Malaysian PM sets reforms to boost investment

Malaysian Prime Minister Najib Razak on Tuesday unveiled new measures to boost investment in the country’s slumping economy which has been hit hard by a global economic downturn that has sapped demand for its exports.

Labourers work on a steel structure at a construction site near the Malaysian landmark Petronas Towers in Kuala Lumpur on June 30, 2009. Malaysian Prime Minister Najib Tun Razak has announced that the foreign shareholding limits in existing stockbroking companies will be increased to 70 percent from the current 49 percent in efforts to further enhance Malaysia’s position as a listing and investment destination. AFP

Najib told an investment conference on Tuesday that it will end a ruling requiring that the Foreign Investment Committee (FIC), a government authority, approves investments in non-strategic sectors.

He also said property deals not involving companies owned by the majority Malays, who are seen as “sons of the soil” or bumiputra, will no longer require FIC approval.

“We have become a successful middle income economy. But we cannot and will not be caught in the middle income country trap. We need to make the shift to a high income economy or we risk losing growth momentum in our economies and vibrancy in our markets,” Najib said.

The Southeast Asian country also plans to raise foreign ownership in investment funds and stock brokerages as well as address the issue of increasing the liquidity in the stock market. For a list of reforms, click Malaysia, once one of Asia’s leading economic reformers, has seen its business model of low value electronics exports and commodities exports hit hard by the rise of China and investment flows have dried up as other countries have liberalised faster.

At the same time, strict government controls that reserve a certain proportion of the economy for ethnic Malays, the so-called bumiputra policy, has hurt growth and fostered corruption, critics charge.

“There is a sense that the liberalisation measures fail to excite the markets but it all boils down to the need for the government to toe the line between attracting foreign investment inflows and keeping the pro-bumiputras part of the population satisfied,” said Joanna Tan, economist with Forecast Pte Ltd.

“Stocks which are already buoyed by today’s improved sentiment and possible window dressing should also find support on the news. Further pressure on the USD/MYR is expected.” The Malaysian ringgit gained 0.6 percent to 3.517 per dollar after the announcement. The benchmark KL Composite index inched up 0.4 percent to 1,080.23 points This is the third reform announcement since Najib took office in April.

Earlier, he announced measures to liberalise some sectors of the service economy as well as banks and insurers, although both of those previous announcements were measures that had already been promised already but not implemented.

Even though investors have recovered from jitters caused by the global financial crisis, foreign portfolio investment is still pulling out of Malaysia, a Southeast Asian country of 27 million people.

In 2008 there was an outflow of 92.3 billion ringgit in portfolio investment , starting in the second quarter of the year when shock electoral losses for the National Front coalition that has ruled Malaysia for 51 years coincided with the build up of the current global financial crisis.

Those flows still haven’t returned and investment bank HSBC is forecasting there will have been another outflow of portfolio capital to the tune of 50 billion ringgit ($14.14 billion) when first-quarter current account data is published later on Tuesday.

KUALA LUMPUR, Reuters