Malaysia Eases Controls on Foreign Investors’ Funds

Malaysia lifted a ban on foreign portfolio investors taking money out of the country, seeking to restore international confidence and attract the funds it needs to rebuild its shattered economy.

Fund management firms--including Jardine Fleming and Aberdeen Asset Management Asia Ltd., with $18 billion trapped in Malaysian stocks and bonds since capital controls were imposed in September--will be able to take their money out of the country, paying a graduated “exit” tax of as much as 30%.

Malaysia’s new rules draw from similar exit taxes imposed in Chile as well as a Taiwanese policy favoring “most-preferred investors” and encouraging long-term portfolio investment, fund managers said.

Foreign fund managers “said they want to come back into Malaysia if we do this,” Finance Minister Daim Zainuddin said at a briefing from which the foreign press was barred. “We think this is best for the country.”

The 5-month-old ban on foreign investors repatriating funds made Malaysia a pariah for global investors, kicking it out of Morgan Stanley Capital International indexes and earning it near-junk status from global credit-rating companies. Prime Minister Mahathir Mohamad made matters worse by blaming foreign investors for Malaysia’s troubles and deepening the flight of capital from the country.

The amount of money leaving Malaysia as a result of the new plan probably will offset the foreign funds it attracts, investors said. Malaysia needs to raise about $15.8 billion through 2000 to recapitalize its banks and bolster an economy battling its deepest recession in four decades.

“Some money will go in and some will go out,” said Gary Greenberg, a managing director at Van Eck Global Asset Management in New York, who doesn’t plan to devote any more of the $100 million he oversees to Malaysia. “The only thing that really excites investors in Asia right now is the restructuring theme,” he said, referring to signs that companies are cutting costs, paying off debt and firing workers to boost competitiveness.

Kuala Lumpur’s benchmark stock index surged as much as 2.3% before Daim’s announcement. The index closed the day up by 8.48 points, or 1.49%, at 577.32.

Malaysia’s policy flip-flops haven’t endeared the country to foreign investors. The country has imposed and lifted trading bans and changed trading rules several times since Southeast Asia’s currency crisis began 18 months ago.