Sunday, July 05, 2015

Is Najib Using 1MDB Funds?

Malaysian investigators scrutinizing a government investment fund have traced nearly $700 million of deposits into what they believe are the personal bank accounts of the country’s prime minister. A breakdown of what you need to know on this story:

What is 1Malaysia Development Bhd.?

A strategic development fund Prime Minister Najib Razak set up in 2009, promising it would develop new industries and turn the capital, Kuala Lumpur, into a global financial center. 1MDB is 100%-owned by the Finance Ministry, which also is headed by Mr. Najib. But unlike sovereign-wealth funds, it financed itself through issuing debt, and today owes more than $11 billion.

Why has it stirred controversy?

Critics of the fund, including members of Mr. Najib’s ruling party, say it took on too much debt and lacks transparency. The fund raised billions of dollars in bonds and has moved large amounts to accounts offshore. Some of its projects, including plans to develop oil fields overseas and a mine in Mongolia, haven’t panned out. The fund this year has rescheduled debt repayments and had to rely on a $1 billion capital injection from an Abu Dhabi state fund to repay other loans. 1MDB has defended its record and says its assets are worth more than its debts. There are four official government investigations ongoing into the fund’s activities.

What's the latest?

The Wall Street Journal in June reported that 1MDB played an indirect role in funding Mr. Najib’s election campaign in May 2013. The fund bought assets from a Malaysian company at what appeared to be an inflated price. That company later made donations to a Najib-linked charity that spent money on schools and other projects Mr. Najib was able to tout as he campaigned.

More recently, the Journal reported that Malaysian investigators looking into 1MDB had traced nearly $700 million of deposits into what they believe are the personal bank accounts of Mr. Najib. The investigation documents, reviewed by the Journal, mark the first time Mr. Najib has been directly connected to the probes into 1MDB.

How could this affect the U.S.?

Malaysia under Mr. Najib, who came to power six years ago, has drawn closer to the U.S. The country is seen in Washington as a bulwark against China’s growing territorial ambitions in the South China Sea. Foreign investors also have played a large role in Malaysia’s economy, and own about half of the country’s government bonds. Worries the government will have to step in and bail out 1MDB — worsening its fiscal position — have pushed the ringgit this month to fresh 10-year lows.

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