By Una Galani | HONG KONG
Jan 23, 2017
(Reuters Breakingviews) – Malaysia is still struggling to put its sovereign-fund scandal behind it. Prime Minister Najib Razak was not named in lawsuits filed last year by the U.S. Department of Justice after billions disappeared from 1Malaysia Development Berhad, and he has deftly avoided a legal tangle on his home turf. Nonetheless, the fallout is keeping Malaysia’s leader on his toes.
The scandal at the fund Najib championed has left a dark mark on sentiment around the country. Money from the fund found its way into financing the movie “The Wolf of Wall Street” and allegedly into Najib’s personal bank account, something he denies. But mud sticks. One recent survey by FT Confidential Research found 71.5 percent of respondents had a negative view of the prime minister. Malaysia must hold an election by August 2018 at latest, but even with the redistricting of constituencies, it will be a slog to win more votes than in 2013 which saw the worst-ever performance for the Barisan Nasional ruling coalition.
The fallout is also playing out in the currency. Since November 2014 the ringgit has slumped by over one-third against the U.S. dollar, three times more than the Philippine peso, Indonesian rupiah, Singaporean dollar and Thai baht. That frustrates Malaysia’s middle class, many of whom aspire for the country to become more like Singapore; they complain that even visiting Thailand has become expensive. The currency’s slide has become a stick used by the opposition to bash the government.
The ringgit’s weakness matters because voters care, and because foreigners own nearly half of Malaysia’s government bonds. That’s unfortunate because Najib has otherwise done a decent job of putting the economy on a solid footing. The government expects Malaysia could grow as much as 5 percent next year, and the country continues down the path of fiscal consolidation with the recent introduction of a goods and services tax, which is unpopular but has helped reduce the government’s dependence on oil revenue.
As a small nation, surrounded by mostly larger, faster-growing neighbours, against a backdrop of rising U.S. rates, Malaysia needs to move on from 1MDB, but governance clearly matters to investors and possibly voters. Najib may have dodged a bullet abroad – but the struggle at home continues.