The Global Fallout from Malaysia's 1MDB Scandal

The Global Fallout from Malaysia's 1MDB Scandal
Photo Credit: reuters/達志影像
What you need to know

The destabilization caused by the 1MDB scandal has spread far beyond Najib’s domestic control and attracted global attention to Malaysia.

Listen
powered by Cyberon

The international consequences of Malaysian Prime Minister Najib Razak’s handling of the 1Malaysia Development Berhad (1MDB) scandal will likely continue to escalate. The affair concerns US$800 million from the development fund that investigators believe to have passed through Najib’s personal bank accounts, in addition to other funds believed to have moved through foreign intermediaries and investment vehicles.

In addition to ongoing domestic tensions, the 1MDB scandal has now internationalized the contest around Najib’s leadership to the point that he cannot control where the next threat to his position might come from. Nor can he prevent international developments from undermining the coherence of the message his United Malays National Organisation (UNMO) party is sending to its domestic supporters in preparation for the upcoming general election in 2017.

One factor behind this internationalization is a number of foreign investigations into 1MDB. Under its Kleptocracy Asset Recovery Initiative, the U.S. Department of Justice has begun proceedings aimed at seizing around US$1 billion in U.S.-based assets that it believes were acquired using 1MDB funds. UMNO figures have tried to portray these investigations as U.S. neo-colonialism, but Singapore too has recently acted against individuals and bank accounts linked to 1MDB transactions.

Nor can Singapore’s actions be denounced as ethnic Chinese manipulations against Malay Muslims, as UMNO might be tempted to allege. Najib’s capacity to insinuate that Chinese are a threat is somewhat curtailed by the 1MDB bailout he recently secured while on a visit to China. Under the terms of this bailout, a Chinese nuclear company is buying all of 1MDB’s power assets for US$2.3 billion, while other deals struck between Najib and Chinese Premier Li Keqiang will see China buy Malaysian government bonds, build several rail projects and construct a port.

These developments have led to criticisms that Malaysia has invited Chinese intervention in its affairs to the detriment of its relationships with its neighbors. A Chinese–Malaysian joint venture is already building up to 500,000 apartments in a housing development called Forest City on reclaimed land between Malaysia and Singapore, with Chinese as the target buyers.

China has previously demonstrated that it is willing to intervene in Malaysian politics, including when the Red Shirts — a UNMO-affiliated group that has organized protests directed at pro-democracy activists — threatened to hold an anti-Chinese riot in September 2015. The threat was directed at Malaysian Chinese — not Chinese nationals — but this did not prevent China’s ambassador Huang Huikang from declaring it "an infringement on China’s national interests."

For his part, former prime minister and now-opposition figure Mahathir Mohamad is working to turn Najib’s Chinese bailout back against him by spreading rumors that his new Forest City development project will soon house 700,000 Chinese nationals — who UMNO will allegedly mobilize to vote illegally in the coming election. Similar rumors about Bangladeshi foreign workers underpinned a highly successful — if xenophobic — opposition get out the vote campaign in 2013.

The nature of its relationship with China has also raised questions about Malaysia’s commitment to its "special relationship" with the United States — a relationship that has also potentially been destabilized by 1MDB and the resulting Justice Department investigation. Since Donald Trump’s election, Najib has been talking himself up as Trump’s "favourite prime minister," leading to concerns that Najib is playing China and the United States against each other so the 1MDB matter will be dropped when Trump’s administration begins.

Whatever his motivations, Najib’s international moves are fraught with risk, especially considering the prospect that Trump may expand the U.S. military presence in the region in a bid to contain China. The possibility of such an escalation has ASEAN nations considering strategies to safeguard their futures.

Yet Najib’s electoral position is potentially problematic for ASEAN cooperation as well. Domestically, Najib has made efforts to secure a Malay Muslim "unity" bloc with the Islamic Party of Malaysia (PAS), on which UNMO might have to rely to form a governing coalition at the next election. Earlier this month, Najib and PAS leader Abdul Hadi Awang appeared together at a rally for Muslims to protest Myanmar’s alleged ethnic cleansing of its Rohingya minority.

Arguing that Myanmar’s treatment of Rohingya is "an insult to Islam," Najib also called for the United Nations and the Organisation of Islamic Cooperation to intervene to restrain Myanmar, whose violence he denounced as "uncivilized." Yet Malaysia hosts many Rohingya people, whose treatment by people smugglers has also attracted international concern. Najib’s own government does not recognize them as refugees, let alone afford them the legal right to work or participate in education.

Figures in the Myanmar government have responded that it is considering lodging a complaint against Malaysia in ASEAN, alleging that Najib is "setting fire" to the situation. Meanwhile, controversy has followed the release of an open letter purportedly issued to UMNO by the Coalition of Myanmar Muslim Civil Society Organisations, stating that they are "dismayed" by such "poorly informed initiatives." Others have alleged the letter is actually a front for a Buddhist-led campaign against Muslims in Myanmar. Amid the rumors and allegations, Myanmar summoned Malaysian diplomats for talks, and Myanmar workers have been stopped from working in Malaysia.

The destabilization caused by the 1MDB scandal has spread far beyond Najib’s domestic control — his attempts to retain his leadership might have repercussions for Malaysia’s standing in the world.

The News Lens has been authorized to republish this article from East Asia Forum. East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centered on the Asia Pacific region.

TNL Editor: Edward White