Economy Watch
APRIL 20, 2016

1Malaysia Development Berhad (1MDB), a strategic development company that the government of Malaysia owns, defaulted on a $1.1 billion loan from a United Arab Emirates wealth fund. Prime Minister Najib Razak founded 1MDB and has faced a string of corruption allegations surrounding the firm, and critics have called for his resignation. 1MDB is a developmental firm designed to commence infrastructure projects and attract foreign direct investment.

Razak’s development firm is embroiled in complex scandals regarding the outright looting of funds, and the prime minister’s problems are just the beginning as domestic and international investigations ensue.

Razak is directly tied to the scandals, with critics alleging that funds had been withdrawn from the firm and deposited into his account, and he did not do himself any favors by squashing domestic investigations and removing critics from his administration. Investigators allege that over $1 billion entered Razak’s personal accounts, and a great deal of those funds supposedly derived from 1MDB, notes The Wall Street Journal.

Human Rights Stain

Malaysia has a number of human rights violations under its belt, including press restrictions and detainment of foreign journalists covering the scandals. Additionally, the government has arrested citizens based on so-called hate speech and sedition laws, and these laws have been extended to offenders who speak ill of the royal family or the government.

The crackdowns have increased in the past year, reflecting the administration’s desperate attempt to maintain legitimacy in a harsh political climate. A single party has long ruled Malaysia, giving authorities additional leeway to silence whomever they wish, but the Malaysian government is failing miserably at damage control as citizens and the international community brings pressure to bear.

Grim Future

1MDB is on its way to ruin without drastic action. The firm has engaged in numerous missteps, most notably a whopping $12 billion debt burden stemming from unnecessary acquisitions, and taxpayers could pay the price, as a bailout seems inevitable. With that, a bailout could place Malaysia in a tougher spot, as the Southeast Asian country suffers through dwindling revenue and lower commodity prices on the world market.

The economy retains a robust manufacturing sector, and the nation has a plethora of natural resources, including natural gas. Leadership, however, has used commodities as a crutch, failing to diversify the economy, and the government lacks the necessary resources to navigate through emergencies, such as the 1MDB crisis.

With an ailing economy and emboldened opposition, the walls are closing in on the Malaysian government, and the scandal could threaten the established order, but Razak remains determined to ride out the storm.