1MDB scandal shows Malaysia must overcome legacy of patronage politics — Bloomberg Editors


(Bloomberg) – Malaysian Prime Minister Datuk Seri Najib Razak may very well be, as he insists, innocent of charges that nearly US$700 million (RM2.6 billion) in government-linked funds ended up in his personal accounts. But his handling of the scandal thus far has only underscored weaknesses in the Malaysian political system.

The accusations against Najib revolve around the finances of 1Malaysia Development Bhd — a debt-ridden state investment company whose advisory board he chairs. In early July, the Wall Street Journal reported that hundreds of millions of dollars may have moved through agencies linked to 1MDB and landed in accounts controlled by the prime minister. Najib has alleged a political conspiracy to undermine him and vowed not to resign. He’s threatened to sue the Journal, while Malaysian police have launched a probe into how reporters obtained the evidence for its story. The Journal has said it stands by its reporting.

Whatever the facts of the case, Najib inhabits a system that has long suffered from allegations of cronyism. His United Malays National Organisation has dominated the government since independence in 1957, in part through gerrymandering and affirmative-action policies that favor the Malay majority. Having carefully cultivated the 191 division leaders who have the power to remove him as party leader, Najib can likely cling to his position regardless of what facts are revealed — or what voters may want. The opposition coalition was successfully fractured by the recent conviction of its leader, Anwar Ibrahim, on apparently spurious sodomy charges. Retrograde sedition laws and a docile domestic media further stifle dissent in Malaysia. Najib recently postponed internal Umno elections until 2018, making a party coup even harder.

Four different official investigations into 1MDB had been announced before the Journal’s report — by the government’s auditor general, a parliamentary committee, the police and the central bank. But questions linger over how independent any of these can be. Najib’s ruling coalition dominates the legislature. The police fall under the home minister’s authority. And Najib, who is finance minister as well as prime minister, nominates the central bank governor. Yesterday, the head of the parliamentary committee reported that an interim report from the auditor general had found no suspicious activity at 1MDB, although the company had reportedly withheld some bank and investment documents from investigators.

A “special task force” announced last weekend, led by the attorney general, appears to be investigating with more vigor. It has removed documents and computers from the 1MDB offices and frozen six bank accounts associated with the case. (It hasn’t named the banks or said to whom the accounts belong, except to note that the freeze orders didn’t involve accounts allegedly held by Najib.) Still, its scope and authority are vague.

If the prime minister truly wants to clear his name, he should abandon his threats to sue the Journal and instead open his books to investigators — something he hasn’t yet pledged to do or confirmed he’s done. He should make way for a truly independent investigation of the charges against him — perhaps structured as a royal commission with wide-ranging powers.

More important for avoiding such scandals in the future is to eliminate the patronage politics that encourage corruption, and this will require far broader reform. Malaysia needs a thriving opposition and a freer media, as well as a far more powerful and independent anti-corruption agency. Stricter campaign funding rules would reduce the risk of vote-buying. Officials’ personal finances should be made more transparent.

Najib has earned praise for his stewardship of the economy; Malaysia recently avoided a Fitch downgrade on the strength of its improving fiscal finances and its relatively healthy growth rates. The country’s reputation, though, no less than Najib’s, is suffering a grievous blow. Neither will be easily healed.