After the Scandal: What’s Next for Malaysia

Over the past few months, Malaysia has been consumed by a high-profile corruption scandal implicating its current prime minister Najib Razak. Allegations that Najib mismanaged funds linked to debt-ridden state investment fund 1Malaysia Development Berhad (1MDB) have triggered a crisis that could have profound implications not only for the country’s embattled premier, but for its politics and economy more generally.

While 1MDB has long been under assault, the scandal truly rocked Malaysia following a July 3 report by the Wall Street Journal which disclosed that investigators had found that nearly $700 million from entities linked to 1MDB was deposited into Najib’s private bank account. Najib has denied using government funds for personal gain, and the country’s anti-corruption agency has found no evidence thus far directly implicating him. But recent revelations, including the fact that the money had come from an unspecified Middle East donor prior to Malaysia’s 2013 general elections – have only raised more questions in what some are already calling the biggest scandal in Malaysia’s history.

Many critics expected the so-called 1MDB scandal to be the death knell for Najib, whose approval ratings in February had already plunged to their lowest levels since he took office in 2009. But politically, at least thus far, Najib has appeared far more ruthless and resilient than his opponents had anticipated. On July 24, the government suspended The Edge weekly and The Edge Financial Daily – two newspapers that had reported extensively on the scandal. Access to the U.K.-based Sarawak Report, another whistle-blower on developments in Malaysia, was also blocked. Meanwhile, the anti-corruption agency involved in the 1MDB probe has been subject to a series of disruptive police interrogations, arrests and raids.

Najib has moved decisively to consolidate his own political power. On July 28, he removed several members of his cabinet – including his deputy prime minister Muhyiddin Yassin – following their criticism of his handling of the scandal. The government also effectively suspended two parallel 1MDB probes by sacking the attorney general – who headed a high-level task force – as well as co-opting the chairman and three members of a parliamentary committee into his administration. While the political fallout from the scandal itself is likely to continue, these moves suggest that Najib’s hold on power may not be as fragile as some had thought.

“Najib will stay as PM, what he has done is standard textbook on political survival, a carrot-and-stick approach where you get rid of your detractors and reward your loyalists,” Universiti Malaysia Sarawak political scientist Faisal Hazis told Malay Mail Online.

Just how long Najib will last, however, remains to be seen. Technically, his premiership lasts until the country’s next election, which must be held by 2018. But his party, the United Malays National Organization (UMNO), could oust him from power before then, though this would likely have to be done through a special general assembly since Najib recently postponed party elections by 18 months to 2018. Najib can also be removed through a no-confidence vote in parliament. In mid-August, Deputy Prime Minister Ahmad Zahid Hamidi disclosed that a plot had been hatched between a UMNO leader and the opposition to sign statutory declarations to pave the way for such a vote. Since then, however, senior UMNO members of parliament (MPs) have denied knowledge of such a plot.

While the speculation is likely to persist, for now even his opponents concede that an overt removal of Najib would be difficult to achieve. Malaysia’s former prime minister Mahathir Mohamad, a fierce critic who has publicly called on Najib to resign, wrote in his blog that Najib has strategically won the support of key UMNO MPs such that even those who were previously dissatisfied with his administration have now changed their stand. He also suggested that UMNO MPs may be rallying around Najib for fear that the government could fall. Support from members of the ruling National Front (BN) coalition would be critical in any no-confidence vote: Even if all 87 opposition MPs back the measure, they will still need 25 other supporters to achieve a simple majority to oust Najib in the 222-seat parliament.

“This is very difficult as almost all the UMNO members seem beholden to him. And the opposition does not have enough members to pass the motion,” Mahathir wrote. 

But even if Najib survives for now, the 1MDB scandal could turn into a more protracted political crisis that may see him lose his grip on power further down the line, or perhaps at the polls itself if he manages to last until then. The opposition People’s Justice Party (PKR), the party of now-jailed opposition leader Anwar Ibrahim, has filed a lawsuit against Najib, 1MDB and the election commission, alleging that since the donations were illegal, the 2013 general election results should be voided. Meanwhile, an electoral reform group known as Bersih has called for a peaceful mass rally on August 29-30, ahead of the country’s independence day celebrations, to demand free and fair elections and a clean government, beginning with Najib’s resignation. 

“The people of Malaysia must take to the streets to reclaim our democracy and the soul of our nation,” Ambiga Sreenevasan, a renowned civil society activist and president of Malaysia’s National Human Rights Society (HAKAM), wrote in an op-ed published in The New York Times on August 20.

Economic Impact

While the 1MDB scandal could continue to chip away at Najib’s popularity and legitimacy, it could also undermine the Malaysian economy and threaten his position even further. Anxieties about the economy have been growing over the past few weeks, with investors pulling funds, the stock market sliding, foreign exchange reserves drying up, and the country's currency at a 17-year low against the U.S. dollar. Najib and other officials are right to point out that Malaysia’s economic troubles are partly due to international factors beyond their control, like the strengthening of the U.S. dollar, the fall in commodity prices, and the economic slowdown in China. But the worry is that the government will be so consumed with the 1MDB scandal that it will be unable to react quickly enough to stem a potential crisis. 

“With the Prime Minister more focused on 1MDB and survival, the economy is in danger of slipping into another crisis,” Chuak Hak Bin, a Bank of America Merrill Lynch ASEAN economist,  warned in a note last week.

If the 1MDB scandal continues to dog Najib, consume the public, and paralyze the government in the following months, the Malaysian people may lose confidence not just in their premier, but in one of the world’s longest ruling coalitions, which has been in power since the country’s independence in 1957. If that sentiment carries through to the next general election in 2017 or 2018, then even if Najib remains prime minister there is a risk that BN could be punished at the polls. As it is, the last general election in 2013 saw BN hang on to power only after embarrassingly losing the popular vote and suffering its worst performance ever.

Of course, the next election is still years away, and the sting of the 1MDB scandal might fade. Even if it persists, Najib has shown that he has both the capacity and willingness to neutralize threats to his grip on power, by obstructing investigations, undermining the opposition, and cracking down on dissent. Yet it is also true that employing that kind of whack-a-mole approach too often and for too long can alienate voters, who will see a leader more interested in securing his own future than that of his country.

“Malaysia’s leader is still facing a legitimacy crisis with declining domestic support,” Bridget Welsh, a Malaysia expert now at National Taiwan University, recently told The Associated Press. “History shows that crackdowns, arrests and threats backfire, and are at best temporary measures that fail to address the underlying demands for a better Malaysia.”