Financial Times
January 27, 2016

Opaque payments to the PM raise fears over the nation’s body politic

Events this week have done nothing to dispel a growing sense that Najib Razak has been a disastrous prime minister for Malaysia. Just 24 hours after the country’sattorney-general found that Mr Najib had no case to answer over a $680m sum paid into his personal bank account, the Malaysian Anti-Corruption Commission announced it would seek a review of this ruling.

Separately, it emerged that Tim Leissner, a senior Goldman Sachs banker and the driving force behind deals with a troubled Malaysian state investment fund, had taken “personal leave” and returned to the US.

Mr Najib and 1MDB, the state fund with which Goldman Sachs worked, deny they are guilty of any crimes.

But the web of allegations and investigations swirling around the prime minister and his affairs are damaging Malaysia’s international reputation and deepening a public trust deficit at home.

The issue is not just that many Malaysians are dissatisfied with the attorney-general’s statement that there was “no reason given” for the $680m transfer to Mr Najib from the Saudi royal family. It is also Mr Najib’s attitude towards the issue, which he said this week had been an “unnecessary distraction for the country”.
Far from being a distraction, the questions raised by the transfer and the dealings of 1MDB are pivotal to Malaysia’s future. At stake is whether one of Southeast Asia’s leading nations, and a strategic ally of the US and European powers in the region, can maintain its equilibrium as a prosperous, free-market democracy that blends an adherence to moderate Islam with an internationally recognised legal system.

Without a clear accounting of what transpired between Mr Najib and 1MDB, Kuala Lumpur risks reinforcing an impression that its democracy is being shredded by a self-serving Malay elite. Mr Najib is already vulnerable to such charges. The treatment of Anwar Ibrahim, an opposition leader jailed after he nearly defeated Mr Najib in 2013 elections, has been widely condemned, most recently by a UN human rights group which called his detention “illegal”. The prime minister has also muzzled critics within the ruling party and dismissed Abdul Gani Patail, the former attorney-general who led corruption inquiries into his affairs.

This lurch towards authoritarianism is unsettling investors in Malaysian stocks and bonds while applying extra pressure to the ringgit currency. But a more acute sense of alienation is nursed by the country’s ethnic Chinese and Indian minorities, who make up more than one-third of the 29m population.

Long disenfranchised by the fact that UMNO, the ruling party, stipulates that its members must adhere to Islam, the Chinese and Indian minorities have grown increasingly vocal in their dissatisfaction and are swelling a “brain drain” overseas. UMNO’s response — to growing signs of disaffection among young urban Malays — has been to shore up support among its rural Malay bedrock by emphasising its Islamic credentials, further alienating non-Muslims who worry over a growing prominence given to sharia law.

Malaysia’s ruling elite should realise that they stand at a critical juncture. Many may wish for a more accomplished leader, but the problem runs deeper than personalities. UMNO needs to rule equally and democratically on behalf of all Malaysians.

In particular, the practice of providing political patronage to a group of crony Malay business people, which underpins the opacity and favouritism among the UMNO elite, needs to be brought to an end.