Debt-ridden Gov’t Fund Gives Critics Ammo to go After Malaysia’s Najib

Former premier Mahathir leads the charge

By Asia Sentinel

Malaysian Prime Minister Najib Tun Razak, who has been under fire since the May 2013 general election in which the opposition Pakatan Rakyat received more votes than the ruling National Coalition, has come under renewed pressure in recent weeks, political sources in Kuala Lumpur say.

The campaign, led from behind by 89-year-old former Prime Minister Mahathir Mohamad, is “gaining traction,” one analyst said, primarily over the controversial 1Malaysia Development Bhd sovereign fund, which from its inception has been dogged by questions of mismanagement and other problems and from all accounts represents a witch’s brew of bungling, if not outright corruption.

Najib, according to an UMNO source close to the Mahathir wing of the party, isn’t likely to be dumped at the United Malays National Organization annual general meeting to be held Nov. 24-29 in Kuala Lumpur, although his foes are expected use tactics to try to embarrass him obliquely and to go after his close allies including Khairy Jamaluddin, the Sports Minister, Justice Minister Ahmad Zahid Hamidi and Defense Minister Hishammuddin Hussein using strategies that the sources didn’t explain

Among other things, the rank and file are expected to push through measures that will be regarded as an affront to the premier, including a motion against his stated aim to abolish the country’s colonial-era sedition law. The use of the sedition law against opposition figures in recent months has become an international issue, with critics charging that the law is so vague that it can be used against almost anybody.

While it is regarded as extremely unlikely that that Najib will be sacked as party president at the AGM, the sources said, clearly his days are numbered as both party boss and head of government.

As a harbinger of what may be in the offing, Deputy Prime Minister and party Vice President Muhyiddin Yassin, who at age 67 has repeatedly said he is too old and tired to take over the top job, returned from the Haj to Mecca saying he felt rejuvenated.

Najib has been in trouble with Mahathir for a year and a half, even before the May 5 electoral debacle, in which the Barisan Nasional was able to hold onto the Dewan Rakyat, or Parliament, because of the country’s first-past-the-post voting system and substantial gerrymandering. As it is, the opposition holds Selangor and Penang, two of the country’s most prosperous states. Najib has also drawn considerable fire for the flamboyant behavior of his wife, Rosmah Mansor, who favors enormously expensive jewelry, watches and bags and has made the pages of New York newspapers cavorting in discotheques.

In August, after months of behind-the-scenes criticism, Mahathir announced on his blog, Che Det, that he was withdrawing his support for the prime minister. And, while he has not specifically demanded Najib’s ouster, a legion of allied bloggers including former New Straits Times editor A. Kadir Jasin and Syed Akbar Ali, have been highly critical of him.

Mahathir has also accused Najib of using government funds to buy voters’ support during elections, of favoring imported goods and neglecting local industry, of increasing the minimum wage regardless of cost-of-living increases, of damaging race relations and causing economic and financial damage to the country.

It is the 1MDB fund, however, that has served as a focal point for Mahathir’s criticism. The former premier has been supported in his attacks by former Finance Minister Daim Zainuddin, who has even questioned why the fund should exist.

The sovereign fund was born under unusual circumstances, first as an investment fund run on royalties from Terengganu state oil revenues. Najib in effect nationalized it with the involvement of a flamboyant Penang-born businessman named Jho Taek Low, a friend of Najib’s wife, taking it under the wing of the Finance Ministry and giving it the backing of the Malaysian government. Some RM18.1 billion is parked in overseas institutions, including an unexplained RM7.88 billion in the Cayman Islands, according to exhaustive reporting by The Edge, a Kuala Lumpur-based publication.

The fund has RM48.96 billion (US$14.68 billion) in liabilities against RM51.41 billion in assets, according The Edge. Opposition MP Tony Pua reported earlier this week on the floor of Parliament that 1MDB has missed three deadlines to repay RM317.3 million for land acquired domestically and risks forfeiting millions in deposits. There are fears the Malaysian taxpayer could be on the hook for the debt.

While last week Deputy Finance Minister Ahmad Maslan said on the floor of parliament, the government had only guaranteed RM5.8 billion of 1MDB’s debt, subsequent statements by others have raised suspicions that a great deal more has been guaranteed. Ahmad Maslan conceded in a message to The Edge that the federal government may be forced to step in to meet US$3 billion in obligations under a letter of support the finance ministry had produced, although he said he was optimistic that the fund’s debts could be restructured to meet its obligations.

There are many other problems afflicting not only the national coalition but the economy. GDP growth surprised economists pleasantly at 6.4 percent in the second quarter but, slumped to a still healthy 5 percent in the third, as external demand has fallen with the slowing global economy, not only in the US and Eurozone but China as well.. The precipitous fall in oil prices, from US$125 per barrel to about US$82, has hit exports hard.

Private consumption growth is moderating and inflation is rising at 3.3 percent annually. Household debt, at 86.8 percent, is one of the highest for developing countries. Private investment is decelerating at a still healthy 16.6%, supported mostly by capital outlays in manufacturing and services.

In addition, an explosive auditor general’s report was leaked this week detailing fraud and falsified documents on the part of civil servants including the loss of nearly RM 1 million by a low-level public official who has never been charged despite two police reports. Medical supplies worth RM1.5 million went missing, along with RM7.95 million in medical-related assets without anyone being prosecuted.