Foreign cash flies out of Malaysia
THE MALAYSIAN central bank was forced to set up a telephone hotline yesterday to deal with the rush of foreign investors trying to withdraw their funds, writes Diane Coyle.
The move followed Malaysia's recent lifting of a six-month ban on capital flows, to be replaced next week by a tax of up to 30 per cent on funds moved out of the country.
The flight of newly released money sent Malaysian shares tumbling 5.85 per cent in heavy trading. The fall dragged other stockmarkets in Asia lower too, with falls in Seoul, Bangkok, Jakarta and Hong Kong.
The switch from overt capital controls to a tax on movements of funds out of the country of up to 30 per cent - less on longer-term investments - was intended to encourage foreign investment, but backfired as those trapped by earlier restrictions made for the exit.
Although the recurrent financial crises of the past two years had persuaded a number of prominent economists that capital controls could be a useful policy in emerging markets, Malaysia was the only affected country to try them.
Its experience has now confirmed the view that any restrictions simply discourage foreign investment.
Subscribe to Independent Premium to bookmark this article
Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Premium subscription today.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies