by Sharaad Kuttan
The Wire
27/09/2015

As questions are raised about the dealings of a government fund, the Malaysian authorities are once again looking to play the race card

Kuala Lampur: China’s ambassador and his wife sipped tea at one of Kuala Lumpur’s better known tourist-traps known as Chinatown earlier this week.

Standing with a representative of a local retail association and having just handed out mid-autumn “moon cakes’ to traders he issued an unusual statement.

He said that China would not condone “terrorism, extremism and discrimination”.

In an immediate response Wisma Putra – Malaysia’s foreign ministry – summoned the ambassador to explain his remarks.

What made his remarks particular stinging for the government was that it was delivered on the eve of a planned rally by supporters of the Prime Minister Najib Razak, then in New York.

The second rally in as many weeks – billed as a show of Malay-Muslim ethnic pride – was widely seen as racist and targeting the minority Chinese population in particular. It was eventually called-off.

While tens of thousands were bussed into the capital city for the first Maruah (pride) rally, local opinion polls showed that less than 10% of Malay-Muslims supported its objectives.

Organisers claimed that Malay pride was slighted by an earlier rally – termed Bersih (clean) – which called for good governance and institutional reform, but the sub-text of which was the call for the resignation of the prime minister.

As per Malaysia’s political culture, the urban-based show of revulsion for the scandal-ridden Najib administration, was given an ethnic colouring by its detractors. The pro-government press called it a Chinese rally.

The international media had descended on Kuala Lumpur for Bersih in what many thought would be a tipping point in the months-long political crisis.

The colour-coded demonstrations numbering over 100,000 made spectacular TV but the government restrained the security forces and the moment passed, with the prime minister firmly in control.

But with his broad-based legitimacy all but non-existent in urban Malaysia and his reputation significantly dented abroad – after years of cultivating an image as an enlightened moderate Muslim leader – Najib has turned to the tried and tested tactic of race-baiting to shore-up his personal power base.

Crisis within ruling party

The remarks of China’s ambassador is only one of many twists in this ongoing story.

Its a story that has seen international media organisations exposing dubious financial movements, the suspension of a leading local financial paper, a cabinet reshuffle, the sacking of the attorney-general, the detention of critics and a public relations disaster for an administration that has assiduously cultivated the image of developing world success story.

Najib Razak, son of Malaysia’s second Prime Minister Abdul Razak, was helped into his current position when Abdullah Ahmad Badawi – the successor to the long-serving Mahathir Mohamad – fell out of favour with his party’s leadership.

In fact, Mahathir was instrumental in the fall of Badawi and the rise of Najib.

Today, Mahathir – already in his 90s – is Najib’s most trenchant critic within their party, openly demanding his resignation.

But Najib has turned out to be much more resilient, having secured compliance in his party and the loyalty of MPs in the coalition he leads.

Perhaps, as some observers note, Najib has learnt from Mahathir’s own book of political tricks and thanks to the elder statesman’s 22 year authoritarian rule, has inherited weak, compliant state institutions.

The 1MDB fund

But that aside, at the heart of Mahathir’s concerns is the controversial 1MDB Fund, its multibillion dollar debts and murky governance.

The 1Malaysia Development Berhad – or 1MDB – fund was founded by Najib and headed by him on behalf of the Malaysian government, which is the owner. The fund was set up in 2009 with the aim of investing in large infrastructure projects, especially in the energy and real estate sectors.

As revelations about the fund’s dealings have slowly emerged, its functioning has gone from being the concern of a handful of opposition MPs to a preoccupation of the public at large.

Aiding this effort to bring the fund’s complex dealings into mainstream consciousness was the pioneering investigative work of The Edge financial media, along with the UK-based investigative site Sarawak Report.

The Edge was finally slapped with a suspension order but successfully challenged the Home Ministry notice, with the courts describing the order as “irrational”. The Government of Malaysia is currently appealing the court’s ruling. In a futile move the Government of Malaysia also tried to have Interpol arrest the founder-editor of the Sarawak Report.

Probe announced, and aborted

It must be noted that no financial scandal – and there have been many over the last three decades – has ever resulted in an electoral rout for the ruling coalition, the Barisan Nasional (National Front).

But the sheer scale of the scandal, the government’s early refusal to engage its critics and finally dissent from its own ranks has made the 1MDB so explosive.

Coupled with this has been the dramatic weakening of the currency and flight of foreign investors from the local bourse. Najib as well as 1MDB’s managers deny any causal link – citing falling crude oil prices and a negative global economic outlook – but what is undeniable is the general negative sentiment.

This was underscored by the well-respected Governor of Bank Negara, the Central Bank. While earlier asserting that 1MDB’s debt does not pose a systemic risk to the financial system, she has more recently underscored the need for answers to address the negative sentiment that dogs the economy.

To assuage his critics, Najib finally agreed to not one but several investigations into 1MDB – the auditor general, the bi-partisan Parliamentary Accounts Committee (PAC) and a multi-agency task force lead by the attorney general’s chambers involving also the central bank, the anti-corruption commission and the police.

Unfortunately for Najib, this unprecedented level of official scrutiny that he must have believed would buy him valuable time came unstuck with an expose by the Wall Street Journal.

The US-paper had information that showed that some $700 million had moved into and then out of Najib’s personal bank accounts in 2013, just before the last general elections.

While the WSJ did not identify the source of and subsequent destination of the funds, the public connected it to the on-going 1MDB controversy.

Facing the real possibility of a revolt within his own ranks, he moved decisively against those who threatened him and on several fronts.

The deputy prime minister and deputy president of Najib’s party, UMNO, was removed in an uncharacteristic cabinet reshuffle.

Another example of his deft political moves was to elevate MPs on the parliamentary PAC to positions in cabinet, effectively stopping its proceedings since cabinet members cannot sit on that committee.

Along with the dismantling of the multi-agency task force, little is left of the efforts Najib himself instituted to investigate 1MDB. And the trust deficit continues to widen between government and the public

How is Najib still power?

Gerrymandering and severe malapportionment mark the Malaysian electoral system. This grave distortion has the been the subject of the mass-based electoral reform campaign, Bersih, now into its fourth year.

But after the 2013 general elections, when almost all urban seats were lost to the federal opposition coalition led by former deputy prime minister Anwar Ibrahim, greater urban voter disenchantment would not shift the balance of power in parliament.

Unless Najib’s now almost exclusively rural vote bank leaves him, or the system of patronage that binds the ruling establishment runs out of money to lubricate relationships, his party is unlikely to seek his removal.

And while the business lobby might want a return to confidence and a positive outlook, it looks like the stakes are too high for Najib to resign voluntarily.

Added to this is the disarray in the once firmly united federal opposition ranks, the Pakatan Rakyat.

All Najib has to endure is the continued bad press as scandals, old and new, bubble up in the foreign media which have all but abandoned this poster-boy of Muslim Moderation.