KL to liberalize finance gradually, says Rafidah

KL to liberalize finance gradually, says Rafidah

KUALA LUMPUR (Reuter): Malaysia's signature on the recent
global financial services liberalization pact means it will
gradually open up its financial markets, International Trade and
Industry Minister Rafidah Aziz said yesterday.

"We will liberalize gradually in consonance with our economic
development," she said in reply to questions at an Asia-Pacific
management consultants conference. "That is what we negotiated."

Malaysia signed an interim agreement on July 28, with other
members of the World Trade Organization, opening up the financial
services sector to global competition.

Kuala Lumpur had earlier opposed the pact, saying it exposed
the fledgling financial sector to unfair competition from more
developed banks and insurance companies, which can muster more
resources than Malaysian institutions.

"We are quite comfortable with the commitments that we made,"
Rafidah said, making clear that the timetable for implementing
the reforms would be dictated by Malaysia.

Earlier this month, Malaysia announced that it was opening up
14 of the 16 financial services sectors targeted for
liberalization under the pact.

The two sectors which Malaysia has declined to liberalize are
settlement and clearing services and provision and transfer of
financial information services.

Earlier this month, Kuala Lumpur announced the first
liberalization measures: allowing banks to accept foreign
currency deposits by next July, and allowing foreigners to own up
to 49 percent in stockbroking and leasing firms by 1998.

Malaysia has frozen new licenses for foreign banks and has
banned the 16 who are already doing business in Malaysia from
opening up new branches -- probably the biggest complaint from
foreign institutions.

Despite the controls, foreign banks hold 25 percent of all
deposits in the banking system and foreign companies account for
78 percent of Malaysia's insurance business.

Malaysia has so far refused to ease the bans.

"What we need now is for foreign companies to divest and
become local companies," Rafidah said.

Malaysia required the 16 foreign banks to become locally
incorporated last year, a move which basically meant putting
"Malaysia" in their company name.

The government has been urging the banks to divest shares to
local partners but almost none of them has done so.

Malaysia, meanwhile, has been touting itself as a regional
financial center, an alternative to Hong Kong after the British
colony's takeover by China in 1997.

"Malaysia is fully committed to making Kuala Lumpur a premier
financial center in the region," Deputy Prime Minister and
Finance Minister Anwar Ibrahim told bankers and fund managers on
a visit to Hong Kong on Aug. 18.

Malaysia can boast of having Asia's third largest stock market
after Japan and Hong Kong and has outlined plans to boost the
corporate bond market and begin trading in financial futures and
options.

But analysts in Kuala Lumpur say that Malaysia has yet to show
that the new rules it is drawing up for its capital markets will
apply equally to all participants.

Foreign stockbrokers were in an uproar several weeks ago when
the Kuala Lumpur Stock Exchange announced a new schedule of
commissions that appeared to favor local brokers.

Foreign fund managers have complained about restrictions on
their ability to market funds they offer in other markets and a
ban on offering mutual funds directly to retail investors.