Malaysia eases foreign equity curbs

Malaysia eases foreign equity curbs

KUALA LUMPUR (DPA): Malaysia said yesterday it will ease curbs on foreign stakes in several key sectors, including manufacturing, to woo foreign investment needed to rescue the troubled economy.

A government agency with the job of finding how to kick-start economic recovery, proposed that foreign companies investing in non-strategic manufacturing sectors be exempted from the existing 30 per cent equity limit from Thursday until December 31, 1999.

This means that foreign firms can own 100 percent of their manufacturing investments if they come in during the grace period. Such an exemption was only allowed in the past for manufacturing industries which fully exported their products and did not target the local market.

Sectors not fully opened to foreign ownership were strategic sectors such as in power, water supply and airlines, said Daim Zainuddin, who is executive director of the National Economic Action Council (NEAC).

Foreign investors who invest during the period will be allowed to retain their stake when the temporary suspension is over, added Daim at a news conference to release the NEAC's report on how to restore economic growth.

Manufacturing, led by electronics and electrical products, has been the biggest contributor over the past decade to the Malaysian economy, accounting for 34 per cent of gross domestic product last year and 81 per cent of exports.

However, the Asian financial crisis has severely dampened demand, both locally and abroad, and the sector is expected to contract by 2.5 and 3.4 percent this year, from last year's 12.5 percent expansion.

The NEAC, set up in January by the government to draft a recovery action plan, also suggested foreigners be allowed to buy more than the 30 per cent limit into locally-owned listed firms, retain 100 per cent equity in insurance firms, and to increase stakes in the national Proton car-maker.

The 30 percent cap on foreign ownership in local banks, however, will be maintained, Daim said.

Foreign equity holding in Malaysia have mostly been fixed at 30 per cent, depending on different sectors. Another 30 per cent is allocated solely for the indigenous population, who are mainly Malays.

Malaysia's economy was recently forecast to contract by 1 to 2 per cent this year, while 1999 may see "minimal" growth if the government manages to contain the economic crisis this year, Daim said.

"If the NEAC's proposals are implemented, we are on the path of recovery, and depending on how much confidence returns, we think we should be able to get after 1999, maybe 5 to 6 percent (growth)," Daim said.

Daim, who visited Taiwan recently, also said Malaysia's Export-Import Bank had applied for a 1 billion dollar loan from Taiwan's EXIM Bank to be used to finance exports. He declined to give further details.

Meanwhile, Prime Minister Mahathir Mohamad said Thursday that the government will implement the NEAC's recommendations unless there were specific objections from interested parties. The NEAC report was submitted to the government two weeks ago.

Among the ideas put forward by the NEAC were to lower capital adequacy requirements for commercial banks into the central bank so that they have more money to loan out to hard-hit businesses, and that the cash-rich Petronas state oil firm contribute to a "fund" to be used for the priority development projects.

The NEAC's recommendations failed to excite investors at the Kuala Lumpur Stock Exchange, where share prices continued their downward trend to close 1.54 per cent lower Thursday.

A dealer said investors were expecting more concrete recommendations on how to fix the economy, such as allowing greater foreign equity in local banks.