The Debate

Malaysia Should Look Beyond the 1MDB Scandal in 2016

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The Debate

Malaysia Should Look Beyond the 1MDB Scandal in 2016

The country should put the political saga behind it and refocus on key priorities.

This week, Malaysia’s attorney general Mohamed Apandi Ali announced that Prime Minister Najib Razak had been cleared of all corruption allegations linked to debt-ridden state investment fund 1Malaysia Development Berhad (1MDB), revealing instead that the nearly $700 million that had been deposited into the leader’s accounts in 2013 had in fact been a donation from Saudi Arabia’s then-King Abdullah.

With his announcement, the attorney general brought to a close a political saga that had rocked Malaysia’s ruling UMNO party and the country’s economic performance since last summer. Still maintaining strong support from his party, Najib now finds himself secure in his position and free to refocus on the policy goals he had outlined earlier in his tenure. With the scandal now in its rear-view mirror, what should the government’s main policy goals be in the year to come?

First and foremost, Malaysia’s leadership will likely move to get the country back on track with the Economic Transformation Programme (ETP) and ensure that it successfully ratifies the much-debated Trans-Pacific Partnership (TPP). The uncertainty surrounding the country’s politics and the fate of Najib had contributed to weakened investor confidence, adding to prevailing external headwinds and putting a dent into what has otherwise been stellar growth since the current government took power. Annual GDP growth in 2015 fell to 4.7 percent (lower than initially forecast) and the ringgit lost 19 percent of its value — although this did have the side effect of bolstering Malaysia’s key export industries, including electronics parts and palm oil. The end of the probe has already yielded better prospects for Malaysia’s currency, with the ringgit’s value rising 1.3 percent against the U.S. dollar.

Despite this economic turbulence, the government’s goal of earning Malaysia “high-income” status by 2020 is still within reach. Since the financial crisis in 2009, per capita income among Malaysians had risen from $7,277 to $10,538 (in 2013). Economic reforms instituted by Najib —especially the country’s first minimum-wage law—have had a great deal to do with that progress.

With the specter of the corruption investigation now lifted, Najib and his political coalition should rededicate themselves to trade, labor, and other liberalization policies that will drive renewed growth and make Malaysia a hub for international commerce and a driver of regional growth. The TPP, which was approved by both houses of Parliament this past week, offers the government a vehicle to make Malaysia more attractive to foreign companies (thanks to new intellectual property protections) while boosting its competitiveness in international trade. The ASEAN Economic Community, which was brought to fruition at the end of Malaysia’s tenure at the head of the regional grouping in December, also promises to create greater opportunities for Malaysian workers.

Najib’s government has been a strong proponent of these economic opportunities, but the 1MDB affair and the debate over his future at home had limited his ability to focus abroad as much as he would like. With his political position secure, the Prime Minister should now have far more political capital to spend.

While Malaysia turns its attention back to economic growth, it must also search for effective solutions to combat the rise of Islamist extremism across the region. The attacks in central Jakarta on January 14 drew international attention to the inroads made by the Islamic State among Southeast Asia’s Muslim populations, and Malaysia faces one of the most daunting challenges when it comes to dealing with extremist Islamist militants and sympathizers.

According to Malaysia’s interior minister, 50,000 Malaysians are considered by the government to be supporters of IS, and approximately 100 Malaysian nationals have answered the call to jihad by traveling to Syria and Iraq. Driven in large part by the close personal relationship between Najib and President Barack Obama, Kuala Lumpur has become an active partner in American counterterrorism efforts over the past few years. A new regional digital counter-messaging center has been set up by the two countries on Malaysian soil, and Malaysia is now officially a member of the American-led anti-IS coalition.

For its American partners, Malaysia offers a critical example of moderate, modern Islamic thought that can undercut the appeal of jihadism; Najib’s so-called Global Movement of Moderates initiative is but one example of Malaysia’s generally more open-minded approach to religious practice. Even so, the government has yet to find a way to drown out the siren call of extremism for its own citizens.

Between trade issues and security concerns, Najib’s government will have a full plate to work through for the rest of 2016. With the 1MDB controversy behind him, although many in the opposition will continue to question the reason behind the Saudi funds, Malaysia’s prime minister should find smoother waters ahead as he cements his previous economic achievements and deepens Malaysia’s regional leadership role in the run-up to the 2018 general elections.

Richard McManus is a New York-based economic impact analyst with five years of experience working with ASEAN countries.