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Friday, April 24, 2015

Controversies raise Malaysia’s risk profile

Malaysia could be Southeast Asia’s biggest trouble spot after post-coup Thailand, as socio-economic and political problems linger under the Najib administration. – AFP pic, April 24, 2015.Malaysia could be Southeast Asia’s biggest trouble spot after post-coup Thailand, as socio-economic and political problems linger under the Najib administration. – AFP pic, April 24, 2015.
Malaysia’s risk profile is rising fast as controversy over the government’s debt-freighted sovereign wealth fund continues to snowball.
Stability fears are growing amid concerns over Prime Minister Datuk Seri Najib Razak’s hold on power, fragility in the economy and tensions among Malaysia’s multi-racial population over religious issues.
The problems combine to make the country Southeast Asia’s biggest trouble spot after post-coup Thailand, struggling under draconian military rule.
The fund is struggling to service this huge debt load and analysts say any default on its borrowings, raised through international bond issues over the last six years, could undermine the country’s international ratings.
Most ratings agencies have so far resisted openly voicing concerns, although Fitch warned in March that Malaysia had more than 50% chance of a downgrade from A- status, which would mean an added burden on government finances from an increased cost of borrowing.
The crisis surrounding 1MDB deepened this week with news that Malaysians may face hikes in their electricity bills of up to 20% to raise funds to bail out the fund.
Calls for an inquiry were also prompted on Wednesday amid media reports alleging that bank documents given by a 1MDB subsidiary, showing it had US$1.1 billion in assets, may have been faked.
1MDB has become a lightning rod in the campaign to remove Najib from office. Most notably, in recent weeks, former prime minister Tun Dr Mahathir Mohamad has harangued Najib for the growing mess in the sovereign fund, and described Najib as unfit to lead the country.
Dr Mahathir has also piled on the pressure by reopening public debate into a number of personal scandals directly involving the premier, including the unexplained murder of a Mongolian woman by two members of his private security detail, and the lavish lifestyles of members of his family.
Najib has responded to criticism by saying he is judged by the country, not by his predecessor, and so far appears secure. But the political crisis is starting to spotlight deeper structural problems besetting the country.
“Malaysia’s troubles go beyond the personalities. The economy, its political system and its institutions need urgent reform, and, without all of this, Malaysia will continue to underperform,” says Manu Bhaskaran, chief regional strategist at Centennial Partners in Singapore. – The Edge Review

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