Malaysia Eases Rules For Foreign Investors 
International Herald Tribune
July 24, 1998
Thomas Fuller

Malaysia opened the door to increased foreign ownership of local companies Thursday as part of a comprehensive national blueprint designed to pull the country out of its economic slump.

In an effort to attract foreign cash, the government said it would suspend the restrictions on foreign ownership of companies in the manufacturing sector until the end of next year. Foreigners are currently limited to owning 51 percent of a local company.

The sweeping package of measures stood in stark contrast to the austerity measures advocated by the government up until several weeks ago.

The government said it would relax reserve requirements for banks and inject cash into the system by spending 12 billion ringgit ($2.9 billion) on large-scale infrastructure projects including highways, a mass-transit system and a port on the country's west coast, all projects that have faltered due to lack of funding.

But analysts, wary of yet another Malaysian rescue package — there have been at least three since the financial crisis began last year — said some of the measures were half-hearted.

The relaxing of foreign ownership rules, for instance, covers only the manufacturing sector and not utilities or industries "where local firms have adequate capabilities," according to the blueprint.

"Basically they're saying that foreigners will have to buy things they don't want," said an analyst at a foreign research company, who did not want to be named.

Neil Saker, head of regional economic research at SG Securities in Singapore, added: "Foreign investors have the whole pick of the region. They'll need to be encouraged more to come to Malaysia rather than investing in Thailand or Korea or the Philippines."

But the message from Malaysian officials was clear: we can go it alone if we have to.

Daim Zainuddin, the architect of the blueprint and a former finance minister, said Thursday that Malaysia would not open up its banking sector to increased foreign participation, a move many economists say will be necessary as bad loans mount and banks need infusions of funds.

"There is sufficient internal resources to recapitalize Malaysian banks," Mr. Daim said.

Malaysia, unlike two of its closest neighbors, has not needed to request aid from the International Monetary Fund, mainly because Malaysian companies borrowed much less from abroad than their counterparts in Indonesia and Thailand.

But Mr. Daim and other top officials have nonetheless sought money overseas.

On Monday Mr. Daim made a secret trip to Taiwan, seeking $1 billion in export credits.

The country's prime minister, Mahathir bin Mohamad, was reported to have asked Japanese officials for billions of dollars in aid during a visit to Tokyo last month and Finance Minister Anwar Ibrahim earlier this week spoke with World Bank officials regarding loans totaling $1 billion

It is not yet clear whether these funds will be sufficient.

Also unclear following the unveiling of Thursday's recovery plan is who controls economic policy in Malaysia these days.

Mr. Daim is a long-time friend and adviser of Mr. Mahathir, who appointed him minister for "special functions" earlier this month. Mr. Anwar, meanwhile, has been largely overshadowed by Mr. Daim since the appointment.

The finance minister was not present as Mr. Daim presented the blueprint — arguably the most important policy document of the crisis so far — to reporters Thursday.

"Part of what the National Economic Action Council was supposed to address was confidence," said Jomo K.S., professor at the University of Malaya, referring to the government body that produced the blueprint.

"And part of the problem of lack of confidence was this ambiguity about who's in charge," the professor added. "You had Mahathir and Anwar. Now you have a third voice. I'm not sure that's going to solve the problem."

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