PSUKPP/21/0353/46(36)
21 December 2016
Yang Berhormat Dato’ Sri Mustapa Mohamed
Minister of International Trade and Industry
Ministry of International Trade and Industry
Menara MITI, No. 7,
Jalan Sultan Haji Ahmad Shah,
50480 KUALA LUMPUR
Yang Berhormat Dato’ Sri,
BANK NEGARA MALAYSIA’S MEASURE REQUIRING EXPORTERS TO CONVERT 75% OF FOREIGN EXCHANGE PROCEEDS TO RINGGIT MALAYSIA HARMS THE INVESTMENT CLIMATE IN PENANG AND MALAYSIA
The Penang State Government wishes to highlight to Yang Berhormat Dato’ Sri the recent announcement by the Financial Markets Committee (FMC), in collaboration with Bank Negara Malaysia (BNM) on the initiative to develop the onshore financial market, which has caused concern to the State Government and exporters that FMC’s measure will harm the investment climate and reduce Foreign Direct Investments (FDI) into Malaysia.
2. In the statement on 2 December 2016, FMC announced the following measure for exporters:
“Exporters can retain up to 25% of export proceeds in foreign currency. They may hold higher balances with approval from BNM to meet their obligations in foreign currency. Payment by resident exporters for settlement of domestic trade in goods and services is now to be made fully in ringgit.” excerpt from the statement by Financial Markets Committee (FMC) in collaboration with Bank Negara Malaysia (BNM)
3. Based on the feedback received from the industry, this measure by FMC will further complicate export transactions which are usually transacted in foreign currencies, especially in US Dollar (USD). Exporters also usually use foreign currency in cost hedging to reduce their cost and import input prices. Although exporters usually receive their export proceeds in foreign currency, any foreign inputs for production which are imported are also usually paid in foreign currency. Although residents (not limited to exporters only) are allowed to hedge import or foreign currency loan obligations into foreign currency up to the value of 6 months import and foreign currency loan obligations, the measure by FMC is still seen to reduce the ease of doing business and would increase cost for exporters.
4. The State Government also wishes to state our concern that with FMC’s announcement, business transactions in Malaysia is expected to be more complicated and may be a factor that will reduce Malaysia’s competitiveness and reduce our appeal as an investment destination to foreign investors considering Malaysia has recorded trade surplus for 18 consecutive years from 1998-2015.
5. Furthermore, the State Government also wishes to highlight that several trade associations and industry groups have already released statements regarding FMC’s measure and has proposed that the requirement to convert 75% of the export proceeds to Ringgit Malaysia should be abolished or reduced to a lower and more reasonable rate at 25%. The State Government is of the opinion that FMC’s requirement should not burden industry players who are already facing prevailing business challenges and competition from other countries.
6. The State Government sincerely hopes that Yang Berhormat Dato’ Sri will convince Bank Negara Malaysia to take this issue into consideration and will convey to them the concerns of the industry. We wish to thank Yang Berhormat Dato’ Sri for your kind co-operation and attention and also on the Ministry of International Trade and Industry’s effort to strengthen the industry and investments in Malaysia.
Thank you.
Yours sincerely,
(LIM GUAN ENG)
Chief Minister of Penang