Malaysia Premier Najib Under Fire: What You Need to Know

Najib Razak
Malaysian Prime Minister Najib Razak arrives for a Ramadan breakfast at a mosque in Malaysia on July 5, 2015. Photographer: Joshua Paul/AP Photo

As Malaysian Prime Minister Najib Razak fights claims aired in a Wall Street Journal report that about $700 million in funds connected to a state investment company allegedly ended up in his personal bank accounts, here’s a guide on the key players in the furor and what to watch for.

Q: What is 1Malaysia Development Bhd. or 1MDB?

Najib chairs the advisory board of the debt-ridden state investment company. The Wall Street Journal reported July 3 that money may have moved through government agencies and companies linked to 1MDB before apparently appearing in Najib’s personal accounts. A task force investigating the claims visited 1MDB’s Kuala Lumpur headquarters on Wednesday and left with documents.

1MDB had its origins in the Terengganu Investment Authority, which was created in 2009 to invest oil royalties from the state of Terengganu. When Najib became prime minister that year it was renamed 1MDB, became a national entity and its funding source was changed to government-backed debt.

The company has courted controversy, accumulating $11 billion of debt in less than five years, paying a premium in the acquisition of energy assets, and criticized for overpaying Goldman Sachs Group Inc. to manage its bond sales.

1MDB flirted with default when it missed a loan repayment late last year and eventually settled it in February. It announced plans the same month to wind down, with asset sales or an initial public offering of its energy unit, and the spinning off of its property businesses. Its purpose was to serve as a catalyst for projects of strategic importance, it said Feb. 18, and it’s “achieved this.”

The auditor-general has been probing 1MDB’s finances since March. It is set to hand its interim report on Thursday to a parliamentary committee.

Q: Who Are the Key Politicians?

Prime Minister Najib Razak: The 61-year-old leader also heads the finance ministry, which oversees 1MDB.

Najib has taken steps to narrow Malaysia’s budget deficit through the scaling back of subsidies and a new consumption tax, moves that have hurt his approval rating. In 2013 he led the ruling coalition to its worst electoral showing since independence in 1957, even as it retained power.

The premier remains popular within his United Malays National Organization, whose members have largely backed a decision by the leadership to postpone party polls to 2018 to prevent internal rifts.

Since the election Najib has sought to shore up his support base with ethnic Malay voters. The government’s made increased use of the country’s Sedition Act, recently introduced an anti-terrorism law that has elements of security measures repealed in 2012, and not opposed efforts by an opposition party to introduce Islamic criminal law in one state.

Former Prime Minister Mahathir Mohamad: Mahathir, who turns 90 on Friday, ruled Malaysia for 22 years until 2003. His successor Abdullah Ahmad Badawi stepped down in 2009 after Mahathir led calls for his resignation and backed Najib as a replacement.

In August, he announced he was withdrawing his support for Najib, citing worsening race relations and differences over economic policies. Since then he has led calls for Najib to resign over mounting debt and “lost” funds at 1MDB. How much power Mahathir still wields is unclear.

Deputy Prime Minister Muhyiddin Yassin: Muhyiddin, 68, is the second-most powerful man after Najib in UMNO and party convention suggests he’s next in line to be premier.

Mahathir has tried to pit Muhyiddin against Najib, saying the deputy prime minister would be a good replacement as he wouldn’t repeat Najib’s mistakes, the Malaysian Insider reported in April.

Muhyiddin has called on Najib to give a convincing explanation or denial of the Wall Street Journal report even amid a chorus of support from other UMNO leaders and ministers. He has also said the investigation should be allowed to run its course.

Others: UMNO leaders seen as key Najib allies include Home Minister Ahmad Zahid Hamidi, who has said attempts to undermine a serving leader may be a threat to national security. Najib will also depend on his cousin and Defense Minister Hishammuddin Hussein to shore up support within the party.

Q: What Is the Task Force Investigating Najib?

The special task force comprises officials from the Attorney General’s office, the Malaysian Anti-Corruption Commission, the police and the central bank. It’s not clear when the task force was set up, though its existence was unveiled on July 4 as it announced the probe of funds related to 1MDB allegedly ending up in Najib’s accounts.

The Attorney General’s Chambers and the anti-corruption commission fall under the purview of the Prime Minister’s Office. The police force is a function of the Home Ministry. The investigators on the task force have not been named but their activities are signed off by the heads of each of the four parties involved.

Aside from the visit Wednesday to 1MDB’s offices, the task force has announced a freeze on six bank accounts believed linked to the money trail -- the Attorney General’s office says they are not Najib’s alleged accounts -- and obtained documents related to 17 accounts from two banks. The task force has not said how long its investigation may take.

Q: What’s the Sentiment Among Investors?

Some investors have voiced concern that the political turmoil may affect risk in the country at a time when economic growth is slowing. “Malaysia isn’t helping itself by making domestic issues an additional concern for investors,” Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management Ltd, said this week.

Still, the main focus of investors has been the country’s fiscal health, while external factors such as the Greece tumult have also hurt markets. “Ongoing political turbulence has resulted in continued uncertainty in Malaysia, reducing investor confidence. However this is unlikely to be a long term phenomenon,” analysts at BMI Research said in a report.

Concerns that Fitch Ratings would downgrade Malaysia’s sovereign ranking were a specter over its financial markets in the first half of the year, one that disappeared four minutes before midnight on June 30 when the company affirmed its rating and upgraded its outlook to stable.

Malaysia pegged the ringgit at 3.8 against the dollar for about seven years, from the 1998 Asian Financial Crisis to July 2005. After flirting near the level for a month, the currency weakened beyond 3.8 on July 6 as the investigation into Najib intensified and given concerns that Greece might exit the euro.

Fixed asset investments are still spurring the economy and driving jobs growth, even if foreigners are leaving the stock market. Approved investments climbed about 19 percent in the first quarter from a year earlier, the Malaysian Investment Development Authority said last month, led by the manufacturing sector.

Q: Where Do We Go From Here?

Najib’s lawyers have given the Wall Street Journal 14 days to respond to a July 8 letter asking for clarification of the allegations. After the response, his lawyers say the next step would be to “immediately exhaust all legal avenues and remedies.”

“We stand behind our fair and accurate coverage of this evolving story,” Wall Street Journal publisher Dow Jones & Co. said in an e-mailed response.

Analysts at BMI Research say their core view is for Najib to fight the allegations and “seek to maintain his position” within the party. Less likely is the scenario where he succumbs to party pressure to “step down gracefully.”

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