Appendix 1: Capital Account Restrictions Prior to the 1997 Crisis

Foreign currency loans from non-residents which exceed 1 million ringgit require the prior approval of the Bank Negara. Foreign currency loans in excess of 200 thousand ringgit and less than 1 million ringgit must still be reported to the Controller of Foreign Exchange. Loans in foreign currency by banks in Malaysia to residents must be for business or productive purposes, including (but not limited to) payment for imports, payment of principal or interest on loans from non-residents, or payments for the purchase from non-residents of property in Malaysia or shares. There are three further conditions that apply to loans in foreign currency by residents for the purchase of property or shares: (i) the Foreign Investment Committee must give its approval; (ii) the amount borrowed must not exceed 25 million ringgit; and (iii) repayment of principal cannot be made with funds borrowed in ringgit from residents (IMF, 1995). Borrowing in ringgit from a non-resident, regardless of the amount or purpose, requires the prior permission of the Controller of Foreign Exchange. Offshore borrowing in ringgit is not encouraged by Bank Negara, in line with its stated policy of discouraging the internationalization of the ringgit. All applications for credit facilities by non-residents and nonresident controlled companies require the approval of the Controller of Foreign Exchange; as a matter of policy, domestic financing solely for property acquisition and development purposes are not granted.

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