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.