The blueprint for controversy - capital controls used by the Malaysian government

Business Asia, Sept 13, 1999

Following are the key facts about capital controls imposed by the Malaysian government.

CONTROLS ON FOREIGN PORTFOLIO CAPITAL

For ringgit assets held for less than 12 months, the proceeds from their sales have to be credited to specially denominated accounts, called external accounts. These are ringgit accounts held by foreigners either in Malaysia or overseas.

Funds held in external accounts in fixed deposit form could not be converted into foreign currencies for repatriation if the deposits were placed for less than 12 months from September 1, 1998.

The holding rule applied to Malaysian assets in any form, including shares.

EASING OF FOREIGN PORTFOLIO CONTROLS (announced on February 15).

Controls which forced principal amounts of capital, excluding foreign direct investments, to remain in the country for one year from September 1, were replaced by a system of graduated levies, with the exit tax declining the longer the principal is kept in Malaysia.

Principal amounts brought in before February 15 and repatriated within the seven months from September 1, attracted a levy of 30 per cent.

The rate fell to 20 per cent if kept in Malaysia for between seven months and nine months, and 10 per cent if kept in Malaysia up to 12 months.

For principal amounts kept in Malaysia exceeding 12 months on September 1, 1999, the exit levy drops to zero.

Principal amounts brought in after February 15 were not taxed upon repatriation.

For profits on investments made after February 15, there is a 30 per cent tax on investments repatriated within one year, and 10 per cent on those repatriated after a year.

For investors who hold investments prior to September 1, 1998, to after September 1, 1999, there is no tax on either principal or profits from those investments.

RINGGIT PEG

The retail exchange rate of the ringgit was fixed at 3.7700/3.8300 per US dollar for telegraphic transfers and 3.7600 for overdrafts.

TRADING OF RINGGIT CURRENCY

Settlement of foreign exchange transactions and contracts for sales of securities executed before 1 pm on September 1, 1998, only allowed to be effected until September 9, 1998.

CONTROLS ON TRADE IN GOODS AND SERVICES

All settlement of exports and imports have to be made in foreign currencies.

CONTROLS ON CREDIT

Domestic credit facilities to non-resident correspondent banks and non-resident stockbroking companies are not allowed.

CONTROLS ON MOVEMENT ON CURRENCY NOTES

From October 1, 1998, travellers were allowed to import or export not more than 1000 ringgit per person. No limits were placed on the import of foreign currency. The export of foreign currencies by resident travellers was permitted up to maximum of 10,000 ringgit or its foreign currency equivalent.