Malaysian Leader Slashes Ministerial Salaries, Widens Graft Crackdown

Updated at 1:14 p.m. ET on 2018-05-29

In a move to trim bureaucratic spending and cut the national debt, Prime Minister Mahathir Mohamad on Wednesday slashed cabinet ministers’ salaries, ordered a review of major projects and augmented a probe into corruption allegations linked to the previous government.

Mahathir announced the salary reductions, which would affect his own paycheck, after his administration’s first cabinet meeting in Putrajaya, Malaysia’s administrative capital.

“We have no plan to raise the salary of the ministers,” Mahathir told reporters. “We will reduce it by 10 percent.”

Malaysian cabinet ministers receive a monthly salary of 19,400 ringgit ($4,890), on top of the allowances they get for being in either the House of Representatives or the Senate. The country’s prime minister receives a monthly salary of 22,800 ($5,747).

Mahathir, 92, has started deep reforms across the government, taking steps to fulfill promises after leading the opposition bloc to an election triumph on May 9. It led to the ouster of former protégé Najib Razak, who is facing accusations of siphoning off millions of dollars from the state fund 1MDB.

1MDB, or 1Malaysia Development Berhad, is insolvent, Finance Minister Lim Guan Eng told reporters Wednesday, explaining that one of its directors had confirmed the fund could not repay its debts.

Lim said Kamal Mohd Ali, a director of 1MDB, had told him that one of the state fund’s purported investments overseas – amounting to about 9.8 billion ringgit (U.S. $2.4 billion) – was a scam.

“According to the directors, since they joined the board in 2016 the company was already insolvent,” said Lim, who was told that, as early as 2016, 1MDB had accumulated losses of more than 500 million ringgit ($126 million).

Kamal and Norazman Ayob, the two remaining members of 1MDB’s board, were summoned by Lim after auditors found that the government had been making debt payments on behalf of the state fund since April 2017.

To date, the ministry has shouldered about 6.98 billion ringgit ($1.76 billion) of 1MDB debt payments, Lim said.

During their 50-minute meeting with Lim, the two 1MDB board members also revealed the state fund had one person on its payroll: CEO and President Arul Kanda.

Arul met Lim in a separate 40-minute session and was accompanied by 1MDB chief financial officer Azmi Tahir and former general counsel Ivan Chen.

Arul, who was smiling as he entered the finance ministry on Wednesday, was last seen in public while campaigning for Barisan Nasional, the ruling coalition led by Najib, during road tours prior to the May 9 general election.

Lim said Arul claimed he could not ascertain the value of 1MDB investments overseas.

“I have found Arul Kanda to be utterly dishonest and untrustworthy,” Lim said.

“It is completely unbelievable that a highly paid and ‘experienced’ investment banker can be so irresponsibly clueless as to not know whether 9.8 billion ringgit worth of investments are even real,” Lim said.

If those investments are still available, Lim said, “then the government of Malaysia would not need to fork out 7 billion ringgit to pay the debts of 1MDB so far.”

Arul evaded the media and left the building through a side exit before speeding away in his black Toyota Vellfire.

Authorities raid five sites linked to Tabung Haji

As Mahathir’s new government sought to find new streams of revenue, authorities on Tuesday raided five sites linked to Abdul Azeez Abdul Rahim, the former government-appointed chairman of Tabung Haji, a fund for Muslim pilgrims to Mecca, officials from the nation’s anti-corruption agency (MACC) told Reuters.

On Tuesday, the agency questioned Najib for four hours and was expected to finish taking his statements on Thursday. MACC was trying to establish how 42 million ringgit (more than $10 million) from the energy company SRC International, a former subsidiary of 1MDB, landed into Najib’s personal bank accounts.

The U.S. Department of Justice has described the 1MDB affair as “the worst kleptocracy scandal in recent times,” pointing to more than $4.5 billion being stolen from the fund since its inception in 2009.

Court documents filed in California allege that almost $700 million of the stolen funds ended up in Najib’s bank accounts in 2013. Najib, who ruled the country for almost a decade, has denied any criminal wrongdoing.

Trimming salaries

On Wednesday, Mahathir told reporters he would seek to hack down the national debt, which, officials said, had reached more than 66 percent of the country’s Gross Domestic Product (GDP).

His government will also review mega projects, such as a high-speed rail line to Singapore and a $14 billion rail project that would connect Peninsular Malaysia’s east and west coasts, according to state news agency Bernama, which cited the economic affairs minister, Mohamed Azmin Ali.

Mahathir had earlier announced plans to revoke a controversial goods and services tax that could provide 43.8 billion ringgit ($11.05 billion) in revenue this year.

He said the reduction in the basic salary of cabinet members would show that his government was concerned about the nation’s financial problems.

On Tuesday, Lim said the nation’s debt obligations had surpassed 1 trillion ringgit ($251 billion), mostly due to the 1MDB scandal and mega projects sponsored by the previous government. As of June 2017, data from the Ministry of Finance showed that the federal debt stood at 685.1 billion ringgit.

CORRECTION: An earlier version incorrectly reported that the high-speed rail link to Singapore was a China-backed project.