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APEC DEREGULATION REPORT 2000 - MALAYSIA

APEC Deregulation Report 2000

Malaysia

The Malaysian economy has undergone substantial deregulation since the mid-

1980s. The focus and commitment towards growth and industrialisation resulted in policies that favour liberalisation and deregulation in order to nurture a competitive environment.

Deregulation in the various sectors such as telecommunications, transport and education services as well as financial services have been taking place. This was

in response to the fast pace of economic growth which necessitates faster and

improved delivery of services to match demand for these services. Administrative procedures in relation to investment applications, visas and work permits, taxation and customs procedures have been streamlined to reduce transaction costs for business.

A major privatisation programme was launched in the early 1990s, involving business activities in telecommunications, power generation and supply, ports, airports, highways, posts, telecommunications, railways and sewerage works. A Privatisation Master Plan was drawn up in 1991 to guide the implementation of this programme. Up to September 1998, more than 400 projects were privatised, including those in the construction, manufacturing, infrastructure, transportation and communications. With privatisation, the private sector role in development has been enhanced and market forces allowed to operate in a competitive environment.

Deregulation was further enhanced through the implementation of the concept of Malaysian Incorporated and smart partnerships to foster greater collaboration between the government and the private sector. In line with this concept, the Government undertook further deregulation, simplifying administrative procedures and increasing the transparency of its processes.

Objective

Short/Medium Term

(i) to examine and implement policies on deregulation to enhance

competitiveness and efficiency, taking into account the need for regulation for prudential and supervisory reasons.

Financial Services

Consistent with efforts to create a more efficient, competitive and market driven

financial sector, thereby enabling the sector to assume a more effective role in the economy, Malaysia has continuously reviewed the regulatory framework of the financial sector. Such reviews have taken into account the rapid changes taking

place in the domestic economy, as well as developments in the global financial markets. Many structural barriers that inhibit competition and efficiency have been removed without compromising prudential standards. Major reforms undertaken include:

• revision of the base lending rate (BLR) to make interest levels more responsive

to monetary policy

• introduction of new liquidity management framework to enable banking institutions to manage liquidity in a more efficient manner
  
• enhancement of information on liquidity operations so as to provide clear policy signals on the stance of monitory policy
  

In the securities industry, various measures were also undertaken to ensure an effective regulatory framework and efficient operation of the stock market. These include:

• Allowing the listing of foreign-based companies with Malaysian interests, on the

Kuala Lumpur Stock Exchange.

• Establishment of a financial reporting framework to ensure the independence of standard setting, the issuance of benchmark bonds and the introduction of a T+5 settlement cycle by the KLSE.
  

Recent Financial Sector Measures

Malaysia has continued to implement measures to further strengthen the financial system to compliment measures that were introduced since the start of the financial crisis in mid-1997. This include fine-tuning the rules and regulations to improve their efficiency and competitiveness, while maintaining the safety and soundness of the financial system.

Measures in the Banking System

• With effect from June 2000, domestic-owned banking institutions will be

allowed to offer a full range of internet banking services. The branching policy

will be reviewed in one-and-a-half years to allow incumbent foreign banks to offer internet banking services;

• Domestic banking institutions are allowed to outsource their non-core banking

activities to third parties. The outsourcing is aimed at improving the efficiency

of the institutions;

• To accord greater flexibility to the banking institutions in rewarding their staff and attracting talents, the guideline on wage moratorium for the banking

institutions has been lifted, except for the CEOs; and

• As an effort to promote the development of the bond market, both the resident

and non-resident controlled companies are allowed to issue corporate bonds, without having to seek BNM’s approval. This is subject to the conditions that the proceeds of the bond issues are not used to finance investment abroad or refinance offshore borrowings, as well as meeting the other normal conditions

on the issuance of private debt securities.

Measures To Strengthen the Securities Industry

• Implemented measures towards full disclosure-based regulations including

changes to the policies and guidelines on issue/offer of securities to facilitate the raising of funds through the capital market in mid 1998. These included variations in the requirements for the issuance of convertible securities and warrants, earnings dilution in acquisition exercises, and profit forecast and projection.

• New provisions for securities laws introduced to enhance transparency and investor protection. These amendments are intended to strengthen the regulatory framework for good ethical practices, transparency and corporate governance by requiring accurate and timely disclosures, fair dealing by directors and good corporate governance.
  
• Changes to the rules, regulations and procedures of the stock exchange and its clearing houses to enhance transparency, including trading of listed securities through the Kuala Lumpur Stock Exchange, new disclosure requirements and clearing and settlement.
  

Measures to Enhance Transparency in the Public and Private Sectors

• Companies required to provide more frequent and accurate disclosure of

information on shareholders and borrowings on a quarterly basis

• Companies to comply with standards set by the Malaysian Accounting

Standards Board and Financial Reporting Foundation

• Improve corporate governance through effecting a framework of standards and setting best practices for the industry through the setting up of a high-level finance committee
  
• Review the Malaysian Code on Takeovers and Mergers to enhance clarity and transparency of rules for the protection of minority shareholders
  
• Review rules governing related-party and interested-party transactions to ensure high standards of corporate governance and disclosure and protection of minority shareholders
  
• Improve procedures for privatisation to ensure clear and transparent policies
  

Exchange Control Rule

The introduction of the selective exchange control measures on 1 September

1998 was critical in restoring stability to the financial markets and the economy. The stability accorded by the controls has enabled the country to accelerate the

restructuring of the financial and corporate sector. The controls were implemented pragmatically.

Once stability was achieved, major modifications were made to liberalise the

measures. The major changes introduced in 1999 were the following:

(i) Measures to Replace the 12-month Holding Rule on 15 February 1999.

• As economic conditions stabilized, the rule requiring non-residents to hold their principal sum of portfolio investment for at least 12 months in Malaysia was relaxed. Capital and profits of portfolio investors were allowed to be taken out of the country at any time, subject only to the payment of a levy of between 10% and 30% upon repatriation.
  

(ii) Standardisation of the Levy System on 21 September 1999.

• With the lapse of the 12-month rule on 1 September 1999, there are no controls on portfolio transactions of non-residents except for a flat 10% levy on profits repatriated. The principal sum brought in is permitted to be freely repatriated out of Malaysia at any time without being subject to levy.
  

(iii) Simplification of Travellers’ Declaration Form (TDF) on 15 May 1999.

• Residents and non-resident travelers continue to be required to declare whether they are carrying currencies (notes and travellers’ cheques) within

the permitted limit of the equivalent of RM10,000, but need to only state the exact amounts only if they exceed the limit.

The following measures continue to be applicable:

(i) Approval required for transfer of funds between external accounts, and for

the use of ringgit balances for other than permitted purposes.

(ii) All settlement of exports and imports to be made in foreign currency.

(iii) With effect from 1 October 1998, travelers are allowed to import or export

ringgit currency notes of not more than RM1,000 per person. There are no

limits on the import of foreign currencies by resident and non-resident

travelers.

(iv) FDI transactions remained unaffected and are completely free. There are

no controls on:-

(a) Repatriation of rental income from property investment, dividend, interest, fees and commissions; and

(b) Repatriation of proceeds from sale of investments in immovable property (both principal capital and profits) are not subject to levy.

(v) The exchange rate for the ringgit remains fixed at USD1 = RM3.80.

Malaysia remains committed to the market mechanism and the trend towards

1. But the benefits of the market can only be realized in an

environment of stable and efficient financial markets.

Communications and Multimedia Services

The first step towards deregulation and liberalisation was the privatisation of the

Department of Telecommunications and the opening of the industry to more service providers. The exercise has changed the telecommunication industry

from being monopolistic to one that is highly competitive and service-oriented. The sector has since registered tremendous progress in terms of the provision of services and service quality.

Malaysia now has several telecommunication service providers which have helped to increase the telephone penetration rate as well as provide comprehensive coverage of telecommunication services. The number of licences issued are:

Recent Regulatory Changes

• In July 1998, the Communications and Multimedia Act and the Communications and Multimedia Commission Act were enacted. These two Acts addressed the convergence of legislation on broadcasting, computing and telecommunications.

It came into force on 1 April 1999.

• Five additional Internet Service Providers licences were issued on 1.6.98

bringing the total to seven.

Transport

Aviation

Several measures have been undertaken to deregulate the aviation industry, including the privatisation of the national airline. The management of all airports in

the country has also been privatised. To further facilitate and enhance the provision

of services in the industry, measures were undertaken to ensure that aviation technical regulations are based on ICAO standards and procedures.

Shipping

The operations of major federal ports in the country have been privatised. Maritime laws in respect of safety of navigation are being reviewed to harmonise them with relevant international law and practices.

Roads

The privatised construction of toll expressways facilitates greater mobility. It also removes road mileage limitations and allows a more flexible modal split with rail and shipping. The new expressways have reduced travel time and perceived costs, namely vehicle operating and time-saving costs, leading to reduced costs and increased profits for business.

Rail

The Malayan Railways was corporatised in 1992 and this allows the private entity to

plan and to promote the railway transport as an effective transport mode. An electric commuter rail service project has been completed and commercial operations started in August 1995. The Railways Act 1991 provides a legal framework for the privatisation of railway operations in the country. As a result, three private companies are providing urban rail transport in the Kuala Lumpur area

at this moment in time.

Energy

The formation of Tenaga Nasional Berhad (TNB), as a privatised entity

represented the first step towards deregulation and liberalisation of the energy sector. Further liberalisation was instituted to promote competition and improve efficiency and productivity in the electricity sector. Independent Power Producers

(IPPs) were licensed to add to the installed generating capacities of the existing utility companies. Since 1993, 15 IPPs, including one mini-utility have been

licensed, 11 in Peninsular Malaysia and 4 in Sabah.

TNB itself is undergoing restructuring, in line with the call for liberalisation of the energy market. Its generation business has been spun into a wholly-owned subsidiary, providing transparent costing and pricing. Its transmission and distribution business will undergo similar transformation as the generation business.

To ensure fair competition in the generation sector, an Independent Grid System

Operator will be established to despatch electricity on a competitive basis and it is expected that a more competitive tariff pricing will be provided for the benefit of electricity consumers.

Malaysia will review two major Acts which govern the electricity and gas industry in Malaysia, namely the Electricity Supply Act 1990 and the Gas Supply Act 1993. One of the objectives of the review is to have special provisions in the Acts to promote competition and prevent the abuse of monopoly or market power in the energy sector.

Broadcasting

Malaysia has introduced a number of deregulation and privatisation measures in the

area of broadcasting services.

Privatisation of Broadcasting Services

* Free-to-Air TV (terrestrial) – four private TV networks.

* Cable TV (by subscription) - one regional TV network with 6 channels.

* Satellite TV (by subscription) - one nationwide TV network with 22

channels.

* Free-to-air Radio - six radio stations.

* Satellite Radio - one radio network with 8 channels (ASTRO)

Deregulation of Censorship Role

* Public's role in censorship to be enhanced with the formation of an advisory panel.

* Introduction of a rating system which encourages censorship role to be passed on to parents.

* Media practitioners to implement a system of content self-regulation.

* Malaysia's satellite television broadcaster (ASTRO) to exercise self- censorship and self-rating over all programmes.

* No censorship for broadcasting materials on the Internet.

Higher Education Services

The provision of higher education services is a main priority of the government.

The need to continuously expand the capacity of existing institutions, to establish new ones and to strengthen the delivery system of education has been recognised.

As a result, significant steps have been taken recently to deregulate and liberalise the education sector, namely:

(i) revision/replacement of legislation - The Education Act 1996 replaced the previous legislation, with the intention of increasing the effectiveness of the education system. The teaching of science and technical subjects in the English language was permitted. The University and University Colleges Act

1971 was amended to allow for the corporatisation of universities. The

Private Higher Education Institution Act allows the private sector to establish

degree granting institutions and for foreign universities to set up branch campuses.

more liberal rules for the recruitment of foreign teachers and educators were put in place.