Malaysia has always been open, friendly and fair to foreign investors. Foreign investment in Malaysia dates back to more than a hundred years ago. In fact, foreign investors have been major partners of our economic growth. Foreign investment had contributed significantly towards the expansion of the country’s manufacturing sector, the creation of employment and the birth of economic hubs. Today, foreign investors remain key allies in our quest to become a high income nation. Periodic reviews and dismantling of burdensome regulations have been our ethos. In 2009, we reduced barriers for partnership with local companies and liberalised 27 service subsectors. Since then, at least 15 more subsectors have been liberalised. These measures have boosted investments in many corridors around Malaysia. Malaysia is a profit centre with no restriction in repatriation of profits even during difficult times. Foreign investments have indeed yielded significant returns for investors. Returns on FDI have grown by an average of 13% per annum, higher than Malaysia’s nominal GDP growth of 7.7% and one of the highest in Asia. Clearly, Malaysia is a regional profit centre where foreign investments are protected and is allowed to operate in a conducive environment. More importantly, profits by investors are freely movable. Malaysia does not impose any restriction on the repatriation of profits, even during difficult times. A fact sometimes missed by analysts. Even during the 1997 crisis, we did not restrict the movement of profits from Malaysia. Our compass in attracting investment has always been guided by seeking quality, rather than quantity, of investments.
Credit lines were closed, margin calls were made, and all but the safest assets sold off at fire sale prices. Emerging market assets experienced a sell-off as a part of this process, and funds were repatriated back to the US in order to meet margin calls and repay debt. In normal times, managing liquidity across currencies from countries with free movement of capital and relatively developed capital markets is not much of an issue. In these conditions, FX swap markets can speedily be used to convert liquidity from one currency to another at spreads that closely reflect the differences in domestic money market rates in the two countries concerned. In other words, the covered interest parity condition broadly holds. Visà-vis the US dollar, this relationship showed periodic strain for most currencies after the  BIS Review 9/2010  3  financial turmoil erupted in late summer 2007, but it broke down almost completely after Lehman. There are probably several reasons for this, some of which were analysed in BIS publications such as the Quarterly Review during the period when I was still there. 2 Thus, for instance, we know that before the crisis, European banks had a structural imbalance where they had invested in longer-maturity USD assets and financed them partly in USD interbank markets at shorter maturities. When these dried up, there was probably a scramble to get USD liquidity through FX swap markets, with the result that those markets became dysfunctional as well.