Malaysia’s Mess

Malaysia’s Mess

By on Aug 11, 2015

scalability group malaysian consumerJust what is going on in Malaysia right now is anyone’s guess. A huge amount of money that might be a political donation is apparently sitting in the Prime Minister’s accounts. If it is a donation, someone has been fairly generous – at USD$700 million it’s almost hefty enough to fund an entire US presidential campaign, let alone fund an incumbent prime minister’s activities in a parliamentary system. It should be assumed that it would purchase a fair amount of influence. However, official investigations appear to show that the money was not embezzled from Malaysia’s 1MDB, a government development fund that is billions in debt, as had originally been alleged. The plot thickens with Prime Minister Najib Razak sacking five government ministers, including the Attorney General, who was in charge of the investigation into these funds.

To cap it off, in mid-July, as the investigation progressed, a fire broke out in Malaysia’s police headquarters, provoking a lot of commentary, including from those who appreciated the ironic humour of the situation.

Clear cut? Not at all.

Of course, it has not yet been proven that Mr Najib Razak is not enriching himself at his country’s expense, but the reality is likely to be much more complicated – and there are two key factors at play.

Firstly, Mr Najib’s party, UMNO, had its worst ever result in the last election, and is still staring possible defeat in the face at the next election. A massive system of political patronage is at stake and, significantly, the party’s elders are concerned at the loss of Malay votes to religious parties, bringing pressure on UMNO to adopt even stronger pro-Malay policies to tempt these voters back into the fold. Mr Najib represents the more liberal wing of the party and is a clear target. In some cases, pro-Malay policies are running hand in hand with tightening of religious policy – a worrying trend in what is one of the world’s most successful and tolerant Islamic countries. Indeed, giving Mr Najib the benefit of the doubt, a strong possibility exists that a foreign donor has chosen this route for funds to combat this very trend. The idea of a private slush fund is not ideal, either, but is a different issue to out-and-out embezzlement.

Secondly, as Mr Najib has pointed out, he has fallen afoul of his mentor Mahathir Mohamad, Malaysia’s Prime Minister from 1981 to 2003. Tun Dato Sri Dr Mahathir can rightly be credited for many achievements during his rule and is revered by many Malaysians. However – whatever his involvement in this case may be – a clear pattern exists with his deputies and successors. His deputy, Anwar Ibrahim (who later became leader of the opposition) was prosecuted and jailed for sodomy after a falling out with Dr Mahathir. Mahathir’s chosen successor, Abdullah Badawi was ousted by his party after falling out with Dr Mahathir. It is worth noting that relations between Mr Najib Razak and Dr Mahathir are now extremely poor.

Regardless of the reason, and the source of the cash, in the short term Malaysia is in for a rocky time. Whether because of uncertainty around government while these accusations are investigated, or because of the government’s moves to bolster its support by placating hardline Islamic parties, while cracking down on opposition by implementing the country’s strong anti-sedition laws, the situation will remain volatile for a while.

Ultimately, Malaysia represents a fantastic medium-and long-term opportunity. But be ready for some bumps as this drama plays out.