KUALA LUMPUR/HANOI — Malaysian Prime Minister Najib Razak last week tried to draw a line under persistent accusations of large-scale corruption — but Swiss prosecutors had other ideas.
In an unusually blunt announcement, the Swiss attorney general said on Jan. 29 that up to $4 billion could have been stolen from 1Malaysia Development Bhd (1MDB), a heavily-indebted state fund whose advisory board is chaired by the prime minister.
This undermined Malaysia’s attorney general, who earlier the same week had cleared Najib of corruption allegations. The attorney general, Mohamed Apandi Ali, M said on Jan. 26 that $681million paid into Najib’s bank account was a donation by the Saudi royal family. He found that there was no link between that largesse and long-running allegations of fraud and mismanagement at 1MDB.
Troubles at the state fund — which ran up debts amounting to $10billion before a Nov. 2015 bailout by Chinese state companies — as well as the revelations about the millions in Najib’s personal bank accounts — had prompted calls for the prime minister’s resignation and sent ripples through Malaysia’s financial markets.
The Swiss attorney general responded to Apandi’s exoneration of Najib by publicizing a request for Malaysian assistance into an investigation the theft of up to $4billion from 1MDB — and by revealing that “criminal proceedings opened on 14th August 2015 against two former officials of the Malaysian state-owned fund 1MDB and persons unknown.”
The identity of the “persons unknown” prompted much speculation — though the Swiss authorities ruled out Najib, who said on Jan. 26 that allegations of impropriety against him have been “comprehensively put to rest.”
“In the ongoing criminal proceeding of the OAG, Mr. Najib Razak is not one of the public officials under accusation,” Andre Marty, the spokesman for the Office of the Attorney-General in Switzerland, told the Nikkei Asian Review
Marty added that the phrase “persons unknown” in Swiss law refers to criminal proceedings where there is a reasonable suspicion that an offence has been committed, but the accused is not known.
Allegations had surfaced in the middle of last year that the $681million in Najib’s account was siphoned off from 1MDB — allegations the Malaysian government later sought to refute by revealing the explanation involving a Saudi donation.
Najib said he never took money “for personal gain” and the Malaysian attorney general later stated that $620 million of the Saudi gift was returned as it “was not utilized.”
The Saudi Arabian government has not commented on the Malaysian side of the story, and requests for comment from the Nikkei Asian Review were not answered by the time of publication.
Najib’s supporters claimed part of the $681 million was used during the 2013 general election, which saw Najib returned to office after a strong challenge led by the now-jailed opposition leader Anwar Ibrahim.
Malaysia does not regulate political funding but the central bank, which monitors the banking sector, had already raised a red flag on 1MDB. In October, citing fabricated disclosures, the bank revoked foreign investment approvals granted to the fund and ordered it to repatriate $1.83 billion.
But experts believe that Najib is unlikely to be forced from office by the scandals, despite the huge sums of money involved and the opaque nature of the transactions — unless criminal charges are brought.
“He will hang on until charges are laid; if charges are laid overseas, he will have to resign but not immediately,” said James Chin, director of the Asia Institute at the University of Tasmania.
In the meantime, the Chinese are coming to the rescue of 1MDB. A late November Chinese bailout saw China General Nuclear Power spend 17.26 billion ringgit on 1MDB’s debt-saddled power assets, while a consortium led by China Railway Engineering Corp. will pay nearly 7.4 billion ringgit for part of a piece of premium land in Kuala Lumpur slated for major development.The Chinese deal took some pressure off Najib over 1MDB, but the size of the alleged Saudi donation and rumors about what the money was spent on continued to roil Malaysia.
Maria Chin Abdullah, the lead organizer of a large street demonstration that was held in Kuala Lumpur in August and in which protesters called for Najib to resign, said that the financial scandals showed a need for political reform.
“We now have a prime minister and his host of agencies who are willing to lie and cover up bad deeds, corruption, money laundering, for the sake of maintaining their power, positions and privileges.” she told the Nikkei Asian Review.
Chin is the head of the Bersih coalition of non-governmental organizations that has campaigned for changes to Malaysia’s electoral system, which in 2013 saw Najib’s Barisan Nasional coalition extend its run in office despite losing the popular vote to the now-splintered opposition.
Despite 90-year-old former Prime Minister Mahathir Mohamad repeatedly calling for Najib to step down, the prime minister has comfortably fended off challengers from within his United Malays National Organization party.
And with Malaysia’s opposition fractured and shorn of its charismatic leader Anwar Ibrahim, who is in jail on charges of having sex with a male colleague — a crime in Malaysia — Najib does not look likely to come under any serious political pressure ahead of the next general election in 2018.
Further buttressing Najib’s hold on power, the Malaysian Islamist party, known by its Malay acronym PAS, has deserted the opposition and formed a de facto pact with the prime minister’s party.
“From the electoral standpoint, 1MDB is not a big point,” said Ibrahim Sufian, a political commentator, citing the fact that nearly 60% of the governing party UMNO’s seats are in rural strongholds.
The biggest opposition party in Malaysia is the Democratic Action Party, which is made up mostly of the roughly quarter of Malaysians who are of Chinese descent. With PAS having deserted the opposition alliance, Chinese-Malaysians made up the bulk of the tens of thousands who protested in Kuala Lumpur in late August. This suggested that opposition to Najib was becoming more ethnically based and that there was potential for increased tension between the 60% Muslim Malay majority and Malaysians of Chinese origins.
But for now Najib is likely to demonstrate a renewed focus on addressing Malaysia’s growing economic difficulties.
Investors’ confidence was shaken by the political instability along with the slump in commodities and talk of the U.S. Federal Reserve raising interest rates in 2015.
Last year, Malaysia saw a $5 billion net withdrawal of foreign funds from its stock market, the largest outflow since the financial crisis in 2008 and the highest amount of seven Asian markets tracked by MIDF Research. The ringgit depreciated by 22.75% against the U.S. dollar, making it the worst performer among Asian currencies.
Malaysia’s economy is vulnerable to the slump in oil prices and to the slowing economy in China- a major market for its commodities.
Malaysia is a gas exporter, and the slumping oil price prompted the government to trim 3.4% from the 267.2 billion ringgit 2016 budget, citing a reduction in revenue and the need for “prudent measures” to weather what analysts contend will be a stormy year for the global economy.
With all the turmoil, market commentators are skeptical that Malaysia will achieve its budget deficit target of 3.1% in 2016.
*reporting by Nikkei reporters in Kuala Lumpur, reporting and writing by Roughneen in HanoiShow