31. Smart partnerships will not only broaden the domestic market but also involve the use of services of foreign expertise in management to gain access to international markets. As such, we need to be open in our efforts to attract FDI. We must acknowledge that in a borderless world, large international conglomerates have greater choices in their investment decisions while countries are keenly competing to attract FDI.

Malaysia’s Position in the Era of AFTA and WTO

32. As we are located strategically in ASEAN and have some of the best infrastructure facilities in the region, most foreign investors see Malaysia as a base for investments in the ASEAN region, particularly in the era of AFTA and WTO. We should, therefore, take advantage of this special position. For example, KLIA which is recognised for its engineering and architectural excellence must be exploited to its full potential. KLIA must be made the regional hub and spoke not only for aviation services but also the regional distribution and transshipment centre. In this regard, foreign expertise can be used, if necessary, and their participation in managing the nation’s airports can also be considered.

33. As an open economy that is highly dependent on external trade, we need to further enhance our shipping capacity. In this regard, I propose that the National Shipping Fund be increased by another 1 billion ringgit as the 1.1 billion ringgit allocated earlier has been fully utilised. To ensure that this Fund benefits domestic shipping companies, the guidelines will be reviewed. I hope that domestic shipping companies will utilise this facility to enable them to compete in a borderless world.

Strengthening the Financial System

34. The Capital Market Master Plan and the Financial Services Master Plan are in the final stages of preparation. Our challenge is to coordinate these two master plans so that we will have a holistic approach in further strengthening the nation’s financial system.

35. The capital market will be further accelerated to support national economic development. The Government has undertaken a number of measures to reduce reliance on the banking system for the financing of economic activities. This is aimed at avoiding a recurrence of the mismatch caused by the financing of long-term projects with short-term loans from the banking system as experienced during the last financial crisis. In this regard, the bond market will be further broadened and deepened to play an expanded role in financing new economic activities. The Government will continue to undertake benchmarking through regular issuance of Government Securities. The 500 million US dollar bond raised recently by the Government in the international market received overwhelming response from foreign investors. To further strengthen the bond market, I propose the stamp duty and Real Property Gains Tax (RPGT) relating to the issuance of asset-backed securities be abolished.

36. The equity market is an important component of the financial system. While KLSE has recovered from the lows of the crisis, we believe that the market is still undervalued due to misconceptions and the lack of understanding among portfolio managers. Efforts need to be intensified in disseminating accurate, timely and effective market information as well as forging better communications with foreign investors. In this regard, a new unit will be established in KLSE that would be responsible for enhancing communications with international fund managers.

37. In further consolidating the equity market, the Government will review policies with respect to the participation of institutional funds, such as EPF in the equity market. In addition, we will standardise the stamp duty rates for all transactions at KLSE involving foreign investors, whether they are undertaken through foreign brokers or directly through local brokers.

38. Restrictions in the movement of the ringgit and the US dollar peg have brought stability to the business and trade environment. The nation’s exporters and entrepreneurs have been able to pursue their business activities abroad in an environment of certainty. In contrast, in some countries, exporters and entrepreneurs have incurred large losses as a result of volatility in exchange rates. In addition, foreign investors in Malaysia have also benefited from this regime as the stable exchange rate has preserved the value of their investments and profits. The Government will continue to assess the effectiveness of the ringgit peg with respect to its costs and benefits to the nation.

39. Aside from the ringgit peg, the Government imposed a levy of 10 per cent on profits repatriated from short-term portfolio investment. This measure is to discourage large outflows of short-term capital that could destabilise the nation’s financial system. As the capital market environment has improved, I propose that the levy on portfolio profits repatriated after one year be abolished.

Corporate Governance

40. Initiatives to strengthen the financial system will be complemented with efforts to ensure stronger, more responsible, transparent and accountable management. While many regulations and laws have been put in place, they do not necessarily guarantee good corporate governance. The Government has spearheaded measures in corporate governance, such as restructuring the management of companies to ensure that executive powers are not concentrated in any one individual. However, I regret that the move to improve corporate governance has been viewed with cynicism. It is not the Government’s intention to burden the corporate sector with excessive laws and regulations but to ensure that markets remain strong and investor confidence is maintained. Excessive laws and regulations are in fact not needed if the corporate sector adopts best practices in corporate governance. The Government is aware that excessive laws and regulations can curb entrepreneurship and are adverse to risk taking while returns are not commensurate with risks taken. The main challenge to the corporate sector is to move towards greater self-regulation to ensure that the legal and regulatory environment remains conducive

to promoting progress and excellence. 

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