Multibillion-dollar scandal in Malaysia has echoes for American conservatives
As scandals go, the current imbroglio in Malaysia ring a lot of bells for American conservatives accustomed to home-grown crony capitalism: a gigantic Stimulus-like program intended to spur lagging growth, billions of missing dollars, allegations of missing money used in an election, donations from a mysterious Middle East party, affirmative action, and even Goldman Sachs. Tom Wright and Ken Brown report in the Wall Street Journal:
A scandal involving a government investment fund in Malaysia is drawing world-wide attention and has led to calls at home for the ouster of the country’s prime minister. It is also affecting U.S. diplomacy in a strategically important part of Asia. The fund, 1Malaysia Development Bhd., or 1MDB, is under investigation in five countries.
It is a story of political intrigue, backroom politics and billions of dollars in missing money. At the center of it all is Prime Minister Najib Razak, who founded 1MDB. A Malaysian government probe found that nearly $700 million moved through banks, agencies and companies linked to 1MDB before being deposited into Mr. Najib’s alleged private bank accounts ahead of a close election. The source of the money is unclear, though in August, Malaysia’s anticorruption body said the funds were a donation from the Middle East. The donor wasn’t specified.
The story goes back to 2009 when PM Nijab founded the fund to borrow money to invest in the Malaysian equivalent of shovel-ready jobs.
Wall Street bank Goldman Sachs Group Inc. reaped hundreds of millions in fees for its work with 1MDB, according to fund documents and people familiar with the matter, leading critics to say the fund overpaid for the bank’s services.
The Gulf emirate of Abu Dhabi has been deeply involved with 1MDB. It guaranteed 1MDB-issued bonds in 2012 and more recently, it helped to shore up the fund’s finances. Abu Dhabi officials recently said they haven’t received roughly $2.4 billion in payments that 1MDB said it sent to them. 1MDB didn’t respond to requests for comment.
The context is important here. Malaysia has a diverse population, with Muslim ethnic Malays in a smallish majority, but with a substantial minority of infidel Chinese and Indians. The Malays insist that the country is officially Islamic, and resent strongly the economic success of the minorities, so much so that affirmative action with explicit quotas has been practiced for many years.
When Nijab became PM in 2009, he promised to wind down the affirmative action while taking Malaysia into higher tech and higher value-added industries. The country has a lot of oil income, and has managed to attract so called middle level manufacturing of goods such as electronics and machinery. As well as semiconductors. But the allegations are the 1MDB has become a fount of crony capitalist corruption.
Nijab denies everything and no charges have been brought.
With the downturn of oil and other commodity prices, Malaysia will ace many challenges, and with radical Islam increasingly influential among its Muslim majority, there is a lot that could go wrong.