Malaysian government-linked firms asked to stop buying foreign assets in bid to contain capital outflows

KUALA LUMPUR (Reuters) - Malaysia's finance ministry has asked government-linked companies (GLCs) and statutory bodies to temporarily halt purchases of foreign assets, in response to falling commodity prices and in a bid to contain capital outflows.

The ministry confirmed that a circular signed by the treasury's secretary-general on Dec. 26 was a move to boost domestic consumption.

In an email response to Reuters, the ministry said that the entities were "requested to give priority to domestic investment activity and postpone or put on hold, purchase of assets or investment abroad".

Malaysia is a net oil exporter. The government measure was taken at a time of prolonged weakness for the Malaysian currency, largely rooted in the tumble of oil prices.

The ringgit, the weakest emerging Asian currency in 2014, dropped to 5-1/2-year lows on Tuesday as falling crude oil prices and a strong dollar continue to add pressure on the currency.

According to the ministry, affiliated companies would need to "review their investment policies to support the government's initiative to boost the domestic economy".

Analysts say the move should help the country deal with capital outflows.

"It's not just them reducing or preventing the GLCs from investing outside. Maybe some assets could also be brought back home as well," Nomura Holdings' Southeast Asia economist Euben Paracuelles said.

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