Mahathir Mohamad faces challenges around corruption and Chinese investment © Xinhua News Agency/PA Images
Mahathir Mohamad faces challenges around corruption and Chinese investment © Xinhua News Agency/PA Images

What next for Malaysia's new prime minister?

16 May 2018

No matter how glittering the prizes might seem, all political careers end in failure.

When it dawned on Malaysian prime minister Najib Razak that voters had decisively rejected him, after seven years in office – and 60 years of continuous rule by his Barisan National Coalition – he broke down in disbelief. One strategist said: “He lives in a bubble. His advisers don’t listen to other people’s views – and don’t listen to bad news.”

Two factors burst that bubble. The corruption scandal surrounding the country’s investment fund 1Malaysia Development Berhad (1MDB) – and the voters’ suspicion that he was ‘selling out’ the country to China by supporting so many infrastructure projects in the Belt and Road Initiative (BRI).

It was no coincidence then that, within days of the election, the new 92-year-old prime minister Mahathir Mohamad authorised the publication of an audit of 1MDB and promised to review all of China’s projects and renegotiate any “unequal treaties”.

The three major BRI projects in Malaysia are the $11bn development of the Melaka Gateway port and industrial zone, a $9bn industrial park and port expansion in Kuantan and, most controversially, a $14bn east coast railway linking the capital to southern Thailand.

Even though the east coast railway is being built by China Communications Construction Company – and 85% financed by the Export-Import Bank of China – some Malaysian economists fear the line will be economically unviable so that the 80,000 jobs Najib said would be created by the investment won’t last.

Any policy U-turn could be embarrassing for China, which has struggled to implement BRI projects in southeast Asia and had hitherto regarded Malaysia as fully committed to the initiative. The most likely result of Mahathir’s review is, as Murray Hiebert, of the Center for Strategic and International Studies in Washington, says: “If China wants to stay in Malaysia, they are going to have to compromise.”

One of Najib’s most treasured possessions is a signed photograph from Donald Trump describing him as the US president’s “favourite prime minister”. Yet, ironically, Najib was swept out of office by the same kind of populist, anti-globalisation sentiment that elected Trump. The former prime minister was pilloried for being too compliant with China and the 1MDB scandal made him seem like the epitome of the crooked elitist Trump had denounced during his 2016 campaign.

The trail of investments made by 1MDB is opaque, complex and global. The governments of the UK, the US, Australia, Indonesia, Hong Kong, Singapore and Switzerland have investigated – or are still investigating – allegations that the fund was misused. The US Justice Department estimates that at least $4.5bn has been misappropriated. There are recurring allegations that some of the money went through Najib’s personal bank accounts and that, investigators believe, $31m was used to buy jewellery – including a necklace starring a 22-carat pink diamond – for his wife, Rosmah Mansor.

In March this year, in an ironic twist worthy of a Hollywood scriptwriter, Red Granite Pictures agreed to pay the American government $60m after charges that The Wolf Of Wall Street, a classic tale of corporate malfeasance, had been partly financed by money stolen from 1MDB.

To say that normal procurement procedures were not always followed would be a colossal understatement. The auditor’s report suggests there were no normal procurement procedures at 1MDB – senior officials did not tell the board about some investments, gave them disinformation about others and, in some instances, actually overturned the board’s decisions without telling them.

With Najib and his wife prevented from leaving the country, the investigation into 1MDB looks certain to gather momentum. Yet Mahathir has other items on his agenda. He has to smooth the way for his chosen successor, Anwar Ibrahim, to take power in two years time. (The personal relationships in Malaysian politics are complicated – Ibrahim was sacked by Mahathir who, in turn, promoted Najib to the cabinet in 1986.) He also has to decide what to do about a value added tax, introduced in 2015, which fuelled Najib’s unpopularity.

The Malaysian economy isn’t doing too badly – due, in part, to Najib’s economic liberalisation programme – and will probably grow around 5% this year.

The country is the world’s biggest exporter of palm oil. In the 1980s, a government scheme to give farmers the right to harvest 10 acres of palm oil lifted hundreds of thousands out of poverty. The government’s response to the threat of an EU ban on the import of palm oils in biofuels will be critical for these farmers. To them, the proposal is just a new form of colonialism. That might sound a predictable response, but soybean, one of the likely replacements for palm oil, has also been blamed for deforestation and would take 10 times as much space to yield as many crops.

In recent years, the Malaysian economy has seemed – to many citizens – designed to benefit a corrupt elite of politicians, cronies and business leaders who run up large debts they try not to pay.

Mahathir helped build this system of ‘crony capitalism’, as prime minister from 1981 to 2003, but that may make him the ideal man to reform it. Anwar, his favoured successor, aims to turn Malaysia into a new Singapore, albeit with more natural resources.

The expectations of Malaysian voters – and the international community – have been raised by the shock election result. As Nural Izzah Anwar, the son of Anwar Ibrahim, wrote in The Guardian: “The world is watching and now we must fulfil our election promises for comprehensive reforms.”

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