ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Economy

Malaysia eases currency protections as ASEAN vies for investment

Region's economies embrace deregulation to capitalize on US-China tensions

Malaysia's central bank hopes the move will improve the country's position in global supply chains and attract foreign direct investment. (Source photos by AP and Reuters) 

SINGAPORE -- Malaysia is easing rules around its currency as peers in the Association of Southeast Asian Nations compete for job-creating investments from multinationals diversifying away from China.

Bank Negara Malaysia, the country's central bank on Thursday eased regulations to allow companies to hold all of the export earnings in dollars and other foreign currencies. Companies since 2016 have faced a de facto requirement to convert more than 75% of proceeds from exports into ringgit.

The bank says the move is aimed at improving Malaysia's position in global supply chains and attracting foreign direct investment. It marks a shift toward promoting trade and investment from a stance that had favored protecting the local currency.

Companies will also be allowed to pay for products and services related to supply chains overseas in foreign currencies, as well as to extend the collection period of proceeds from exports.

For foreign companies, the eased rules cut currency conversion costs, making it beneficial to locate factories or offices in Malaysia. Foreigners can reduce the risks of holding funds in ringgit exposed to fluctuations.

Malaysia is not alone in signaling that it is open to global business.

Indonesia in February started enacting provisions of an omnibus law that took effect last November with a goal of drawing such investments. Regulatory contacts for business approval, which had been dispersed across ministries, were consolidated into an online portal, among other steps.

Indonesia's complex regulations and rigid employment contracts have discouraged foreign companies from doing business in the country. The omnibus law also includes provisions that clarify conditions for dismissing workers and reducing companies' payment burden for retirement allowances.

Thailand's government has also begun considering proposals to ease regulations on real estate purchases by foreigners, according to local media reports.

In March, the government approved an initial plan to promote investment meant to help Southeast Asia's second-largest economy after the pandemic. Relevant agencies were given a month to provide details for the plan, which will be presented to the Center for Economic Situation Administration. The plan is expected to include measures to allow foreigners to more easily buy property in Thailand, which is expected to attract high-income retirees from abroad.

Foreign direct investment flows into ASEAN countries have dropped sharply since the coronavirus pandemic began. These flows came to $107 billion in 2020, down 31% from a year earlier, according to data from the United Nations Conference on Trade and Development (UNCTAD).

Malaysia and Thailand were among the hardest-hit ASEAN members, with FDI declines of 68% and 50%, respectively. Because both countries' economies rely on exports, lower rates of foreign investment pose a risk for future growth.

Tensions between the U.S. and China over trade and technology offer ASEAN countries a chance to market themselves as an alternative destination for manufacturing investment. Southeast Asia has advantages including low wages and geographic proximity to China. Deregulation could help burnish the ASEAN members' appeal as business-friendly economies, analysts say.

"ASEAN-10 had enjoyed significant growth in FDI and related structural upgrading over the past several years prior to the pandemic," said Astrit Sulstarova, UNCTAD's chief of FDI trends and data.

"It suffered a drastic decline of FDI flows in the biggest FDI recipient countries of the subregion," Sulstarova said. "Looking ahead, ASEAN may lead the regional FDI recovery due to its solid fundamental determinants for FDI and its steady progress in intra- and inter-regional integration."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends January 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more