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October 30, 2000
Malaysia's Finance Minister Moves To Attract More Foreign Investors By CRIS PRYSTAY Staff Reporter of THE WALL STREET JOURNAL KUALA LUMPUR -- Malaysia's budget is long on measures aimed at fostering a "knowledge" economy, but is short of incentives to boost consumption and foreign direct investment, both of which analysts say are needed to sustain the country's strong economic growth in the face of slowing global demand for its exports. Malaysia Budget Expected to Include Increase of Infrastructure Spending (Oct. 25) Upheaval in Other Parts of the Globe Threatens Asian Economic Recovery (Oct. 16) Foreign Investment in Asia Rose by $106 Billion in 1999, U.N. Says (Oct. 4) In his budget speech Friday, Finance Minister Tun Daim Zainuddin said the government expects economic growth to hit 7.5% this year, and slow to 7% in 2001 due to an expected slowdown in the U.S., one of the key destinations for Malaysia's electronics exports. Mr. Tun Daim said the government will spend 4.7 billion ringgit ($1.24 billion) infrastructure on projects to help boost the domestic economy, a move widely expected by analysts, but he delivered none of the tax cuts forecast by market watchers. The finance minister did offer reinvestment incentives for foreign manufacturers, and axed a 10% levy now charged on portfolio funds repatriated after one year, part of the capital controls first imposed in September 1998. But he didn't say when the levy on portfolio funds withdrawn within one year will go, nor did he offer any new initiatives to attract fresh foreign direct investment. "The overall spirit of the budget was to pump up consumption spending and FDI [foreign direct investment], and that didn't materialize," says Sebastian Chang, head of research at Vickers Ballas Securities in Kuala Lumpur. The budget mandated modest tax rebates of about $180 for low-income families; it contained neither the cut to personal-income tax, nor to the amount employees contribute to the Employee Provident Fund, that economists widely expected. "The pumping-up of consumption spending may not be that great at all," says Mr. Chang. While figures for foreign direct investment, traditionally a key contributor to economic growth here, increased sharply this year for the first time since the regional economic crisis, the minister's economic report shows most of that growth came from a few bulky investments from the Netherlands, likely large oil projects by Royal Dutch/Shell Group, analysts say. Investments from the U.S., Japan and Singapore, in recent years Malaysia's biggest investors, are still down from last year. In his speech, Tun Daim made strong statements about the need to
attract more foreign investment to expand capacity and transfer both technology and training, and added that Malaysia welcomes the presence of foreign investors in "strategic alliances in sectors such as ICT [information technology], energy, ports and the financial sector." These remarks are a departure from the often bristling stance the government takes with foreign investors, analysts said. But there were no concrete measures...