Malaysia Vows to Honor Billions in Liabilities

Updated at 12:07 p.m. ET on 2018-05-25

Reeling from the discovery that national liabilities have ballooned to 1 trillion ringgit (U.S. $251.7 billion), Malaysia’s new finance minister said Thursday the country would honor its financial obligations, while anti-graft investigators questioned ex-Prime Minister Najib Razak for a second time this week.

As Najib entered the Malaysian Anti-Corruption Commission (MACC) building on Thursday morning, members of a taskforce investigating a massive financial scandal at the 1MDB state fund that he had founded held talks with U.S. Justice Department officials and FBI agents, officials said. 1MDB, or 1Malaysia Development Berhad, has become a target of probes in several countries including the United States, where investigators allege that Najib’s associates bought properties and laundered $4.5 billion in money siphoned from the fund.

"[T]he Federal Government debt and liabilities amount to a total of RM1,087.3 billion, or 80.3% of the GDP, as at 31 December 2017. Malaysians are rightly concerned with our debt situation, as we did when we were in the Opposition," Finance Minister Lim Guan Eng said in a statement.

“However, let me emphasize that the obligations and financial commitments of the federal government are unchanged before May 9 and after elections today,” he added. “The only change is that the new federal government has decided to call a spade a spade.”

‘Necessary to bite the bullet’

Lim was responding to Facebook posts by Najib late Wednesday in which the former leader criticized Lim’s claims that the nation’s debt had swollen to more than 1 trillion ringgit.

“As a result of these alarming and confusing statements, our Bursa Malaysia index fell the most among all worldwide stock markets resulting in tens of billions of ringgit in market value wiped out in one day,” Najib said. “Our Bursa index fell 40.78 points today or 2.21 percent while the Indonesian stock index added 0.71 percent.”

Najib, the subject of domestic graft investigations, was toppled after serving a decade in power, when the opposition bloc, led by Mahathir Mohamad, demolished the ruling coalition in the May 9 general election.

Najib accused the new government of making moves “to slander and put all the blame on me to give a perception of a dire financial position to justify why you cannot deliver on your manifesto promises and to massively cut the civil service.”

Najib’s criticisms came amid confusion over Mahathir’s claim on Wednesday that the federal debt had reached more than 65 percent of the nation’s Gross Domestic Product (GDP), surpassing the previous government’s official figure.

Lim said his ministry arrived at that figure by looking at the complete picture of the government’s financial commitments.

He said the official debt stood at 686.8 billion ringgit ($173.2 billion) or 50.8 percent of GDP, but the nation was committed to pay for government guarantees for entities that have been unable to service debts amounting to an additional 199.1 billion ringgit ($50.2 billion), or 14.6 percent of GDP.

“Based on the two items above, the federal government debt would amount to 885.9 billion ringgit ($223.4 billion),” Lim said, explaining that with other commitments and obligations, including lease payments, the nation’s total liabilities had breached the trillion ringgit threshold equivalent to 80.3 percent of GDP, as of Dec. 31 last year.

“It is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces at a later date,” Lim said.

Malaysian, US investigators meet for first time

The United States had sought mutual legal assistance twice – in 2016 and in 2017 – as Justice Department (DOJ) officials launched a corruption probe, but received no cooperation from Kuala Lumpur, U.S. investigators told the 1MDB taskforce in Putrajaya, the country’s administrative capital.

FBI and DOJ officials met for more than an hour with the taskforce members. These included former Attorney General Abdul Gani Patail, former MACC chief Abu Kassim Mohamed, police Special Branch director Abdul Hamid Bador and the anti-graft agency’s current chief, Mohd Shukri Abdul. The two nations agreed about what must be done to bring the stolen assets back to Malaysia, officials said.

Najib grilled again

Meanwhile, Najib smiled and waved to photographers but declined to give a statement as he arrived at MACC headquarters in Putrajaya on Thursday. He spent almost seven hours with the anti-graft body before leaving at about 5 p.m.

Najib, who had also served as finance minister, was grilled over why 42 million ringgit ($10.6 million) landed into his bank account from SRC International, a former 1MDB subsidiary.

Before leaving, Najib told reporters that he was informed by MACC officers that his “questioning sessions are completed.”

“I have answered all the questions to the best of my ability and the MACC have done their job with professionalism,” he said.

Najib, 64, was interviewed by the anti-graft commission for four hours on Tuesday, the first time the former leader was formally questioned regarding the scandal.

Najib founded 1MDB in 2009 as a sovereign wealth fund ostensibly to pursue projects beneficial to Malaysians. But, according to U.S. court documents, the fund was used instead to satiate ostentatious lifestyles between 2009 and 2014.

When U.S. prosecutors filed a civil forfeiture case related to 1MDB in July 2016, they described a breathtaking level of fraud in which more than $730 million of what seemed to be 1MDB money was rerouted in a maze of transactions before ultimately landing in the personal bank accounts of “Malaysia Official 1,” a veiled reference to Najib.

Najib has denied any criminal wrongdoing, saying the money deposited into his bank accounts was a donation from a Saudi prince.

Washington has described the 1MDB affair as “the worst kleptocracy scandal in recent times,” pointing out that more than $4.5 billion (17.9 billion ringgit) was stolen from the fund since its inception.

Mahathir, 92, has vowed not to make any deal with Najib and promised to investigate the corruption scandal fully.

As part of the larger 1MDB probe, Malaysian police raided six residences and a former office linked to Najib, carting off hundreds of boxes of designer handbags and dozens of suitcases containing cash, jewelry and luxury items.