1 Malaysia originally imposed an outright ban on repatriations. See Memorandum to International Members No.
19-98, dated September 2, 1998. The Institute sought an exemption from this ban for investment companies
registered with the US Securities and Exchange Commission. See Memorandum to International Members No.
28-98, dated November 6, 1998. Although the Malaysian Securities Commission never acted on that request, the
ban was replaced with a graduated exit levy system on February 4, 1999. See Memorandum to International
Members No. 7-99, dated February 4, 1999.
[11912]
May 26, 2000
TO: INTERNATIONAL COMMITTEE No. 18-00
EMERGING MARKETS ROUNDTABLE
RE: INSTITUTE RESPONDS TO REQUEST BY MALAYSIAN REGULATOR
______________________________________________________________________________
The Malaysian Securities Commission recently asked the Institute how US fund managers view the
exit levy imposed on foreign investors in Malaysia. Since September 1, 1998, Malaysia has used currency
controls to restrict foreign investors’ repatriation of their investments. Since February 1999, repatriations
have been permitted, subject to an exit levy. The amount of the levy has steadily decreased from a maximum
rate of 30% of principal when it was first introduced to the current rate of 10% of capital gains.1 After
discussing the levy with the International Committee and the Emerging Markets Roundtable, the Institute
provided informal advice to the Malaysian authorities, as follows.
We stressed that while the 10% capital gains rate is a great improvement in the rate of the levy, the
existence of a levy in any form continues to make Malaysia less attractive to investors, particularly vis-a-vis
other countries in the region that do not impose levies upon the repatriation of assets. We pointed out that
there remain significant administrative burdens in monitoring investments in order to properly calculate the
levy and that the levy continues to give rise to valuation issues for US mutual funds in determining how to
take it into account on a daily basis in valuing their Malaysian holdings. We suggested that these burdens may
encourage foreigners to seek equivalent investments offshore, as evidenced by the fact that Institute
members’ Malaysian exposure appears to have decreased significantly since Malaysia originally put the exit
levy in place.
We also expressed concern that the levy, which was originally imposed as a short-term crisis
management technique, appears to have become permanent. This would seem unnecessary since the
Malaysian currency and economic crisis seems to have passed.
Robert C. Grohowski
Assistant Counsel