Interview: Malaysia’s Politics Amid the 1MDB Scandal

The Diplomat talks with Bridget Welsh about Malaysia’s corruption scandal and its implications for the country.

By Prashanth Parameswaran for The Diplomat
August 28, 2015

Bridget Welsh is a Senior Research Associate of the Center for East Asia Democracy of National Taiwan University, an Associate Fellow of The Habibie Center and a University Fellow of Charles Darwin University. She has written extensively on Malaysian politics among other issues in Southeast Asia.

She recently spoke with The Diplomat’s associate editor Prashanth Parameswaran about a high-profile corruption scandal – known as the 1MDB scandal – which implicates Malaysia’s current prime minister Najib Razak and could have profound implications not only for the country’s embattled premier, but its politics and economics more generally. An edited version of that interview follows.

Let’s start by talking about the scandal itself. There have been allegations that Najib had mismanaged funds linked to the debt-ridden state investment fund 1Malaysia Development Berhad (1MDB). Some have called the 1MDB scandal the biggest financial scandal Malaysia has experienced in its history. What is your view on how we should understand its significance?

The 1MBD scandal is the most serious scandal to affect Malaysia’s leadership directly, as it involves inadequately explained and accounted for funds deposited into Najib’s personal bank account alleged used for a deeply flawed general election in 2013. While charges of corruption, embezzlement and abuse of power have occurred before – particularly in the scandal-ridden administration of Najib – and have been tied to efforts to maintain political power and secure wealth by those in power, this scandal raises broader concerns about the integrity of Malaysia’s political institutions and the leadership’s economic governance.

In the past, scandals such as the 1988 judiciary crisis or the imprisonment of deputy prime minister turned opposition leader Anwar Ibrahim in 1999 and 2015 have involved challenges to political authority, divisions in Najib’s party, the United Malays Nationalist Organization (UMNO) and the judiciary. They have been primarily resolved at elite levels. This time round, not only is UMNO being split and the police and judiciary brought in, but the anti-corruption body, the Central Bank, government-linked companies and the Attorney General’s office have become part of the collateral damage. The failure of UMNO to remove Najib quickly has caused more harm to the system and deepened the crisis, leading to calls for a mass public demonstration.

1MDB is not just about the credibility of Najib, it has become a scandal that affects the credibility and political stability of the entire country. Particularly hurt has been an already slowing economy, with the ringgit reaching record lows largely the result of the protracted nature of the political contestation around the scandal-induced crisis. 1MDB has thus become the focal point for the heated contestation about reform, greater democracy and governance in Malaysia that has been ongoing since the late 1990s and involves at its heart the political legitimacy of Najib and his party.

There has been talk over the past few weeks about dislodging Najib from power soon in the wake of the allegations, even though it seems that this would be much harder to do in practice. How do you assess his political future?

My own view is that Najib will no longer be the premier for Malaysia’s next General Elections. It is a matter of time before he has to leave office. The longer Najib stays in power, the longer the crisis will continue with negative spillovers into the economy and in society. This position is based on the argument that UMNO cannot win electorally and assure political stability and its position with a deeply unpopular and non-credible leader at the helm. Even if an emergency is declared, the situation with a Najib-led government will be untenable over the longer term.

The issues ahead involve the timing, the mechanism and the costs involved in Najib’s departure. To date, in too deep, Najib has fought to stay in office. He has harnessed the levers of his office as the executive and resources to stay in power, using patronage for key UMNO stakeholders; persuasion and framing his leadership as a shared dynamic; and effective divide and rule of the opposition as well as crackdowns on civil society. The splits and differences inside UMNO have not diminished, however. In fact, they have hardened, with the deepening of the crisis into different political institutions. The opposition, while largely ineffective and deeply splintered, has maintained dialogue and is reconfiguring, while civil society has increased its mobilization and has become the vehicle for expressing concern about Malaysia’s future.

The timing of Najib’s departure will depend on the responses of these three groups and developments in the economy. In this ongoing process of decline for Najib, the mechanisms for his departure are increasingly leading to a harder landing for Najib, and, unfortunately, for Malaysia as a whole. Usually, deals regarding transition are made at the leadership level in UMNO. But what has happened to date is deals to maintain power rather than give up office. This means that the options available for a leadership transition are increasingly raising the stakes for Malaysia’s political stability. The arena for the leadership transition is moving from UMNO to the public at large. The costs have also risen, with greater attention on Malaysia’s political conditions and economy, with international perceptions and among investors increasingly concerned about developments within Malaysia.

Najib’s own immediate political survival aside, there are some signs that the scandal could serve as a catalyst for wider opposition against the government – such as a peaceful mass rally planned later this week ahead of the country’s independence day celebrations. If this continues, you see this turning into a broader political crisis for the ruling coalition further down the line?

The opposition – namely the political parties who challenged the incumbent coalition in the last general election in 2013 – is weak. It lacks effective leadership and is divided over whom and which party should lead the opposition, even within individual parties. The opposition does not have a clear common platform of its own, and its own credibility to govern has been challenged post-2013 in areas such as corruption and economic management. The opposition political parties face real challenges to work together and to win the support of the electorate. However, the opposition benefits from a scandal-beleaguered premier and from the fact that they are the only electoral alternative. One of the developments in Malaysia has been a weakening of the positions of political parties across the political spectrum.

What distinguishes the opposition coalition from the incumbent coalition is that it is more inclusive and has a greater reform orientation. It still has yet to earn confidence among some quarters of the investment community and among UMNO’s political base that is concerned about displacement and potential exclusion. The alliances in the opposition are reconfiguring, with younger leaders coming to the fore. The more extreme elements in the Pan-Malaysian Islamic Party (PAS) – one of the parties in the opposition – have become less politically viable, with the challenge for the opposition as a whole to win over the Malay majority community. This reconfiguring process will not be an easy and smooth, but is ongoing.

Turning to economics, anxieties have grown over the past few weeks after some worrying numbers. Some have suggested that with the government so focused on the 1MDB scandal and its own political survival, it may not be able to take the necessary measures or react quickly enough to avert or stem a potential crisis. Is this a legitimate concern in your view?

Malaysia’s political crisis has already had negative economic spillovers. These are likely to continue due to concerns with stability and leadership credibility. Among the general public, there is the sense that the economy is slowing down, with inflation, partly caused by the Goods and Services Tax (GST) being implemented by the government, hurting large shares of Malaysians. Perceptions are important, and the negative ones have taken root even while some of Malaysia’s economic fundamentals are strong.

In particular, three areas of concern have emerged: the viability of the Central Bank to protect the ringgit – connected to Najib’s monetary policy; capital flight connected to investor caution; and reform reversal. This is in a climate of negative dynamics in commodity prices, a China slowdown, and pressures from the U.S. dollar that have affected the region as a whole. Conditions in Malaysia point to reversals in the reforms in the economy, such as subsidies tied to political survival. As with the evident dynamic where Najib has abandoned all political liberalization, the same trajectory appears to be emerging over the economy.

Malaysia’s next general election, which must be held by May 2018, is still quite far off. But what kinds of signs do you think we should look for to see if the ruling coalition’s legitimacy and popularity is being further eroded relative to the opposition as we move closer to polls?

Short term, the Bersih 4 rally over the next few days will be important, as will the Sarawak state elections next year and the UMNO General Assembly later this year. These are political arenas. Economically, the ringgit and other indicators such as inflation, capital flight and household debt are markers to watch.

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