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.