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Malaysian PM facing biggest crisis yet

Gabriel DomínguezJuly 14, 2015

PM Najib Razak is accused of receiving $700 million in his personal accounts from a state development fund, leading to possibly his worst crisis since taking office. How will this impact his government? DW examines.

Malaysia Airlines PK Razak 24.03.2014
Image: Reuters

A PM stands accused of having money that no one knows where it came from or what it was used for. It's a scandal that has shaken Malaysia's ruling coalition to the core and plunged Najib Razak into one of his worst political crises since becoming Malaysian premier six years ago.

Police said on Monday, July 13, they are investigating the leak of confidential documents to the Wall Street Journal (WSJ) and Sarawak Report that allegedly show millions of dollars were funneled to the 61-year old leader's personal account, from banks, government agencies and companies linked to the debt-laden state investment fund 1Malaysia Development Berhad, or 1MDB, of which Najib is the advisory board chairman.

The PM, whose approval ratings have fallen sharply over the past year, has come under increasing pressure over his leadership amid attacks from the opposition and from within his own party over graft and mismanagement claims. But this is the first time he has been accused of receiving funds directly to his bank accounts.

Citing documents from four ongoing official probes into 1MDB, the news reports claim that five deposits were made into Najib's account and the two largest transactions, worth $620 million and $61 million respectively, were made in March 2013 during a heated election campaign in Malaysia. The authorities are also looking into allegations that 2 million ringgit ($529,000) were deposited into his wife's accounts earlier this year.

A special task force assigned to the case has frozen at least six bank accounts and is probing 17 other bank accounts in the Southeast Asian nation. They're also looking into leaks that have allowed the details of the ongoing investigation being aired in the media. The documents sent to the attorney general pave the way for possible criminal charges. If charged, Najib would be the first Malaysian PM to face a criminal prosecution.

1 MDB Fond 1Malaysia Development Berhad
PM Najib is chairman of the debt-laden state investment fund's advisory boardImage: picture-alliance/dpa/J. Paul

'Political sabotage'

While the PM has not disputed the existence of the accounts or the receipt of the funds, he has denied taking any funds for personal gains, referring to the issue as "political sabotage" and efforts to ruin his reputation. He is also reportedly considering a lawsuit against the WSJ over its coverage of the matter.

The opposition and civil society groups have called on Najib to go on leave while the investigation lasts. But the Malaysian leader has rejected the calls. The fund, which is currently under investigation for alleged impropriety, also denied the claims, describing them as "unsubstantiated" and stating the existence and authenticity of the documents had not been publicly verified.

But could this be part of a political attack? While police say they have not eliminated the possibility of a conspiracy aimed at "subverting Malaysia's democratic process and toppling the prime minister," independent Southeast Asia analyst Zachary Abuza pointed out that the leaked documents directly implicate the prime minister and his wife, and not the ruling coalition. "The leaks have been highly targeted, designed to remove the prime minister from office," he told DW.

Former PM Mahathir

Najib has accused former Prime Minister Mahathir Mohamad of being behind the expose, saying he was working with foreign elements to bring down the government and oust him from power. But there is no conclusive evidence of that as yet.

Nevertheless, Murray Hiebert, a Malaysia expert at the Washington-based Center for Strategic and International Studies (CSIS), told DW that Mahathir has indeed played a key role in undermining public confidence in Najib in recent months. In fact, the former PM's blog has been one of the primary means for information on 1MDB's losses to come to light.

"Mahathir has attacked the PM over his alleged role in the 1MDB scandal and the opulent lifestyle of his wife, and has raised questions about his possible role in the murder of a Mongolian model who was the alleged mistress of a former assistant to the prime minister," Hiebert told DW.

Mahathir, who served as prime minister for over 20 years continues to be a popular figure among the more conservative rural elements of the ruling party. But he also has a long history of first backing and then turning against his successors and has repeatedly urged Najib to resign.

"It's hard to understand why, at age 90, he still gets involved. Part of the reason may be that he is not the sort of person who is contentwith playing golf. He needs to be heard, he loves attention," Moritz Kleine-Brockhoff, Malaysia expert at the German Friedrich-Naumann-Foundation for Freedom, told DW.

Dented image

In the meantime, Najib's image as PM has suffered a heavy blow. A recent survey by social media research firm Politweet, which tracks Twitter accounts in Malaysia, showed that 85 percent out of some 600 account holders say they want Najib to step down. "Overall, Malaysians are negative about Najib and his government and this scandal has reinforced that perception," Jahabar Sadiq, chief editor of The Malaysian Insider news portal, told DW.

The journalist argues that in coffee shops, WhatsApp groups and Facebook pages, many Malaysians are sharing jokes about Najib and 1MDB to the extent that Malaysia's Internet regulator Malaysian Communication and Multimedia Commission (MCMC) had to issue a warning on passing around false news or such graphics. "They were promptly criticized for it," Jahabar added.

A 'smoking gun' needed

But what are the possible implications? Analysts agree that while the scandal has the potential to bring down the Najib-led government, it will not be enough to knock out the United Malays National Organization (UMNO) party which has led ruling coalition governments since the country's independence from Britain in 1957.

Hiebert explained that the UMNO ruling party will likely put pressure on Najib to stand down if it calculates that he has become a liability to the outfit's political survival. "At present, most of UMNO is standing behind the prime minister, at least publicly, but many, including Deputy Prime Minister Muhyiddin, who would likely replace Najib, are calling for the charges to be investigated," said Hiebert.

The party's leadership would abandon Najib quickly if the ongoing investigations or continuous press leaks uncover a "smoking gun" proving direct links to the prime minister, the analyst added.

Malaysia Skyline von Kuala Lumpur
Analysts say the 1MDB scandal could dent Malaysia's reputation among foreign investorsImage: AHMAD YUSNI/AFP/Getty Images

However, analysts believe that anything short of a "smoking gun" means that the PM will likely ride out the crisis relatively unscathed. "As long as his party and coalition remain united, he has little to be concerned about, unless criminal charges against him are filed. A parliamentary vote of no confidence is unlikely, or certainly unlikely to succeed," said Abuza.

Weak opposition

The PM currently faces no strong resistance in parliament, after Malaysia's three-party opposition alliance collapsed last month over political differences regarding a push by the Parti Islam Se-Malaysia (PAS) to enforce the Islamic Shariah penal code in the northern rural state of Kelantan.

The ongoing probe and the ensuing political crisis have alarmed financial markets, with many analysts of the view that the scandal could even dent Malaysia's reputation among foreign investors. The country's economy had already been hit by China's economic slowdown and falling oil prices. But the uncertainty of the crisis has accelerated depreciation of the country's currency, which has fallen to a level near that of the financial crisis in 1998.

This is perhaps why the PM seems confident that he can weather the scandal. He's starting to go on the offensive using the considerable coercive powers at his disposal, say experts. The police are now investigating the leak of the documents from within the central bank, and at the same time, Najib has called for much more aggressive policing of social media.

'Endemic' corruption

Corruption has long been a problem in Malaysia, although the country comes out significantly better in surveys than neighboring states such as Thailand and Indonesia, say analysts. According to public perceptions of corruption measured by Transparency International (TI), Malaysia's standing had slipped to 50th out of 175 countries last year - the second best in Southeast Asia - down from 37th place in 2003, the year Mahathir left office.

"Money politics has long been a way of life in Malaysia with companies that get government contracts expected to make contributions to the ruling party or support projects in localities to boost support for ruling party incumbents in elections," said Hiebert.

Analyst Abuza agrees, arguing that corruption is endemic in Malaysian politics, and that it's been that way since the 1972 New Economic Policy, which instituted a reverse affirmative action scheme.

"Malaysia's state-led development model insured that projects could be distributed to politically connected individuals, who then kicked back funds or made donations to party coffers. No government, whether Mahathir's, nor Badawi's, nor Najib's has been willing to abolish the NEP or the state-led development program and the corruption that they have bred," noted Abuza.

Symbolbild Geldwäsche
'Money politics has long been a way of life in Malaysia,' says HiebertImage: Fotolia/Carlson

TI's Malaysian branch has called on the government to make critical reforms to shore up confidence in the Malaysian political system and economy. These include asset declarations for senior public officials, and legislators, full disclosure of election finance for both candidates and parties, and public audits of all political parties. But analysts believe these reforms seem unlikely to be undertaken in the near term unless there is drastic change in the political makeup of the parliament.

Further leaks expected

What is likely to happen next? Experts say more leaks to the media revealing further allegations of malfeasance in 1MDB are to be expected as the four different investigations by the attorney general, central bank, police, and auditor general continue their investigations in the coming weeks.

"It would be beneficial to the country and government if these investigations could be completed quickly because the ongoing crisis is distracting the government from efforts to tackle the economic slowdown and complete the Trans-Pacific Partnership trade negotiations with the United States, Japan, and nine other partner governments," said Hiebert.

Malaysia is the chair of the 10-country Association of Southeast Asian Nations this year, and the crisis distracts the government from devoting its full energies to hosting the raft of economic and political meetings it is slated to organize this year, the CSIS analyst added.