March 30, 2016
1MDB scandal embarrasses President Barack Obama and strains US-Malaysia relations
by David J Lynch in Washington
Malaysia’s Prime Minister Najib Razak, left, and US President Barack Obama during the ASEAN leaders meeting in California in February
In 2014, Malaysia’s Prime Minister Najib Razak bonded with US President Barack Obama over golf and a presidential “selfie”, as the White House sought to cultivate Malaysia as a counterweight to both China and ISIS.
Less than two years later, the mushrooming 1MDB scandal is complicating those efforts as Mr Najib faces multiple investigations into the 1 Malaysia Development Bhd state investment fund.
“It definitely is already threatening the relationship. You can tell from any number of angles,” said James Keith, US Ambassador to Malaysia from 2007 to 2010. “Already, there’s a bit of symbolic distance between the President and Najib, which is likely to persist.”
The latest twist occurred last week when former Prime Minister Mahathir Mohamad filed suit against Mr Najib, accusing him of blocking an investigation into the fund, including allegations that nearly $700m had ended up in his personal accounts.
Mr Najib has repeatedly denied wrongdoing and his attorney-general earlier this year cleared him of any criminal offences. Probes in Switzerland, Hong Kong and the US continue. A Department of Justice spokesman declined to comment.
During Mr Obama’s presidency, Malaysia has drawn closer to the US, adopting a harder line on China’s island-building in the South China Sea and joining the Trans-Pacific Partnership trade pact. Mr Najib, who in November labelled ISIS “perverted Islam”, also agreed to establish a digital centre to counter the terrorist group’s internet propaganda. Now, the Malaysian leader is increasingly distracted by the global 1MDB controversy.
“It certainly will make for a more inwardly focused Malaysian government that’s less able to take on a leadership role,” said Mr Keith, now McClarty Associates’ senior director for Asia.
Mr Najib is not scheduled to be among the more than 50 world leaders attending a nuclear security summit in Washington at the end of this month. New restrictions on reporting about the scandal also drew sharp US criticism, with the State Department earlier this month saying it was “very concerned” by Malaysia’s crackdown on domestic and foreign journalists as well as new limits on social media.
Some analysts bemoan opportunities lost to the mounting 1MDB fallout.“Obama and Najib really got along well,” said Ernest Bower, chief executive of Bower Group Asia, a consultancy. “The leader-to-leader relationship would have gone much deeper and more high profile if Najib weren’t under this cloud.”
The diplomatic stall comes after longstanding Obama administration efforts to convert Malaysia into a more dependable US partner than it had been under past leaders such as Mr Mahathir.
In April 2014, Mr Obama travelled to Kuala Lumpur, becoming the first US president to visit since Lyndon Johnson in 1966. Nineteen months later, he visited for a second time, hailing Malaysia as “a Muslim-majority country that represents tolerance and peace”.
Since then, the 1MDB affair has only drawn greater scrutiny. “People are talking about it. They’re wondering where this is going to go,” said Murray Hiebert, senior fellow at the Center for Strategic and International Studies in Washington. “Can Prime Minister Najib survive?”
Mr Najib’s position, though bruised, is not in imminent danger. He retains a parliamentary majority and all the power of incumbency. Elections are not due until 2018.
Though he will miss the Washington nuclear summit, he was among the Association of Southeast Asian Nations (ASEAN) leaders who met Mr Obama in February at the Sunnylands estate in Palm Springs, California.
Investors also do not appear unduly worried. The ringgit, though 6 per cent below its level last summer when allegations about Mr Najib first surfaced, is at a seven-month high against the US dollar.
The stock market has been treading water.“No doubt this is a distraction,” said one senior state department official. “But our relationship is much stronger than it used to be.”