MALAYSIA is taking a tougher stance to ensure that a well-considered market approach is adopted to avoid the fallout of troubled industries and companies affecting the financial system.

First Finance Minister Tun Daim Zainuddin said there should be no "bailing out" of these corporations using public funds while private investors and lenders have to take their appropriate "hair-cuts".

"The decision of the Government not to issue guarantees for Renong (Bhd) and the central bank's takeover of MBf Finance (Bhd) illustrates this stance," he added.

Daim said although businesses that were badly managed should be allowed to fail, there may be some grounds for Government assistance particularly if these corporations have national and strategic interests.

He added the collapse of these industries and companies would break up the productive capacity and the investments in manpower as well as facilities built over the years.

The failure of these corporations, because of their size and importance, would have far-reaching economic and social implications, he said at the Washington SyCip Policy Forum in Manila yesterday.

Daim was the guest speaker at the forum. The text of his speech entitled "The Challenge of Governance in the Asian Economic Crisis: Private Interests, Public Good and the Role of Public Policy" was issued in Kuala Lumpur.

He added among the first steps to revive investor confidence and restore economic stability was reforming the structure of corporate governance.

Daim said Governments must lead the process of improved corporate governance by implementing reform measures so that the legal and regulatory framework is consistent with accountable, transparent and equitable corporate governance.

He added Governments should legislate for higher standards of corporate accounting, auditing and reporting standards.

"In addition, there should be measures to prevent the abusive insider behaviour and impose strict discipline with punitive measures without fear or favour in the case of violations and misconduct."

Daim said high on Asia's list of reforms is establishing laws governing the design of contracts and bankruptcy procedures.

"The regulatory framework should be strengthened so that private sector operations can function more effectively and efficiently."

Daim, who is also the National Economic Action Council executive director said the common challenges that needed to be addressed by East Asia include efficient allocation of the reduced flows of investments.

Other challenges include establishing more stable corporate financing structures that are less prone to external shocks and recapitalising viable companies and financial institutions

The East Asia region also needs to regain the confidence of international private investors and lenders, deepening domestic equity markets and improving the management and risk assessment practices among financial and corporate institutions.

Daim said Malaysia is seeking to enhance transparency by improving disclosure by corporations and improving ownership structures to boost investor confidence.

"Several measures have been taken, including amending several legislation and rules, to raise the standards of corporate governance in Malaysia."

He said the recommendations from the Finance Committee on Corporate Governance, which was set up recently, are currently under consideration.

"We hope that when adopted, the country would have among the best code of corporate governance around, supported by the appropriate reform of laws regulations and rules."

Arcticle extracted from New Straits Times, Malaysia


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