The persistence of the currency
crisis has been prolonged by the weakening of confidence. Accordingly, restoring
market confidence is an important step to stabilise and strengthen the currency.
There is the need to address some fundamental issues that have affected market confidence.
The public is concerned about inconsistent policy announcements that have given rise
to uncertainty and confusion.
In addition, there are calls for increased corporate transparency.
There are also particular incidents, such as the designation of index stocks and
deals approved by regulators, which have affected government image. The Malaysian
public and foreign investors need to be reassured that the regulators are committed
to the open market and fair dealings. The minority investors must also be fairly
The following confidence-building measures are recommended
- Improve transparency and the regulatory environment
- Establish rules for assisting industries and
- Increase the consistency of government policies
- Adopt liberal market-based policies
- Improve public relations
- Improve the dissemination of economic information
Steps should be taken to strengthen public and corporate governance
and enhance transparency and accountability. Transparency and consistency
of government policies allow various parties to make informed investment decisions
and bring fewer market surprises. The public would be reassured that the banking
system is still resilient despite the increasing corporate difficulties.
1: Improve Transparency and the Regulatory Environment
Transparency means 'letting the public know'. It allows various
parties to make informed investment decisions and brings fewer market surprises.
The market is provided with better information on government policies and the condition
of domestic financial institutions. This will encourage investors to trade on fundamentals
rather than to run with the herd.
It also means that hedge funds managers and other private investors,
who have vast amount of resources, are not given the incentive to take large positions
against a currency when presented with clear, accurate information about public policy,
finance and the economy.
There are measures that can be taken to improve transparency
and the regulatory environment.
- More frequent release of economic data to allow analyses and
to increase transparency. In the UK, the minutes of the Bank of England board meetings
are released to the public, while the US Treasury releases economic data at a regular
and timely manner. Bank Negara, Ministry of Finance, and Statistics Department should
not only provide more information to facilitate better analyses but also make it
be known when each type of data would be released.
- The regulatory authorities, such as the Securities Commission
and Kuala Lumpur Stock Exchange (KLSE), should exercise and enforce the regulations
under their responsibility without fear or favour. No impression should be given
that their ability to enforce is being compromised.
- Continue with the campaign against corruption that was launched
in mid-1997. The legal framework must make it easier for the public to report corruption.
Clean government and sound public ethics are essential for public confidence.
- Malaysia should publicly commit to making its regulatory environment
as good as, if not better than, most other countries.
2: Establish Rules for Assisting Industries and Companies
- A distinction needs to be made between assistance to troubled
companies that involve only privately owned companies and assistance that involve
the government. As for private sector transactions, they should proceed without hindrance
as long as they meet the legal requirements and other relevant guidelines of corporate
- The assistance that will be granted by government to troubled
companies will be guided by three criteria, namely, national interest, strategic
interest, and equity considerations under the New Economic Policy and the National
Development Policy. Industries and business activities that provide benefits to a
wide cross-section of the population and help raise their living standard can be
considered to be in the ënational interestí. Banks, education and some infrastructure
facilities are example of industries of national interest. ëStrategic industries
and businessesí would include those that make an important contribution to the growth
of a specific sector or/and provide important support for other industries and businesses.
The automotive, aerospace and shipping industries are example of strategic industries.
- As a matter of principle, there will be no bailout of individual
investors or lenders using public funds, except in respect of industries and corporations
in key, strategic sectors of national interest. In some cases, there may be a basis
for government or central bank intervention in supporting banks or companies facing
difficulties. There might also be similar experiences and measures adopted in other
countries that Malaysia can learn from. For any such action, the transparency of
action plans is of paramount importance so as not to have adverse impact on the credibility
of the authorities and, therefore, public and investor confidence. Any corporate
transactions of this nature should be accompanied by immediate disclosure of the
financial details of the deal.
- In the event of a rescue involving public funds, private investor
and lenders must take their appropriate 'hair-cuts'. Except for the most extreme
extenuating circumstances, promoters, controllers and management of rescued entities
must be seen to be relieved of their control and involvement. The proof of viability
should also be established before commitment of rescue funds.
- In a public rescue, the following parameters should be observed:
a. The rescue fund should aspire to rank in priority the existing claims in
the liquidation of the entity. Therefore, whenever possible, the funds should be
extended as obligatory loan capital as opposed to risk equity capital.
b. The provider of funds should be entitled to risk rewards over the normal
lending terms. This may either be done by pricing the funds at very high coupon rates,
which may not help the ailing company, or by offering an opportunity or option for
the lenders to benefit from the equity-type returns. A convertibility element, entirely
at the discretion of fund providers could be the answer.
- In order to build further safeguards, the offer of Government
guarantees should as far as possible be avoided. Where it is unavoidable, the Government
may consider guaranteeing only the first three to five years interest on the bonds.
- To avoid using good money to chase after the bad, the Government
must reserve the right to foreclose on the assets of the rescued entity in the event
of it being called upon to meet these guarantees.
- Where privatised projects or entities are involved, equity
subscription by Government-owned funds may be construed as re-nationalisation. This
may run counter to the nationís commitment to privatisation. However, in the event
of the Government having to acquire privatised projects, the ground rules must be
maintained, i.e. the existing promoters, stakeholders and lenders must rank subordinate
to bond holders in the bond document.
- To avoid the likelihood of the promoters and stakeholders
jacking up their costs and expenses, it may be necessary to give the Government board
representation and control of tender adjudication and awards. It should also be empowered
to appoint the new chief executive officer for the rescued entity.
- Other safeguards to provide comfort to the lenders could and
should be detailed out in documents relating to the rescue operation.
3: Increase the Consistency of Government Policies
For increased credibility and consistency of government policies,
the following measures are recommended:
- There must be more prior consultation by government agencies
with interested parties before formulating policy and making public announcements.
The retraction of policies soon after they have been announced does not speak well
about the thoroughness of their formulators.
- Policies should be ready for implementation before announcement.
- To enable proper implementation, there should be more detailed
and realistic guidelines to follow the announcement of policies.
- Announcements should be properly coordinated and preferably
made together rather than in a piecemeal fashion. Coordination between various arms
of the government and agencies are essential.
- Consider using professional image and public relations consultants
to improve image both domestically and overseas.
- Arrange regular meetings with Bank Negara, Ministry of Finance,
Securities Commission, and Kuala Lumpur Stock Exchange with foreign fund managers.
4: Adopt Liberal Market-Based Policies
With its policy on liberalisation, Malaysia has currently one
of the most liberal trade and investment regimes among the developing economies.
Malaysia has aggressively reduced or removed tariffs on thousands of items and is
committed to the World Trade Organisation (WTO). The country offers a competitive
package of fiscal incentives that has successfully attracted substantial amount of
foreign direct investment (FDI). At the WTO level, Malaysia has taken steps to liberalise
the merchandise and services sectors. In the commodities sector, Malaysia has bind
tariffs for 5,900 industrial goods and 1,297 agricultural goods and reduced tariffs
In the services sector, Malaysia has liberalised its market
to foreign providers of services in various sectors. Malaysia has also liberalised
the following subsectors: telecommunication services, audio visual, healthcare, accounting,
advertising, legal services, architectural and engineering services, construction,
tourism, sea transport, business, and financial services.
Under the guidelines of foreign equity ownership, foreigners
can own 100 per cent of companies that export 80 per cent or more of their production.
For projects exporting between 51 per cent to 79 per cent of their production, foreign
equity ownership of up to 79 per cent may be allowed. In the telecommunication industry,
the Government has recently allowed foreigners to hold up to 61 per cent equity in
local telecommunication firms from the 49 per cent, presently. This relaxation will
make the industry more attractive to foreign investors and make it easier for the
industry to raise funds.
Policies based on market forces would be adopted as far as
possible. Among others, the recommended measures include the following:
- The use of price controls would be limited to essential goods
where sharp price increases can pose a problem in maintaining social cohesion.
- Selective imposition of price control should be introduced
only during the crisis and should be for a limited period only.
- New controlled items would only be introduced after a thorough
- Ownership of
Property by Foreigners
Due to the current economic downturn, the property sector is
facing a crisis due to oversupply of commercial and office space. Property prices
are expected to fall by 20-30 per cent, mainly due to the glut in condominiums and
commercial and office space. Since local demand is insufficient to absorb the supply
of residential property, relaxing foreign ownership can alleviate the crisis facing
The following measures are recommended to encourage
the purchase of local properties by foreigners:
- Allow foreign interests to acquire all types of residential
property with values exceeding RM250,000. Automatic approval will be given by FIC
for applications that fulfil the stated conditions. This relaxation pertains to completed
projects as well as projects that are at least 50 per cent completed.
- Allow foreigners to acquire shop houses (2 floors and above),
commercial and office space of value exceeding RM250,000 without the conditions on
local equity ownership clause.
- Ensure that all the above acquisitions are financed through
funds from abroad.
- Review the policy on foreign ownership of property once the
economy revives. This review does not in any way apply to properties already bought.
5: Improve Public Relations
There is the need to improve the image of the country both
domestically and overseas. The government should consider using professional image
and public relations consultants to project the countryís image both domestically
and overseas. Relevant strategic audiences would be targeted with the message that
Malaysia should be differentiated from other emerging countries in various ways,
including its economic fundamentals, financial sector resilience, and political stability,
and its commitment to act on reforms. In addition, the following are recommended:
- Weaknesses existing in the system should be openly acknowledged
by the relevant authorities, which should demonstrate the determination to rectify
- There should be close cooperation with international and multilateral
organisations, such as World Bank, IMF, ADB, Bank of International Settlements, which
can play an important role to emphasise their positive messages on Malaysia.
- Any change in the rules and regulations in KLSE should only
be undertaken after adequate notice and not implemented abruptly or arbitrarily.
6: Improve the Dissemination of Economic Information
On March 1998, the government announced measures to promote
transparency in the dissemination of financial and corporate statistics. The availability,
accuracy, and reliability of the statistics supported with the efficient system of
dissemination are necessary for effective planning and decision making. The main
public sector agency responsible for data collection, processing and dissemination
is the Department of Statistics (DOS). In addition, other key agencies that publish
economic statistics include Bank Negara Malaysia (BNM), Ministry of Finance (MOF),
Economic Planning Unit (EPU) and Malaysia Industrial Development Authority (MIDA).
There is the need for economic information to be readily available,
reliable, and timely. The statistics should be provided at frequent intervals and
all users should be given equal access to the statistics generated by Government
Since there are many agencies involved in the collection and
dissemination of statistics, co-ordination among them is essential. The Statistics
Act, 1965 restricts the amount of data made available to protect confidentiality.
However, to prevent too many restrictions, there is the need to review the Act in
the interest of ensuring greater flow of information to the users. The review of
the Act will take into account the ease provided by computers in the processing and
dissemination of data. The statistics released to the public should be presented
effectively to avoid misinterpretation.
The following measures are recommended to improve the dissemination
of economic information:
- A more liberal approach should be followed in the dissemination
of statistics and the parameters of confidentiality should be narrowly defined.
- A consultative committee between the government agencies that
publish economic data and the users of such information should be established.
- The agencies involved in the dissemination of economic data
including financial data should undertake the following:
a. Pre-announce the date of its publication and ensure
that periodic data be released on the date fixed;
b. Ensure that the data released assist in the strengthening of business confidence.
In this context, groups of data may have to be released simultaneously so that one
set of data that have negative implications can be considered in conjunction with
another favourable set of data.
c. issue a detailed media statement that explains the data, how it was computed
(in the case of indices), and the strengths and limitations of data or information;
d. briefings be held for media and interested parties to explain details and
clarify the issues raised;
e. the information should be made available on Internet with provisions for
f. establish websites and, as a matter of principle, provide up-to-date data
on a real time basis. Data released to the public must simultaneously be made available
on the agencyís website.
- In disseminating statistics to public, attention should be
given to its presentation to facilitate better comprehension by users as well as
to educate the public.
- Study the role of the media and BERNAMA as an intermediary
- The Statistics Act 1965 should be reviewed to consider the
present situation and future trends of the economy.
- DOS should be restructured in accordance with the review of
the Statistics Act 1965 and appropriate measures should be taken to strengthen its
role in the collection, processing and dissemination of data for public consumption.