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M'sia govt against increasing foreign debt
Publication Date : 21-09-2012
There is hesitation by the Malaysian government to enter into new foreign debt after issuing its global sukuk (used commonly as Islamic equivalent for bonds) last year, governor of the country’s central bank Dr Zeti Akhtar Aziz said.
She said this was because the government did not want to increase its level of indebtedness as well as its foreign indebtedness.
“Our foreign debt at the moment is relatively low. This is the point we want to highlight...There is a great deal of discussion on how we define foreign debt,” the Bank Negara head said at a panel briefing with journalists on the sidelines of the Global Islamic Finance Forum (GIFF) yesterday.
“Whether it should be in foreign currency debt issuance or those that include foreigners' holdings of domestic debt.”
“If it is the latter, then there is no exposure of foreign currency volatility,'' she said.
In the event foreigners decide to sell domestic debt papers, she said there were many institutional investors like the pension fund, insurance companies and fund managers which could buy them, adding that the country has a mature financial system that could absorb such a move.
As such, she added the financial system was able to intermediate any financial volatility compared with previously.
Asked whether there was a need to rebrand Islamic finance, Zeti said it was not necessary at the moment as it was very well accepted by non-Muslims worldwide.
Initially, Islamic finance was catered to the Muslim community and in a relatively short span of time it was widely accepted by other race and religion worldwide, she said, adding that more than 50 per cent of those participating in Islamic finance in Malaysia were non-Muslims.
Furthermore, she said there had been a rise in sukuk issuance by foreigners from non-Muslim countries. For example in Malaysia, Zeti said Shell was the first to issue sukuk and later followed by other foreign companies from non-Muslim countries.
The principles and nature of Islamic finance, she said, also made it less vulnerable to terrorist financing compared with conventional financing.
Zeti added that Islamic finance was based on profit sharing which required a high level disclosure of information of financial transaction and thus a high level of transparency, making it less vulnerable to terrorist financing and an effective financial intermediation of the real economy.
To a question on why Malaysian investment banks were not chosen as lead arrangers and managers of sukuk sales by South Africa and Turkey, she said they should, among others, expand abroad and form partnership and strategic alliances.
“They should market themselves as one of the distribution channels for investors in Asia as a high percentage of investors are from Asia and it is one of the region that has surplus funds.
“This is where Malaysian financial institutions can raise their profile," she noted.
On whether she sees the upcoming general election to affect the pricing of bonds and sukuk in the country, Zeti said it would not as the local bond and sukuk market had reached a degree of maturity and was not influenced by any rumours or political developments.
She added that the market was able now to manage large volatile financial flows unlike previously.