By P Gunasegaram
Malaysiakini
Jun 18, 2015

QUESTION TIME 1MDB’s impact on the financial markets is more than just worry about whether potential defaults will impact the banking system and whether the government’s finances will be adversely affected when it stands by to honour 1MDB’s many obligations.

These questions have been largely answered – the central bank, Bank Negara Malaysia, has already said that 1MDB does not pose a systemic risk to the domestic banking sector, although it may depress the profits of some banks.

Various analysts believe that the federal government, which owns all of 1MDB through Minister of Finance Inc, has the capacity to take care of 1MDB’s obligations, which amount to RM42 billion.

So why is the ringgit more depressed than it should be and what is really the concern about the situation in the country? The problem is not directly related to the economy but politics. An increasing number of people are considering how the overall political situation in the country will change if Najib Abdul Razak, for whatever reason, decides to step down.

It is more than likely that it is the political situation which is causing the ringgit to be even more volatile than the currencies of other countries that have yo-yoed against the US dollar, but generally trended downwards against the greenback. That the US dollar is strengthening is indisputable, the roots being the strong possibility of upward increases in US interest rates some time later this year.

The pressure on Najib increased when former prime minister Dr Mahathir Mohamad stepped into the fray over the 1MDB issue, accusing the self-styled strategic development company of not being able to account properly for its debts of RM42 billion. Now, that’s something that lots of others agree with.

However, Mahathir’s premise for his interference has not always been from the perspective of high moral values – he often repeats that the reason why Najib has to go is that if he stays on he may well lead Umno and Barisan Nasional into defeat in the next general elections. The elections have to be held on or before 2018, still some three years away.

Najib has maintained, without offering much by way of evidence, that 1MDB is in good shape and that all monies are intact and can be accounted for. This runs counter to the many reports written on 1MDB and its various shenanigans, which includes pieces written by both KINIBIZ online and KINIBIZ magazine.

In fact KINIBIZ online was the first anywhere to write an extensive series of reports on 1MDB outlining its various mistakes, including underpricing bonds, overpaying for assets, paying too much to Goldman Sachs, dubious investments, suspicious money trails, influence from outside parties and so on.

Position full of holes

All analyses indicates that Najib’s position with respect to 1MDB – that basically the company is okay and only needs time to put its affairs in order – is full of holes and does not hold water. There is much that 1MDB has not given satisfactory answers to and it looks like for many questions, there will be no good replies.

The billion ringgit questions then are, will Najib step down? And if he does, who will take over from him?

Najib will not take on Mahathir directly – he pointedly avoided one confrontation at the so-called ‘Nothing2Hide’ forum. But behind the scenes he would be quietly accumulating support from his loyalists.

His deputy and Umno deputy president Muhyiddin Yassin is already testing the waters. In a leaked video of a meeting, he made some strong remarks against 1MDB, which some take to mean that he is ready to step into Najib’s shoes.

Meantime, rumours of a cabinet reshuffle swirl and there is speculation that Najib’s alternative choice, if he should decide to leave, might be Home Minister Ahmad Zahid Hamidi, with Defence Minister Hishammuddin Hussein as deputy.

If that is being passed around by Najib’s camp it may be a signal to Muhyiddin to watch his step, for the power of incumbency in Umno cannot be denied. Jumping ship too early might result in a step into the ocean.

It is very difficult to mount a challenge against an incumbent president who holds wide powers. Just to contest, a challenger has to get nominations from 30 percent of the branches. Considering that the president will have considerable influence over branch officials, that is very unlikely to happen in the current scenario.

Many like to say that former prime minister Abdullah Ahmad Badawi was forced out from his position, mainly by Mahathir. That’s probably not true. Abdullah made no attempt to cling to power but was likely ready to step down from the rigours of political office of his own free will.

Najib will not leave so easily. If he is going to leave, then a deal has to be struck – that’s always been the Umno way. There will be some face-saving, and there will be assurances that he himself will be immune from any kind of prosecution over 1MDB or any other matters.

One possible deal could be that he stays but when the next elections are within sight he will make way for the next person to take over the mantle. Whether that will be Muhyiddin or someone else is not clear at this point of time. But any Umno politician who makes too quick a move against Najib is likely to pay for his recklessness.

If Najib gets no such assurance, then he has no choice but to fight tooth and nail to keep his position, for to give it up may well mean opening himself up to further action against him in future.

Nearly impossible to mount a challenge

Najib is not likely to be removed against his will. Ironically this is because of all the measures that Mahathir put in place to make it nearly impossible to mount a challenge against the incumbent president in the wake of the bruising challenge against him in 1987 by Tengku Razaleigh Hamzah and Musa Hitam.

It’s an irony, too, that the votes of Najib’s supporters, who firmly swung to Mahathir in the last leg of the Razaleigh/Musa campaign against Mahathir, probably contributed to Mahathir’s narrow win in 1987 and that they now stand on opposite sides of the divide.

But despite all of Mahathir’s fighting qualities, it looks like the only way Najib will leave is if a deal is made. Mahathir himself has ensured that by the changes to Umno’s voting rules.

Meantime, the political uncertainty will add to the woes of the country, contributing to currency volatility and confidence erosion.

P GUNASEGARAM is founding editor of KINIBIZ which produces an online business news portal and a fortnightly print magazine.