1MDB: the Finance Ministry goes all in – Sir Wenger Khairy

Politically, the 1MDB issue seemed to have been settled last weekend when Datuk Seri Najib Razak stood in front to receive the undivided support of 154 Umno Division chiefs.

Many of Najib’s foes lost heart when they saw a picture of the event, with the front row of Datuk Syed Abu Hussin, recently elected Ketua Bahagian of Umno Bukit Gantang; Datuk Seri Tengku Adnan Tengku Mansor; Datuk Johari Abdul Ghani, a self-made millionaire and MP for Titiwangsa; Datuk Bung Mokhtar Radin; Datuk Idris Haron, Chief Minister of Malacca; Datuk Seri Mustapha Mohammad, Minister of International Trade and Industry; Datuk Seri Zahid Hamidi; Datuk Seri Azalina Othman; and Datuk Seri Adnan Yaakob, MB of Pahang holding aloft a picture of the Prime Minister with the bold words – “Solidariti Bersama PM”.

This was no doubt a show of power. Soon after the Inspector General of Police Tan Sri Khalid Abu Bakar, who had earlier boldly declared that even the Prime Minister could be investigated, adopted the tone set by the MACC Chairman who said investigations will only be based on the Auditor-General’s report, a move that has since been widely criticised by many people including Tun Dr Mahathir Mohamad.

So resounding was the “victory” that those in the Prime Minister’s Department were seen grinning ear to ear and engaging in banter with all and sundry.  What was more, emboldened by this show of support, the Ministry of Finance proceeded to provide 1MDB with a billion ringgit credit line – the first evidence that public money will be used to bailout the troubled fund.

Not satisfied with the “political victory”, the Finance Ministry then announced something which is mind blowing. In a written reply to PKR Batu MP Tian Chua, the Finance Minister announced that the RM2 billion loan, which had been rumoured to have been paid through a loan provided by Tan Sri Ananda Krishan, was instead paid directly from the fund’s own coffers by repatriating the money that was held offshore in the Cayman Islands.

This flies smack in the face of allegations and reports alleging that the RM2 billion debt was paid through a 15 month soft loan as reported by The Malaysian Insider over here.

The Ministry replied that 1MDB had withdrawn its US$2.318 billion offshore savings in the Cayman Islands in two tranches, and had used the first tranche to pay back "loan interest, working capital and other scheduled commitments".

To put this into context, we have to refer to 1MDB president and group CEO Arul Kanda Kandasamy’s press statement on February 7, as reported in the Malay Mail over here. In it he clarified that of the US$2.32 billion that was initially invested in the segregated portfolio accounts, or more colloquially the Cayman Islands Money, US$1.103 billion had already been withdrawn to pay ”to service the debt interest payments, working capital as well as payments to Abu Dhabi’s Aabar investments”.

Glaringly, Arul Kanda makes this very telling statement. “People need to understand that the first tranche has been fully spent” – a direct quotation attributed to the 1MDB President. This indicates that the US$1.103 billion was no longer there, and there would not have been enough funds left over to cover the RM 2billion debt outstanding.

Now the RM 2billion loan was only settled on the 13th of February, 6 days after Arul Kanda made that statement. Interestingly, the timeline of The Malaysia Insider’s scoops seemed to match the events than transpired which led to the RM 2 billion being paid off.

So we now have several contradictions and potentially several inaccuracies, some fatal, others not so problematic. The truth will surface, but now let’s run through the three possible scenarios.

The best case scenario for the government was that Arul Kanda was “misquoted” aka playing a game of brinksmanship with the creditors, to put in politely. 1MDB always had the funds on hand to settle the debt, and the managed the funds in a pooled manner, so one could not tell the difference between Cayman Islands money and other sources of funds. When 1MDB realised that it could no longer “play ball” with some very hardnosed bankers, they decided to pay up and the issue was settled.  Even though some may object to a misleading picture painted through his earlier press statement, the reality is that it is not even a “yellow card” offence. Maybe a caution by the referee, at most.

Now I will lay out the red card “Suarez biting style” scenario that warrants a long term ban. Tan Sri Ananda Krishnan did actually extend a loan to 1MDB and the Finance Ministry gave a wrong answer, politely speaking.  Giving a wrong answer to Parliament is suicidal, considering that the PM had already won his mandate.

That is why I consider the Finance Ministry to have gone “all in” in this regard. The issue of the source of funds will be known by people involved. Those who have good sources at Bank Negara can verify this thing for itself because such a large payment will definitely have been tracked through the Malaysian payments system.

If the Finance Ministry was telling the truth, then they missed a great opportunity to silence the 1MDB issue in February by declaring the 1MDB loan settled through internal funds of the firm. They kept quiet then and allowed the issue to blow up out of proportion. There are no prizes in going “all in” to declare this revelation right now. But I would have the greatest respect for their “coolness” under pressure, something that does not seem to get with the “haru piruk” atmosphere which was evident before last weeks gathering.

But if the Finance Ministry had got this answer wrong, then they have just opened yet another can of worms that could lead to severe repercussions. No doubt, the truth will soon be revealed as the country watches this epic drama unfold. 

* Sir Wenger Khairy reads The Malaysian Insider.