance Minister said the currency peg, which currently
puts the ringgit at 3.8 per U.S. dollar, had brought stability to
business and trade and the government will continue to assess its
effectiveness.

Malaysia has bounced back strongly since the crisis and the
Finance Ministry said, in its economic report released earlier on
Friday, that GDP will notch 7.0 percent growth next year, slowing
slightly from the 7.5 percent expected for 2000.

The budget allocated 4.73 billion ringgit ($1.24 billion) for
infrastructure spending.

Next year's budget deficit is forecast to amount to 4.9
percent of Gross National Product, compared with 5.9 percent in
2000, Daim told parliament.

"It looks like a pretty huge deficit and it shows the
government feels there are still pockets of weaknesses in the
economy," T.S.Pong, head of research at Jupiter Securities Sdn
Bhd.