Malaysia’s Defiant Surrender Key points:+ Malaysia’s currency controls in September 1998 was a signal of the government’s refusal to accept any blame for its financial troubles, and its readiness to make foreign investors suffer for the sins of the international markets.+ One control was preventing foreigners from taking money out of the stock market for a year-lifted on February 4, 1999.+ On February 4th, Malaysia’s currency still worthless abroad.+ Malaysian government imposed hefty penalties on investors:If money invested before February 15th and repatriated before the end of March-30% levyIf money invested after February `14th and repatriated anytime after-30% tax on 1st year profits.+ Malaysian government targeted only certain foreign direct investors.+ New FDI commitments fell by 12% in 1998.+ The bigger question surrounding the controls has always been the suspicion that they were being used to rescue well-connected businesses, a comment which the Malaysian’s prime minister angrily rejects. Analysis: The Malaysian government clearly made the wrong move by imposing controls last September on foreign capitals. It seems as though they did not analyze the costs and benefits that Foreign Direct Investors can bring to its home country. Especially when there is an estimated $10 billion in investments in Malaysia. (This accounts for over a third of the country’s foreign-exchange reserves.).
The Malaysian government’s actions relate to the characteristics of a radical view ideology. They see multinational enterprises as a tool for exploiting their country and foreign investors extract profits and take them to their home country, giving nothing of value to Malaysia. It seems as though they overlook the fact that FDI’s can be an important source of technology, and jobs can stimulate the overall economic growth of the country. Despite Malaysia’s loosening of its controls, they are still making it extremely difficult for current investor to flee. The penalties seem to be just another way of finding a short-term solution to their long- term problems. They also overlooked the fact that its corporate sector and banking industry are still heavily burdened by debt. What the decision to end the lock-in period for foreign investments will do, however, is sharply reduce the danger of foreign money rushing out of Malaysia this September when the lock-in period was to have expired.