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Thursday, May 5, 2016

Banking on change in scandal-hit Malaysia


COMMENT At a time when the country is mired in an unprecedented scandal that involves Prime Minister Najib Abdul Razak and state-owned investment company 1 Malaysia Development Bhd (1MDB), the selection of an insider to take over the post of Bank Negara governor is possibly the best outcome many Malaysians could have hoped for.
However, questions remain. Many will wonder whether the new central bank governor, Muhammad Ibrahim, can stand up against Najib and execute his duty without fear or favour, particularly since he was effectively appointed by the prime minister he may have to investigate.
Muhammad was the deputy governor of Bank Negara and the only contender working within the institution. Other candidates were either politicians or technocrats within the executive, whom observers worried could directly undermine the independence of the bank.
Bank Negara has been investigating the 1MDB scandal since 2015. But it faced resistance from the government in pursuing criminal charges against the state company, in which Najib is the advisory board chairperson.
Though outgoing Bank Negara Governor Zeti Akhtar Aziz (photo) has been quoted by the media as saying that she hoped to bring a closure to the 1MDB case before her retirement, more and more damaging details about the state company and the mysterious funds that flowed into Najib’s personal bank accounts have been uncovered in recent weeks.
In a report last month, ABC’s Four Corners revealed that the central bank was repeatedly warned about the prime minister’s unexplained wealth, totalling up to US$1 billion, by local bank officials.
However, it is understood that Zeti had handed back the ‘highly sensitive’ report, not wishing for Bank Negara to keep a copy on its premises. Zeti has refused to comment on this allegation.
Be that as it may, Zeti is still widely respected for professionalism and independence in her 16 years as Bank Negara governor.
When her term was coming to an end, opposition members and civil society were increasingly worried that Najib, who is also finance minister, would use his power to recommend a confidant to take the helm at the bank.
Removed attorney-general in a sudden move
Najib carried out a similar act in July 2015. In a sudden move that was widely believed to pre-empt possible graft charges against him, Najib removed the then attorney-general and replaced him with a federal judge who has a close relationship with the ruling coalition.
In a similar vein, The Wall Street Journal last month quoted sources claiming that Irwan Serigar Abdullah, a top official in Najib’s Finance Ministry, who also sits on the advisory board of 1MDB,
was expected to be named as the new central bank governor. However, this did not materialise.
By selecting a Bank Negara insider, Najib’s government is seeking to assure the market of the bank’s continuity and stability when it comes to monetary policy and banking oversight. But this is unlikely to remove all concerns regarding government interference in the bank, given Najib’s interest in the 1MDB scandal.
Muhammad’s first task as the new governor will probably be dealing with the problematic 1MDB fund, given the state company has recently defaulted an interest payment due to a stand-off with Abu Dhabi sovereign fund International Petroleum Investment Company (IPIC). This could have a huge impact on Malaysia’s sovereign ratings.
However, Muhammad’s biggest test lies with whether he is willing to, and capable of, pursuing the 1MDB investigation further.
Despite the fine announced by Bank Negara on April 29 for various charges contravening the country’s foreign exchange law, there are still many key issues that haven’t been dealt with, particularly the flow of Najib’s unexplained wealth over the border.
This is where the independence of the new governor will be tested.

WONG TECK CHI is a former journalist and editor with Malaysiakini. He is currently pursuing a his Master's in Public Policy at the Australian National University’s Crawford School of Public Policy. This article first appeared in New Mandala. -Mkini

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