KUALA LUMPUR: Bank Negara Malaysia’s (BNM) new policy that requires 75% of export proceeds received from yesterday onwards to be converted into ringgit has led to a fear of higher cost of doing business among the exporting community.

Yesterday, the Malaysian Rubber Glove Manufacturers Association (Margma) said it hopes BNM will review the conversion policy, saying there would be a detrimental impact on the rubber glove industry otherwise.

The central bank’s new policy means that it is now incumbent upon manufacturers to immediately convert three quarters of any foreign currency they receive to ringgit, said Margma president Denis Low Jau Foo in a statement.

This, he said, would affect the natural hedge that rubber glove manufacturers have always had when they use the US dollars they retained from their export proceeds to purchase raw materials.

“Most local manufacturers and exporters have foreign currency accounts to better manage the spikes and volatility of foreign exchange rates. The rubber glove industry has always used the US currency as a natural hedge to cushion their costings and pricing since 50% to 55% of the foreign currency will be used to offset the difference in purchasing raw materials such as synthetic and natural rubber latex as well as chemicals required for rubber glove production.

“Without this natural hedging, the industry will be placed in a very difficult position as it will be forced to do a double conversion on the currency — from US dollar to ringgit, and then from ringgit back to US dollar for all payments.

“We are hoping for and believe for the greater benefit of the rubber glove export industry, that a 50% direct conversion from USD to ringgit will be more manageable,” he said.

Hence, he said Margma is hoping that the 75% direct conversion policy be reduced to 50% for the rubber glove export industry, which will be “more manageable”.

“We seek an exemption from this new policy in order for the industry to stay competitive in global business.

“We hope Bank Negara will be open to a dialogue to discuss this matter in a more comprehensive manner as we are engaging both the Malaysian Rubber Export Promotion Council and Malaysia External Trade Development Corp in this matter concerning all exporters especially those in the rubber glove industry,” said Low.

Similarly, Federation of Malaysian Manufacturers (FMM) president Tan Sri Dr Lim Wee Chai was quoted in news reports as saying that he hoped Bank Negara would allow exporters to retain 50% of their foreign currency proceeds rather than just 25%, as such a move could cause disruptions in exports and investors would pull out of the country.

Last Friday, BNM announced several measures intended to enhance the liquidity of the foreign exchange (forex) market, which included the export proceeds conversion and a special deposit rate of 3.25% per annum on converted export proceeds until Dec 31, 2017.

Glove manufacturer Careplus Group Bhd chief executive officer Lim Kwee Shyan said the special deposit rate will result in minimal impact on glove makers.

“We convert all our balance proceeds to cover all other expenses, with profits reinvested in local currency, [so] the higher rate of return has a very small impact on us” he told The Edge Financial Daily via an email.

Electronics manufacturer Globetronics Technology Bhd corporate manager Ng Kok Yu said that the move by BNM would make it less flexible for exporters in terms of foreign currency management.

“The move would make it less flexible for exporters as we do keep USD for various reasons.

“In our case, we are keeping it for future capital expenditure investments in USD, also we are currently mostly naturally hedged in terms of our USD sales and purchases, making converting to ringgit an unnecessary unknown to our input costs,” he told The Edge Financial Daily.

RHB Research Institute said that in the near term, the moves by BNM are expected to provide support to the ringgit as and when export proceeds are being converted to local currency.

“However, demand for foreign currency to pay for imports and capital outflow could offset part of the gain, in our view.

“Over the medium term, we believe it is still more important to enhance confidence in the fundamentals of the Malaysian economy in order to provide support to the ringgit,” the research firm said.

Meanwhile, it noted that requirements to retain only 25% of export proceeds in foreign currencies will likely add to the cost of doing business for exporters.

“However, this may be a small price for Malaysia to pay in order for it to develop and deepen its onshore FX (forex) market, in our opinion.

“Furthermore, as Malaysia is a relatively small and open economy, we believe it makes sense for the country to have some exchange control measures to ensure a more stable ringgit,” the firm said.

UOB Economics and Global Research opined that while the latest measures could offer a near-term boost for the ringgit, the key driver will still be the US yields in 2017.

“We expect the USD/MYR at 4.35 by mid-2017,” the firm said in a note yesterday.

Since the announcement by BNM last Friday, the ringgit has strengthened by 0.11% against the greenback to close at 4.4485 yesterday.