The Penang government has voiced objection to the latest rules by Bank Negara's Financial Markets Committee (FMC) to develop the onshore financial market.

In a letter to Prime Minister Najib Abdul Razak today, Penang Chief Minister Lim Guan Eng said the new rules had caused hardship to businesses, traders and exporters, especially those in the electrical and electronics sector.

"Furthermore, the measures have been ineffective to prevent the further decline in the value of the ringgit vis-a-vis US dollar, which recently dropped to a low of RM4.50.

"This measure has the potential to harm the investment climate and reduce Foreign Direct Investments (FDI) into Malaysia because it indirectly increases the risk exposure of foreign exchange losses as well as transaction costs to those who trade actively using various foreign currencies."

Lim was referring to Bank Negara's policy,  effective Dec 5 last year, requiring exporters to convert no less than 75 percent of their export proceeds to ringgit.

He has previously called on Bank Negara to review or abolish the policy as he has received many complaints from businesses in Penang.

If such forms of controls were absolutely necessary, Lim argued, the amount of export proceeds that needed to be converted to ringgit should be reduced from 75 percent to 25 percent.

He explained that the electrical and electronics industry are facing complications due to the new policy because most transactions are done in foreign currencies.

Competitiveness affected

Exporters also use foreign currencies as part of cost hedging to reduce cost and import materials.

"While exporters receive their export proceeds in foreign currency, any foreign inputs for production which are imported are also paid in foreign currency," Lim explained.

"In other words, exporters face both transaction costs of conversion as well as foreign exchange losses when they have to convert to back and forth between ringgit and US dollars to complete their export orders should the currencies move against them.

"Although exporters are allowed to hedge import or foreign currency loan obligations into foreign currency up to the value of six months of import and foreign currency loan obligations, this latest measure by FMC is still seen as detrimental to the ease of doing business and increases cost for exporters," he added.

Lim said FMC's new policy would make businesses involving foreign transactions more complicated and ultimately reduce Malaysia's competitiveness.

He said Malaysia's exports managed to grow by a muted 0.5 percent year-on-year in 2016, only because Malaysian exports saw a 7.8 percent year-on-year increase in November 2016.

"Why the electrical and electronic industry is so critical can be seen by it recording a growth of 13.2 percent and accounting for 36 percent of total exports in November 2016.

"While none of the foreign multi-national corporations have indicated that they will leave Malaysia because of this new ruling, the Penang government is concerned that it will affect new investments coming in," Lim said in the letter.