Malaysia's former prime minister Najib Razak arrives for a court appearance at the Duta court complex in Kuala Lumpur on August 10, 2018. - Razak was hit with new charges linked to a multi-billion-dollar financial scandal that contributed to his shock election defeat in May. (Photo by MOHD RASFAN / AFP) (Photo credit should read MOHD RASFAN/AFP/Getty Images)
Former Malaysian prime minister Najib Razak faces the first of several 1MDB-related court trials on February 12, widely seen as a test of the Mahathir government's ability to face pervasive corruption in the country © AFP

Toh Yen Kee was filled with optimism when Prime Minister Mahathir Mohamad was swept into power last May. She was so optimistic, in fact, that she quit her job as a top executive at a multinational company in Singapore, where she lived for 23 years, and returned home to work for the Malaysian government. Her new position in the finance ministry pays about 90 per cent less, but she says it was worth it.

“When the new government won the election, I basically told myself, ‘if not now, when?’” Ms Toh told the Nikkei Asian Review.

Like many in Malaysia, Ms Toh saw the defeat of the decades-long ruling party led by former prime minister Najib Razak as a turning point for the country. Now was the moment, she believed, to do her part to reduce pervasive inequality and the rampant graft that had long plagued her nation — and driven many people like her to abandon their homeland for opportunities elsewhere.

“I did not like the corruption, and I [hoped to help] clean up the country because I thought a lot of people suffered” as a result of it, she added.

For Ms Toh and millions of other Malaysians, a key test of the country’s ability to tackle corruption is expected to begin on February 12, when Mr Najib will face court on dozens of charges related to the scandal-plagued 1Malaysia Development Berhad, widely known as 1MDB. Mr Najib’s legal team is attempting to delay the trial date.

The looting of 1MDB, a state fund set up to create economic opportunities for Malaysia, has been called “kleptocracy at its worst” by the US Department of Justice, which alleges that public officials conspired with others to steal public funds worth $4.5bn.

KUALA LUMPUR, MALAYSIA - OCTOBER 04: Malaysia's former Prime Minister Najip Razak departs the Kuala Lumpur High Court with his wife Rosmah Mansor on October 4, 2018 in Kuala Lumpur, Malaysia. The wife of Malaysia's former Prime Minister Najib Razak faced charges on Thursday for infringing an anti-money laundering law after she was arrested by the anti-graft agency in connection with a multibillion-dollar financial scandal that brought down Najibís government. Like her husband, the 66-year-old former first lady, Rosmah Mansor, was expected to be charged with multiple counts of money laundering although she denied all accusations against her. Mr. Najib followed a wave of criminal charges for money laundering for the 1Malaysia Development Berhad (1MDB) scandal which dated back to 2009 and described as the biggest corruption scandal in Malaysian history. Najib pleaded not guilty for being involved in embezzling billions of dollars from the government fund and using it to fund both Najib and his wife's lavish spending habits. Investigations suggested involvement of the Chinese and that $681 million of 1MDB money went into Najib's personal bank account which was spent in at least six countries, including Singapore, Switzerland and the United States. (Photo by Ore Huiying/Getty Images)
Najib Razak faces 42 charges related to 1MDB and his wife, Rosmah, about 20 © Getty

Mr Najib himself has been hit with 42 counts related to 1MDB, including money-laundering and receiving $681m of proceeds from illegal activities in his private bank account. He has denied the allegations.

Since his arrest on July 3 last year, Malaysians have been transfixed by the case. The authorities have hauled sacks of cash, jewellery and luxury goods worth an estimated 1.1bn ringgit ($268m) from 10 properties linked to Mr Najib and Rosmah Mansor, his wife.

Ms Rosmah has been charged with some 20 counts of corruption, money laundering and tax evasion. Revelations about her vast collections of jewellery, watches and designer handbags have captivated — and angered — ordinary citizens. She has denied the allegations.

“How did she accumulate such wealth when the majority of us live a modest life?” asked Abdul Aziz, a courier deliverer.

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Mr Najib’s trial in the Kuala Lumpur High Court marks the first time a former Malaysian leader has had to defend himself against criminal charges. “I remain hopeful that justice will be done. It will be a long process, I expect,” said Bridget Welsh, a Malaysia expert and associate professor of political science at John Cabot University, Rome.

There is also a lot riding on the hearings for Mr Mahathir, who has pledged to get to the bottom of the 1MDB scandal and crack down on corruption. Yet many still remember when, during his first stint as prime minister in the 1980s, his decision to sack three Supreme Court judges sank the country into a constitutional crisis.

Now, after nine months in power, backing for the ruling party remains intact, though grumbles over slowing economic growth are beginning to grow louder. A deeper slowdown could shake the feeble foundations of Mr Mahathir’s four-party coalition, formed with the sole purpose of unseating Mr Najib.

“Never again,” said Mr Mahathir on January 29 at the launch of the National Anti-Corruption Plan. He reminded the hundreds of civil servants and corporate leaders who gathered to stay away from graft, considering the “tremendous damage” wrought by the 1MDB scandal.

KUALA LUMPUR, MALAYSIA - MAY 10: Supporters of Mahathir Mohamad, chairman of 'Pakatan Harapan' (The Alliance of Hope), wait for Mohamed to be sworn in as Malaysian prime minister, outside the National Palace 'Istana Negara' on May 10, 2018 in Kuala Lumpur, Malaysia. Malaysia's opposition leader Mahathir Mohamad claimed victory over Prime Minister Najib Razak's ruling coalition Barisan National and set to become the world's oldest elected leader after Wednesday's general election where millions of Malaysians headed to the polls. The election has been one of the most fiercely contested race in Malaysia's history which resulted in a shocking victory as 92-year-old Mahathir made a comeback from retirement to take on his former protege Najib, who has been embroiled in a massive corruption scandal. (Photo by Ulet Ifansasti/Getty Images)
Mahathir Mohamad became prime minister in May 2018, in what was Malaysia’s first opposition victory since independence in 1957 © Getty

The government captured international attention with its forceful moves against Goldman Sachs and two of the US investment bank’s former employees, who have been indicted in relation to bond issues that raised $6.5bn for 1MDB between 2012 and 2013.

Lim Guan Eng, Malaysia’s finance minister, announced in January that the government was seeking $7.5bn in compensation from Goldman connected to the scandal. Tim Leissner, a partner at the bank during the 1MDB fundraising, and two individuals — including Malaysian businessman Low Taek Jho, known as Jho Low — are accused of misappropriating $2.7bn in proceeds from the bond sales. Goldman has publicly apologised for Mr Leissner’s role in defrauding the Malaysian government.

Jho Low, the flamboyant financier who is accused of using 1MDB funds to buy artworks by Van Gogh and Monet, remains at large. Malaysia and Singapore have requested assistance from the International Criminal Police Organization to track down the 37-year-old Malaysian, who is believed to be in China and has maintained his innocence through a spokesman.

SAN FRANCISCO, CA - MAY 29: Jho Low, C.E.O., Jynwel Captial Limited and Co-Director Jynwel Charitable Foundation Limited, speaks onstage during The New York Times Health For Tomorrow Conference at Mission Bay Conference Center at UCSF on May 29, 2014 in San Francisco, California. (Photo by Michael Loccisano/Getty Images for New York Times)
Fugitive financier Jho Low is accused with two others of siphoning $2.7bn worth of 1MDB funds © Getty

Yusmadi Yusoff, a lawyer and senator from the ruling coalition, said the scale of the case was “unprecedented” for Malaysia.

“The accused will try to do anything to protect themselves,” he said. “Legally, it is about the law and the evidence presented in court. It can only get to the bottom of the case if the stakeholders focus until the end, and are not distracted by its political dynamics.”

Strains in the coalition

Apart from going after the alleged perpetrators, the Mahathir-led government has embarked on plans to cut spending on infrastructure projects — some of which may also be tied to official corruption. The government is probing whether payments made on certain China-backed projects signed by Mr Najib’s government were used to bail out 1MDB, including the 81bn ringgit East Coast Rail Link, construction of which has been suspended pending a review.

But 1MDB is not the only scandal that the Mahathir government has to deal with. Authorities have unearthed similar cases of embezzlement in at least two other key state institutions under the purview of the Prime Minister’s Department.

One is at Tabung Haji, or the Hajj Pilgrims Board, that manages the 73.5bn ringgit worth of savings by Muslims for pilgrimage to Mecca, Saudi Arabia. The board invests in equity, fixed income and properties to provide returns to the depositors.

A review of the board’s financial position allegedly found accounting fraud dating back to 2014, forcing the new government to step in with a 19.9bn ringgit bailout plan to acquire the board’s underperforming equities and properties. Abdul Azeez Rahim, the board’s former chairman and a lawmaker in Mr Najib’s political party, was charged in January with graft and money-laundering amounting to 144.6m ringgit.

KUALA LUMPUR, MALAYSIA - JULY 30: General view of the Tun Razak Exchange project site on July 30, 2018 in Kuala Lumpur, Malaysia. The Tun Razak Exchange, one of the 1MDB projects, spans 70-acre in the heart of Kuala Lumpur. Malaysia's former prime minister Najib Razak has been under investigation for the 1Malaysia Development Berhad (1MDB) scandal, which dated back to 2009 and described as the biggest corruption scandal in Malaysian history, involving billions of dollars being embezzled from the government fund used to fund both Najib and his wife's lavish spending habits. Recent investigations have suggested involvement of the Chinese as $681 million of 1MDB money went into Najib's personal bank account and spent in at least six countries, including Singapore, Switzerland and the United States. Najib started 1MDB when he took power in 2009 and allegations began three years ago but his arrest came after 92-year-old Mahathir Mohamad reopened investigations and prosecution for money-laundering, pledging to bring justice to all responsible for the multibillion-dollar fraud. (Photo by Ore Huiying/Getty Images)
The Mahathir government has cut spending on various 1MDB-linked construction. The controversial Tun Razak Exchange project, pictured, was revived in June 2018 © Getty

The other is the Federal Land Development Authority, or Felda, an agency set up in 1956 by Razak Hussein — Malaysia’s second prime minister and Mr Najib’s father — to eradicate poverty among rural Malays by giving them jobs on plantations.

New management, installed by Mr Mahathir’s government last July, discovered that the agency’s cash flow was “almost empty”. Corruption was alleged in its subsidiaries, and poor management was blamed.

Its former chairman, Isa Samad, was accused in December of graft related to real estate investments with the board’s approval. Like the pilgrims board’s Mr Azeez, Mr Isa was appointed by Mr Najib to chair Felda under the former ruling party’s practice of awarding corporate leadership positions to loyalists.

Felda’s management has now turned to disposing of assets, including international hotels, to pare its debts and raise cash.

Mr Mahathir says all of these probes into alleged corruption by the Najib government are crucial to restoring confidence in the economy.

“Previous offenders will be prosecuted, but more importantly, we must curb and stop future corruption,” the 93-year-old leader has said.

But the government’s efforts to fight corruption are beginning to be overshadowed by other pressing issues — including a slowdown in the economy, driven by sinking prices for key exports like palm oil and liquid natural gas, and signs of policy drift by the Mahathir government. The economy is projected to grow by 4.9 per cent in 2019, a modest improvement from the 4.8 per cent estimated for 2018.

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In a survey released on January 30 by the Malaysian Institute of Economic Research, indices that gauged consumer and business sentiment declined in the last quarter of 2018, compared with the optimism that prevailed in the aftermath of the May 9 election.

“I feel those [second-quarter] figures are a reaction or overreaction [to the election win]. After that, people start to rationalise, and when they start to rationalise, the figures start going down,” said Zakariah Abdul Rashid, MIER’s executive director.

In a research note, Singapore’s United Overseas Bank said that recent anti-corruption initiatives “reinforce” the government’s commitment to reform and addressing economic issues.

But the analysts also noted that the implementation of these measures may face hurdles because some of the changes will require a two-thirds majority in parliament. Mr Mahathir’s Alliance of Hope holds less than two-thirds of the seats.

“Investors have remained on the sidelines as they wait for greater clarity on reforms and policies,” the report said.

FILE PHOTO: A construction worker talks on the phone in front of a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia, February 3, 2016. REUTERS/Olivia Harris/File Photo
Malaysia’s 1MDB fund, created in 2009, was intended to fund nation-building projects for the country © Reuters

In a risk analysis on February 4, Fitch Solutions warned of a possible decline in the popularity of the Mahathir government. The inability of the ruling coalition to reduce living costs and inequality among different ethnic groups could lead to infighting, the researchers said.

“The already strained unity of the coalition could be further tested, and while a dissolution of the coalition is not our core view, the risks are rising.”

(Too) great expectations

Cracks in Mr Mahathir’s coalition are beginning to show, surfacing recently as politicians disputed the status of the East Coast Rail Link, or ECRL. Its construction has been suspended since July pending renegotiations with the contractor, state-backed China Communications Construction Company.

On January 26, the future of the project seemed to have been decided when Azmin Ali, minister of economic affairs, told reporters that the cabinet had decided to scrap the project for good, due to the high annual interest payment demanded by CCCC.

Hours later, however, the statement was flatly denied by finance minister Lim Guan Eng.

Relations between Malaysia and Beijing have already been strained since Mr Mahathir’s election, but poor handling of an issue as important as ECRL could do more damage, warned Peter Mumford of Eurasia Group, a risk advisory.

A sense of “general disappointment” among supporters of both the ruling party and the opposition has started to sink in after nine months of coalition government, said Ms Welsh of John Cabot University.

“The measure of the government is less than expectation, in part because expectations were too high.”

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Ethnic relationships continue to dominate politics in the country, “indirectly sidelining” Malaysians who voted for a change from the Najib government’s racial rhetoric and policy, observed Ms Welsh. The power struggle between Mr Mahathir and his designated successor, Anwar Ibrahim, continues to fuel uncertainty, she added.

“It is a product of lack of trust between individuals within the system, and this has actually been quite destabilising for the nation,” she said.

Malaysians who voted in the Mahathir government probably want a quick ending to the court cases surrounding 1MDB to dispel the country’s kleptocratic image. But graft cases involving high-ranking officials are often complicated and lengthy.

“Never underestimate white-collar criminals. Some of them are so powerful and rich that they will buy witnesses to win,” said Akhbar Satar, president of the Malaysian chapter of Transparency International, a non-governmental organisation based in Germany.

In the recently released Corruption Perception Index calculated by TI, Malaysia managed to advance just one notch to 61 out of 180 countries in 2018.

Cracks are emerging in the ruling coalition: Mahathir Mohamad, center, with coalition supporters Mohamad Sabu, left, and Tan Sri Muhyiddin Yassin, right, following their election win in May 2018 © Takaki Kashiwabara

But the fact that action has been taken against the perpetrators may result in a better ranking in the future for Malaysia, Mr Akhbar added.

“It looks like only Mahathir is the one chasing down those involved in corruption,” he said. “We hope to see all ministries show to the public that they are also anti-corruption.”

After the euphoria of last spring’s election, Malaysians are beginning to accept that the hard work of banishing corruption in the country may well be a long-term project. The country seems encouraged by the steps made so far, but a more pragmatic sensibility is taking root.

“I told myself, there is honestly nothing for me to lose” by taking the government job back home in Malaysia, Ms Toh said. “If I can’t make it here, I can always go back to the private sector.”

A version of this article was first published by the Nikkei Asian Review on February 6. ©2019 Nikkei Inc. All rights reserved.

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