Geert Bekaert and Campbell R. Harvey's


Chronology of Economic, Political and Financial Events in Emerging Markets




Major Political and Economic Events




Government began a discrimination program in an attempt to reduce foreign held shares of the Malaysian economy. In 1970 foreigners held as much as 55%. The government plans to reduce this share to 30% by 1990. The target is overshot dramatically by the end of 1990 when foreign ownership is estimated at 25%.e


The introduction of the Insider Trading Laws.a4


The Kuala Lumpur Stock Exchange (KLSE) was founded.a8


Interest rates and capital accounts were liberalized. Mehrez and Kaufmann Liberalization date. a1


Amount of Malaysian banknotes travelers were allowed to bring into or take out of the country was raised. Restrictions on the export of foreign currencies was lifted.a


Paddy farmers riot for a higher rice support price.a


Fixed exchange rate abandoned and a controlled, Effective Exchange Rate was established, linked to the SDR in combination with a "basket of currencies".a


More exchange controls eased. Traders in commodities futures were allowed to maintain foreign currency accounts in Malaysia.a


Commercial banks ordered to stop lending to Malaysian companies for investment abroad, especially in property and equity shares.a


Foreign exchange controls loosened. Banks allowed to lend foreign currency to residents and borrow funds from abroad.a


Commercial banks were discouraged from using funds mobilized within Malaysia to finance investment abroad; such funds should be used to finance the expansion of productive capacity in Malaysia.a3(first entry)


Introduction of base lending rate.s


ADR effective date. (Company=BANDAR RAYA DEVELOPMENTS BERHAD, Exchange=OTC)a11


Limitation on access to domestic credit by companies in Malaysia controlled by nonresidents was relaxed for cases in which such credit was to finance the expansion of production capacity for existing products or the installation of production capacity for new products in Malaysia.a3


Majority equity shares could be held by large foreign firms engaged in capital intensive and resource-oriented enterprises. The possibility of 100% foreign ownership, previously limited to export industries, was extended to other sectors.a3


Controls on interest rates were re-imposed. a1


Banking crises (1985-1998). Causes: economic recession, bursting of bubble, weak demand, shortcomings in regulatory and accounting framework for Deposit Taking Cooperative sector as well as inadequate supervision for DTC sector. Overall change in macro policies: tight fiscal policy and accommodative monetary policy.a2


Authorization was granted for Singapore businessmen to retain up to 70% of the shares in their companies in Malaysia.a3


Investment of more than US$5 million could be referred to the competent Minister directly for final decision, so that the permissible equity ratio of foreign shares could vary on a case-by-case basis.a3


The 30% limit on foreign investment participation could be extended to a majority holding, provided that such investment was export-oriented, entailed importation of high technology, or did not involve the exploitation of renewable resources.a3


The maximum equity stake was limited to 20% for a corporation and 10% for an individual or family-owned companies.a3


Interest payments to nonresidents by the commercial banks were exempted from the withholding tax of 20%.a3


Corporatization Policy whereby approved financial institutions, including foreign brokers, were permitted to acquire up to 30% of local brokerage houses.r


New guidelines for foreign equity in industries noncompetitive with national manufacturers were announced: (1) a company selling at least 50% exports or to companies in the Free Trade Zone or Licensed Manufacturing Warehouse, or employing 350 or more full-time Malaysian workers can have 100% foreign equity; (2)where foreign equity is less than 100%, the balance of the equity is allocated according to the principle of who is the initiator of the projects.a3


An amendment to the Promotion of Investment Act of 1986 specified that: (1) the 5% abatement of adjusted income applied for all resident manufacturing companies; (2) the abatement of adjusted income up to a maximum of 50% should be based on export sales in relation to total sales; (3) the tax relief period may be extended for another five years for certain selected promoted products/activities; (4) the export allowance of 5% was extended to trading companies that export any Malaysian manufactured products.


Malaysian government securities with market-based coupon rates introduced.s


Authorization for borrowing in foreign currency from nonresidents was required only when the loan exceeds the equivalent of M$1 million, or when the total outstanding amount owed by the borrower to nonresidents exceeds the equivalent of M$1 million. Loans in excess of M$200,000 must be reported to the Controller of Foreign Exchange; foreign borrowing in ringgit of any amount requires the prior approval of the CFE. a3


Foreign institutions limit on brokers raised to 49%.r


Malaysia Fund, Inc launched on the NYSE with a net asset value of $98.3 million as of December 1991.aa


Foreign stock brokerage firms were allowed to increase their equity share in local brokerage firms from 30% to 49%.a3


Budget calls for liberalization of foreign ownership policies to attract more foreign investors.r


IFC Liberalization date.i


Bekaert/Harvey Official Liberalization date. [Final and NBER version].


Domestic credit facilities for financing the purchase of immovable property in Malaysia by nonresidents and non-resident-controlled companies were permitted for up to 50% of the purchase consideration; such borrowing was required to be repaid within three years.a3


The limit on new foreign capital equity participation in firms manufacturing impressed/imprinted products was reduced from 100% to 60%.a3


Removal of base lending rate.s


Privatization Master Plan was released. Large automotive company, Proton, and the national electricity company, Tenaga National, are to be privatized in 1992.


Malaysia issued 190 million in bonds that are convertible into shares of state owned communications firm. This marked the first placement of a convertible sovereign bond in the international market.i


New economic plan termed the Outline Perspective Plan is passed. The plan emphasized economic growth and encouraged private, including foreign, investment. This plan served as a successor to New Economic Policy of 1971. Government stated that future regulatory process governing foreign investment would be decided on a case by case basis. However, a 30% foreign ownership restriction was still in affect so that the policy might not have been fully commensurate with a liberalization of the capital account.e


Government imposed restrictions on automobile loans and consumer credits.


First exchange-traded overseas listing.a9


Total borrowing by residents in foreign currency from domestic resources to finance imports of goods and services, or to pay interest or repay principal on loans became subject to limits.a3


Central bank raised the statutory requirement reserve for financial institutions from 7.5% to 8.5%.


Borrowing under the Export Credit Refinance Facilities by nonresident-controlled companies would be considered domestic borrowing.a3


First ADR announced.aa


Ministry of Finance approved creation of Kuala Lumpur Options and Financial Futures Exchange to be opened in near future. Also, Malaysian cabinet approved the formation of a SEC to be designed along the lines of the Australian SEC.


Offshore guarantees obtained by residents to secure domestic borrowing would be deemed as foreign borrowing.a3


The guidelines on foreign equity capital ownership were liberalized. Companies exporting at least 80% of their production were no longer subject to any equity requirements.a3


Residents and the offshore companies in Labuan were prohibited from transacting with the residents or dealing in the currency of the Federal Republic of Yugoslavia without specific prior approval from the Controller of Foreign Exchange.a3


Controls on interest rates were completely eliminated. Mehrez and Kaufmann's second Liberalization date. a1


In early 1993 Malaysia lifts its foreign ownership limit of 30% on manufacturing firms. Malaysian central depository begins operating a scripless trading system through computerized clearing and settlement process.i


The Malaysian Securities Commission (SC) assumed regulatory responsibilities which had been distributed over a number of government bodies.a8


Moody's upgraded Malaysia's rating from A3 to A2.i


Resignation of deputy Prime Minister Ghafar Babar is well received by the market.


Nonresident-controlled companies involved in manufacturing and tourism-related activities were freely allowed to obtain domestic credit facilities to finance the acquisition and/or the development of immovable property required for their own business activities. Nonresidents with valid work permits were allowed to borrow freely from domestic financial institutions to purchase resident property for their own accommodation.a3


Adopt capital control measures to curb short-term capital inflows.x Residents were prohibited to sell the following Malaysian securities to nonresidents: banker's acceptances; negotiable instruments of deposit; Bank Negara bills; Malaysian government treasury bills; Malaysian government securities with a remaining maturity of one year or less; and Cagamas bonds and notes with a remaining maturity of one year or less.a3


Ban implemented preventing British firms from participating in public sector contract bidding.


Residents were prohibited to sell to nonresidents all forms of private debt securities with a remaining maturity of one year or less, and the restrictions on the sale of Malaysian securities to nonresidents was extended to both the initial issue of the relevant security and the subsequent secondary market trade.a3


The restriction on the sale of Malaysian securities was lifted and residents were permitted to sell to nonresidents any Malaysian securities.a3


Malaysian cabinet lifted its 7 month old ban preventing British firms from participating in public sector contract bidding. Prime minister Mahathier Mohammad dissolved the current government and called for a general election. Perception was that several companies would benefit from government contracts in an effort by politicians to raise funds.


Kuala Lumpur Stock Exchange limits the suspension period for listed companies to no more than 10 business days. Improves the image of the exchange and curbs speculation. Government would amend legislation related to corporate disclosure to ensure that company information is more reliable and timely.


Nonresident-controlled companies were allowed to obtain credit facilities, including immovable property loans, provided that at least 60% of their total credit facilities from banking institutions were obtained from Malaysian-owned banking institutions. Nonresidents with valid work permits were allowed to obtain domestic borrowing to finance up to 60% of the purchase price of residential property for their own accommodation. Residents were allowed to borrow in foreign currency up to a total of the equivalent of RM 5 million from nonresidents as well as from commercial banks and merchant banks in Malaysia.a3


A two-tier banking framework was introduced for commercial banks.a13


Reserve requirements were reduced.a13


Laeven's banking liberalization (FLI) dates.a13


A two-tier banking framework was introduced for commercial banks.


Ceilings on the net external liability positions of banks, imposed since Jan.24, 1994, were removed.a3


Tax cut implemented: maximum personal income tax lowered from 34% to 32% and corporate rate is lowered from 32% to 30%. Tax cut abolished import duties on more than 2600 items, including 600 food and 1400 raw material. Warrants on stocks are allowed by the securities commission. 


Corporate residents with a domestic credit facility were allowed to remit funds up to the equivalent of RM 10 million for overseas investment purposes each calendar year.a3


Kuala Lumpur Stock Exchange regulations revised the commission structure. Foreign brokers cannot be exchange members. Foreign brokers complained that even the new schedule would slash profits on large transactions.


Local brokers noted that foreign investors were moving money into Hong Kong equities and ignoring the Malaysian market. The 1996 Budget proposal: slow the pace of spending on large government construction projects and new restrictions on foreigners' purchases.


Central bank raised the requirement on statutory reserves--funds that banks keep interest free with the central bank--from 11.5% to 12% of liabilities.


Kuala Lumpur Options and Financial Futures Exchanged opened on 12/15/95.


Short sales regulations put into place. Announced plans to establish an Islamic Index for stocks that comply with Islamic business practices. Public Bank cut its base lending rate. Central Bank wanted major banks to acquire smaller banks. 


Banks gained more ground on expectations of more mergers and acquisitions in the industry. Foreign and domestic investors poured funds into banks after Rashid Hussain announced that it will acquire Malaysian Banking's 75% share of Kwong Yik Bank.


The first prosecution under the Insider Trading Laws.a4


Government approved higher electricity rates. Bank loans grew at 28% in 1996. Government licensed another company to distribute power in an industrial area. 


Government announcements that it will accelerate its deregulation of the banking industry and encourage mergers gave an added boost to the sector. Government also revealed plans to establish an over the counter market, modeled after the NASDAQ. Government introduced its plan at the World Trade Organization to open Malaysia's telecommunications industry to international competition. 


Central bank regulations limit to 20% the proportion of all bank loans to the property industry, effective April 1. Regulations limit the lending of stock purchases to 15% of total loans by commercial banks and finance companies.


Central bank has exemptions to the new lending curbs. Loans made for the purchase of owner-occupied houses will be exempted from the lending curbs. Kuala Lumpur Stock Exchange chairman said the exchange will add 200-300 listed firms by year 2000.


Devaluation of the Thai Baht. Ringgit drops to 38-month lows against the dollar. A sign that Bank Negara has given up its strategy of vigorously defending its currency..


Prime minister Mahathir Mohamad's announcement that the government would not take steps to defend the currency weakened the ringgit. Finance Ministry plans to bolster the ringgit indirectly by cutting imports and scaling back on public projects. Standard and Poor's downgraded the country's credit rating. Kuala Lumpur Stock Exchange imposed trading controls on benchmark stocks. To curb speculation, investors required paying full price for a stock and sellers to deliver all shares before signing the contract. Elimination of short selling which causes panic among investors wanting to hedge positions.


The KLSE instituted the T+5 Rolling Settlement System, applicable to all instruments on the exchange, as an interim step towards T+3 in the future.a8


(Controls on derivatives and other instruments) Restrictions were imposed requiring banks to limit outstanding noncommercial-related ringgit offer side swap transactions to $2 million a foreign customer.a3


S&P downgraded the country's long-term outlook to "negative" from "stable." Prime minister Mahathir called for currency trading control.


Public-listed companies were allowed to buy back their own shares on the KLSE.a8


Prime minister Mahathir Mohamad renewed calls for tighter restrictions or a ban on foreign exchange rate. Malaysia shares tumbled to a four-year low due to the regional weakness.


(Controls on real estate transactions) The quota on sales to foreigners of high-end condominiums was raised from 30% to 50%. Foreigners were allowed to acquire two units of condominiums.a3


Concern about corporate transparency. The closure of Yamaichi Securities in Japan impacted the market.


Moody's and S&P lowered the country's foreign currency rating and also lowered the debt ratings for several leading banks and companies


The government planed to combine 39 finance companies into an "anchor" group of five or six large companies. IMF commented that the country does not need an emergency aid package. A sharp drop in the Indonesian rupiah triggered speculation against the Malaysian ringgit.


The Central Bank would reduce the reserve ratio of Malaysian banks.


The government forecasted 2-3% growth for the year 1998, down from the previous estimate three month ago o 4-5%. Non-performing loans had risen to 8.7% at end-February. Finance Minister Anwar Ibrahim stated that the rules regarding foreign ownership of Malaysian banks would remain unchanged.


Foreigners can hold up to 61% of local telephone companies on a case-by-case basis, up from 49% ceiling.


Malaysia's insider trading laws were amended to broaden the definition of insider trading; increase the range of sanctions, including civil sanctions; require additional disclosure from directors and CEO; and increase the powers of the SC over directors and CEOs.a8


(Controls on real estate transactions) The limitation on the purchase of residential or shop or office space by nonresidents was lifted.a3


Japan's recession could slow down the Malaysian export. Non-performing loans were predicted to more than 20% of banks. The reserve requirements were lowered to 8% of commercial banks eligible liabilities from 10, effective July 1.


Bad loans rose to 8.9% of total bank loans in the second quarter, and the economy contracted 6.8% in the second quarter. T he head of the central bank, Ahmad Mohammed Don, announced his resignation as of September 1.


The exchange rate of the ringgit to the U.S. dollar was fixed at 3.8 RM/US$ and selective capital controls were instituted.a8


Imposition of drastic measures to restrict offshore trading of the ringgit and capital controls, which lock the principal of foreigner’s investments into Malaysia for a yea was announced on September 1. On September 28, the IFC announced it would remove Malaysia from the IFC Investable Asia and IFCI Composite Index, effective October 1The former Finance Minister Anwar Ibrahim was arrested September 20 after calling for the resignation of PM Mahathir Mohamad at a large rally in Kuala Lumpur


Prime Minister unveiled the budget for 1999, that provides for fiscal stimulus measures worth 4 billion ringgit ($1.05 billion). It is the first deficit budget since 1992. The budget deficit triggered violent demonstrations, and an estimated 7,000 people gathered in the capital to protest the spending program. 


The Prime Minister said that Malaysia is not likely to lift its capital controls imposed on September 1 for the next three yearsThe government offered to swap as much as $2.94 billion of delinquent loans held by banks and finance companies for government bonds. 


The central bank recently allowed Britain’s Blue Circle Industries to buy ringgit from foreign investors seeking to repatriate capital under the country’s currency controls. The central bank said it would approve deals similar to the swap between foreign direct investments and portfolio investments.


(Controls on derivatives and other instruments) Capital flows for the purpose of trading in derivatives in the Commodity and Monetary Exchange of Malaysia and the Kuala Lumpur Options and Financial Futures Exchanges by nonresidents do not require approval when the transactions are conducted through a Designated External Account.a3


On February 4, the National Action Economic Committee promulgated a graduated exit tax favoring long-term investors, replacing the12-month holding period for stocks. The graduated exit tax imposes a tax of up to 30% on principal and profits.


Investors were allowed to repatriate the proceeds from portfolio investments, subject to paying a levy. (Controls on capital and money market instruments) The requirement that nonresident holdings of Malaysian securities be kept in Malaysia for at least one year was replaced by a graduated system of exit taxes on capital and capital gains.a3


IFC was reported to plan to reinstate Malaysia to its investable indexes on November 1. The ruling Barisan National coalition won 31 of 48 seats in the Sabah regional assembly election on March 13 , the first litmus test since the controversial dismissal and trial of former finance minister Anwar Ibrahim last year.


Former minister Anwar Ibrahim was sentenced to a six-year jail term, breeding new outbreaks of protests. MESDAQ, Malaysia’s new stock exchange specializing in growth and technology stocks, had its debut this month with the single listing of Supercomal  Technologies.


Repatriation of investments in MESDAQ are exempt from paying the levy.a3


Bank Negara, Malaysia's central bank, called to merge the nation's 21 banks into six groups. GDP grew by 4.1% year-on-year, making the first economic expansion in six quarters. The government changed the two-tiered stock exit tax (10% for long-term investments, 30% for less than one year) to a flat 10% exit tax.


MSCI opted to delay the reinstatement for Malaysia into the Emerging Markets Free and All Country Free Indices from Feb 29, 2000 to May 31, 2000.


Nonresidents were allowed to repatriate proceeds from sales of securities after paying a 10% exit levy.a3


The Dow Jones Global Indexes reinstated Malaysia on Nov. 22. The central bank changed the original design to merge banks into six groups, allowing banks to choose their own merger partners and extending the deadline to complete the mergers to December 2000. The government called for elections on Nov. 29. Prime Minister Mahathir Mohamad won his fifth term on a much-reduced winning margin.


Maylasia's GDP is expected to rise to 5.0% in 2000, after growing an estimated 4.3%.


Malaysia and Singapore settled a two-year dispute, helping allay doubts regarding Malaysia's treatment of foreign investors.


MSCI reinstated Malaysia into the Emerging Markets Free and All Country Free Indices.


A public row among shareholders over the merger plan between Malayan Banking Bhd., the country's largest financial institution, and PhileoAllied Bhd. triggered worries about further resistance to the government's ambitious plans for banking sector consolidation.


The government failed to identify clear initiatives for obtaining foreign equity investment in the proposed 2001 budget.


The United Engineers Malaysia (UEM) planned to purchase Renong, reinforcing a widely held impression that Malaysia's politically well-connected companies arranged deals at the expense of minority shareholders.


Industrial production and manufacturing output growth slowed, due to the slowdown in economies of the U.S., Japan and Korea economies, Malaysia's major trading partners.


Finance Minister resigned.


In the third quarter, the Central Bank cut 50 basis points in the intervention rate.


The government announced an additional 4.3 billion ringgit package to help boost growth through the end of the year and into 2002.


Malaysia's Prime Minister Mahathir Mohamad has announced that the country's new king is to be the Raja of Perlis, Tuanka Syed Sirajuddin, a former army officer.


Police round up thousands of Indonesians and Filipinos in a campaign to curb illegal immigration.


The opposition party Parti Islam SeMalaysia (PAS) announced that it will introduce Islamic sharia law in Terengganu, one of only two Malaysian states that is controlled by the opposition.


Malaysian Domestic Trade and Consumer Affairs Minister Muhyiddin Yassin has announced that restrictions will be imposed on foreign hypermarkets in order to protect small local traders


Veteran Prime Minister Mahathir Mohamad announces that he will resign in 2003. The news sends shockwaves across the country.


The National Justice Party (Keadilan) and the Malaysian People's Party have agreed to form an alliance that will lead eventually to the creation of a new joint party.


In a palpable sign that Malaysia feels it has moved on from the 1997-98 Asian financial crisis, the Corporate Debt and Restructuring Committee (CDRC) closed its doors on 31 July.


Tough new laws against illegal immigrants come into effect, providing for whipping and prison terms for offenders. Laws prompt exodus of foreign workers.


The government budget has offered 10-year tax exemptions for multinationals in an effort to boost investment.


A new regulatory body to govern the burgeoning Islamic investment market has been set up, and the newly-launched Islamic Financial Services Board (IFSB) has reached agreement on the rules and procedures governing the operation of the agency.


Malaysian government unveils investment-boosting measures to counter global uncertainty


Malaysia has removed several hurdles for investors, easing foreign exchange controls, in a move that followed changes to investment-approval procedures.


The central Bank Negara will increase domestic bond issues to 12.1bn ringgit (US$3.2bn) in March, to finance a fiscal stimulus package due to be unveiled on April 7.


The intervention rate was lowered to 4.5% from 5.0%, as the government unveiled a RM2.5bn (US$660m) spending package.


The policy permitting 100% foreign ownership in manufacturing had been extended indefinitely. The policy originally was set to expire on December 31, 2000, then extended until December 31, 2003. b7


Energy, Communications and Multimedia Minister Leo Moggie yesterday resigned as president of the Parti Bansa Dayak Sarawak (PBDS).


Outgoing Malaysian Prime Minister Mahathir Mohamad has indicated that the country will maintain the peg of its currency to the US dollar.


Mahathir called on Asian leaders to publicly endorse the EAEG, which would allow Asian nations to co-ordinate economic and financial policies without reliance on the US and Western-dominated international financial institutions.


Abdullah Ahmad Badawi takes over as prime minister as Mahathir Mohamad steps down after 22 years in office.


Two-year detention orders were issued on five students, whom the authorities are describing as a new generation of leaders of the regional Islamic extremist group Jemaah Islamiyah (JI). The five are being held under the Internal Security Act (ISA), which allows for indefinite detention without trial.


Defense Minister Najib Razak is named as the country's Deputy Prime Minister.


A weekend rally in support of jailed former Malaysian deputy Prime Minister Anwar Ibrahim in his home state of Penang drew only a fraction of the crowds organizers were hoping for.


Prime Minister Abdullah Badawi wins landslide general election victory.


The overnight policy rate (OPR) - a new interest rate framework anchored on an unified and single benchmark rate - came into operation


the government is planning to tighten regulations on the hiring of foreign workers in a bid to curb the oversupply of migrant labor, primarily from neighboring Indonesia.


Regulations on Foreign Investors


Restrictions: no restrictions on foreign investment. Approval needed for acquisition of interest greater than 5 million ringgit, or 15% or more of the voting stock of a company; or total foreign investment in excess of 30% of voting power; or takeover or control of substantial assets of a business in Malaysia. Free repatriation. Free repatriation of profits, dividends, and capital, subject to the completion of exchange control forms for transactions in excess of 10,000 ringgit.

Taxation: 32% dividend tax rate (lower if Malaysia has a double taxation agreement with the foreign country) and no tax on capital gains. a5(first entry)


No change through 2001.a5


Restrictions: The government has offered 10-year tax exemptions for multinationals.

Taxation: Dividend tax rate is 0%. 28% corporate tax rate (petroleum companies at 38%). b1


Restrictions: 1. The policy permitting 100% foreign ownership in manufacturing had been extended indefinitely. 2. The permissible foreign currency account of foreign-controlled companies will be raised to US$70m (from US$10m). 3. rules will be abolished that require companies controlled by non-residents to get at least half of their loans from Malaysian-owned banks.

Taxation: no change.