Southeast-Asia need to rethink investment policies: bank

SINGAPORE (AFP): Non-communist Southeast Asian countries may have to consider new measures including opening domestic markets to revive flagging foreign investor interest, a merchant bank said.

Merrill Lynch International Bank said 1993 data on direct foreign investment approvals largely confirmed earlier suspicion that the sub-region's attractiveness was slipping as foreign investors focussed more on China, India and Vietnam.

"Malaysia and Thailand were the worst hit, with each facing a 60-to-70 percent drop in approvals, while Indonesia experienced a more modest four percent fall," the bank said in its latest Asian Economic Commentary.

The bank said although the actual number of projects implemented in Indonesia and Thailand had shown an increase, Southeast Asian countries might still need to re-orient their economic and investment policies.

The bank said greater domestic market access might hold the key to reviving foreign investor interest now that the need to re-locate industries, particularly by the Japanese and Taiwanese, to cope with appreciating currencies had been met.

Liberal

Current investment laws relating to permissible foreign equity, particularly in Indonesia and Malaysia, were generally liberal as long as a major chunk of production was for exports.

However, if export obligations are not accepted, the permissible foreign equity levels fall sharply, even to below 50 percent.

The commentary said that, in the longer term, Southeast Asia could greatly enhance its attractiveness as a market if it succeeded in bringing down present trade and investment barriers within the region itself.

The Association of Southeast Asian Nations, which groups Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, launched a tariff reduction scheme in January to create an ASEAN Free Trade Area (AFTA) in 15 years.

"Unfortunately, the signs so far have not been encouraging and quick implementation of AFTA remains questionable," the bank said, adding that most ASEAN countries would not start cutting duties until almost the end of the time-frame.

Investment laws relating to supporting services industries like commerce and finance might also have to be reviewed to reinforce the attractiveness of the countries to manufacturing investors, the bank said.

The next wave of foreign investment into Southeast Asia could well be in the services industries if host governments were prepared, under suitable conditions, to lay out the welcome mat, it added.