In spite of the above and based on our interactions with some of you, there remain a lot of myths and misconceptions on Malaysia’s FEA rules, even amongst the banking fraternity. It is my hope that I am able to dispel these misperceptions surrounding Malaysia’s FEA rules specifically on activities that can be undertaken by non-residents for investments in Malaysia. 2  BIS Review 151/2010  It is also my hope that you will make the effort to convey this message to your colleagues, clients and international counterparts. Let me now share with you five of the misconceptions Myth 1: FEA rules are restrictive We recognized that for an investor, capital mobility is important. Malaysia has always ensured that the rules are not restrictive to capital flows or do not penalise investors who contribute to the development of the country. Today, non-residents are free to transfer their funds into Malaysia for investments in any type of ringgit assets and also remit out of Malaysia, all income as well as proceeds from the divestments of these ringgit assets in foreign currency. Also, there is no levy imposed. Myth 2: FEA rules are restrictive on non-residents to manage risk on investments in Malaysia Apart from free capital mobility, the ability to manage risks of investments is equally essential for an investor. In recognizing this need, the current FEA rules freely allows non-residents to hedge ringgit exposures of their investments in ringgit assets with the onshore banks supported by underlying commitment.
These three elements broadly correspond to the current structure of this seminar, and will therefore be treated in one way or another. Let me conclude with two final points on the link between labour market reform and other policy measures. First, labour market reform is also the best case where the complementarities with the exit strategies needed are most obvious. If we take the Spanish case as an example, we can see that unemployment benefits amounted to around 3% of GDP in 2009. And the employment losses associated with this increase in unemployment have also had a significant negative impact on public revenues. Thus, a non-negligible part of the huge increase in the deficit in the past two years is directly or indirectly related to labour market trends. Preventing this increase in unemployment from becoming structural would greatly smooth the fiscal consolidation process. That leads to me to emphasize a second point: it is important that different reforms should be pursued in unison, and in particular that labour market reforms be accompanied by product and services market reforms. In this regard, it is vital to push through structural reforms  BIS Review 65/2010  3  providing for the elimination of obstacles to effective competition and of those that may hamper the reallocation of productive resources. Indeed, only with competitive and flexible product and services markets, would labour market reforms translate into higher activity and employment rather than higher rents.