Malaysia's new profit gains tax, which comes into effect on Sept 1,
      1999 following the expiry of the levy on proceeds repatriation by
      foreigners, has been identified as a major disincentive for new
      foreign investors into the KLSE.

      Under the rules, profits repatriated within one year would be
      subject to 30% tax and after a year, the tax is 10%.

      While the idea of a capital gains tax is quite alien to investors, it is
      quite a common feature in many western stock exchanges.

      Dr Pakorn Vichyanond, research director of the Thailand
      Development Research Institute Foundation, in his recent
      conference paper, has reviewed some of the experiences of
      countries which had employed capital controls to reduce exchange
      rate fluctuations.

      CAPITAL flows often swing in accordance with the latest status of
      economic fundamentals which include growth rates, inflation, external
      account, reserves, interest rates and the stability of the financial system.

      These fundamentals exert influence on exchange rates via two main
      channels:

      As a guideline for output-oriented decision-making, for example, how
      much to produce, consume or stockpile.

      Resulting decisions indicate how much is spent or received abroad or net
      positions on current account balance.

      Affect sentiments of currency traders and international investors.

      Because of the significance of capital flows, some countries in the past
      have decided to employ capital controls as a means to reduce exchange
      rate fluctuations.

      In a recent conference entitled "Measures for Stabilisation of Currencies in
      East Asia and Establishment of a Regional Monetary System," Thailand
      Development Research Institute Foundation research director Dr Pakorn
      Vichyanond reviewed the experiences of the following countries.

      BRAZIL

      In mid-1994, severe inflation of around 2,200% per annum led Brazil to tie
      its real to the dollar and adopt stringent monetary policy. Those measures
      and exchange rate stability attracted abundant capital inflows.

      Concerned that those flows could fuel excessive private consumption, the
      Brazilian Government put into practice the following controls:

      Raise the tax on bonds issued abroad by private firms from 3% to 7%;

      Levy 1% tax on foreigners investing in the Brazilian stockmarket; and

      Increase the tax on foreign purchases of domestic fixed-income
      investment from 5% to 9%.

      Meanwhile, the Brazilian central bank intervened in the foreign exchange
      market and sterilised such incremental money afterwards, resulting in
      higher interest rates from 7.1% in 1993, to 21.1% in 1994 and 26% in
      1995.

      Despite the additional taxes imposed, high rates of return attracted more
      capital flows, in which the capital account balance rose from 2.5% of gross
      domestic product (GDP) in 1994 4.7% in 1995.

      This demonstrates that little tax increase did not have much effect upon the
      volume of capital inflows or their composition.

      CHILE

      In response to growing capital inflows in 1990, the Chilean central bank
      undertook sterilised intervention to alleviate exchange rate appreciation
      and contain monetary expansion.

      But such operations raised domestic interest rates which attracted a
      surge in short-term capital inflows to the extent that capital account surplus
      reached 10% of GDP in 1990 and short term flows accounted for one-third
      of that account.

      Worried that capital inflows may reverse, the government decided to
      impose controls on short term inflows.

      In June 1991, 20% non-remunerated reserve requirement, to be deposited
      at the central bank for a period of one year, became necessary for private
      short term foreign borrowing.

      At the same time, the central bank toned down its action on sterilised
      intervention so as to decrease local interest rates in harmony with capital
      controls.

      Such policy mix was successful in both reducing the volume and
      lengthening the maturity of flows.

      Capital account surplus fell from 10% of gross domestic product (GDP) in
      1990 to 2.4% in 1991 and a large part of this decline was due to the drop
      in short term inflows which fell from 3.2% of GDP in 1990 to 0.7% of GDP
      in 1991.

      In contrast, direct investment rose during this period. In 1992, capital
      inflows surged again so the reserve requirement was raised to 30% which
      helped curtail the volume of capital inflows and lower their short term
      portion.

      Chile also opted for other measures restricting short term or speculative
      capital inflows. For example, if foreigners were to buy bonds or shares in
      Chile, the minimum amount was US$1mil and they had to hold those
      assets for at least five years.

      Nevertheless, profits or dividends can always be remitted back.

      Similar minimum maturities were also required on industrial investment
      but they differed in accordance with industrial categories.

      On some occasions, the Chilean Government encouraged capital
      outflows, for example, by relaxing restrictions on pension fund investment,
      so as to offset inflows or avert excessive money supply expansion.

      COLOMBIA

      In the early 1990s, foreign capital flooded Colombia as much as other
      middle-income countries in Asia and Latin America.

      Initially, the central bank intervened and bought foreign exchange while
      issuing local bills to absorb injected liquidity.

      Such sterilised intervention was deemed too costly, as interest rates on
      domestic bills far exceeded those earned on additional foreign reserves.

      The Colombian authorities decided to end sterilised intervention and allow
      its exchange rate to go up.

      By 1993, oil discoveries attracted another round of capital inflows, so the
      government responded by imposing capital controls similar to those
      imposed by Chile.

      However, the non-remunerated reserve requirement must be maintained
      throughout loan maturities and the rule was applicable to all loans with
      maturities of five years or less, except for trade credits with maturities of
      four months or less.

      The magnitude of required reserve ratios decreased for loans of longer
      maturities, ranging from 140% for one-month loans to 42.8% for five-year
      loans.

      These measures did not affect the volume of net capital inflows but the
      short term portion declined notably.

      CZECH REPUBLIC

      Abundant capital inflows to the Czech Republic in 1994-95 were mainly
      motivated by large domestic-foreign interest rate differentials and
      expectation of a possible appreciation of the koruna.

      Capital account surplus reached 6.6% of GDP in 1994 and 16.7% in
      1995.

      At first, sterilised intervention was resorted to, then 0.25% tax on foreign
      exchange transactions with banks, was introduced in April 1995.

      Later, in August that year, each bank's short-term foreign borrowing was
      limited to 30% of claims on non-residents or 500 million koruna, whichever
      was less.

      Non-banks were required to seek administrative approvals before
      borrowing short-term funds from abroad.

      These measures resulted in a decline of capital inflows by 3.5% of GDP.

      THAILAND

      After the capital account was liberalised in 1991, strong economic
      potential and exchange rate stability attracted a continuous stream of net
      capital inflows.

      Most of these funds belonged to the private sector and they were
      short-term and thus highly volatile or speculative.

      These were especially those channeled through the Bangkok International
      Banking Facilities (BIBF) and non-resident baht account (NRB).

      By late 1995, the central bank imposed a liquidity requirement of 7% on
      short term NRB of less than a year.

      It also raised the minimum level of out-in BIBF from US$500,000 to
      US$2mil.

      In the middle of 1996, the 7% requirement became non-remunerated
      deposit at the central bank and applicable to short term foreign
      borrowings of commercial banks and finance companies.

      In May 1997, the authorities tried to separate onshore and offshore
      markets and prohibited baht lending to non-residents to subdue
      widespread speculation on baht devaluation.

      However, the short term portion of external debt had climbed from 15% in
      1987 to 50% in 1995.

      The baht was floated in July 1997.