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.