Malaysia’s debt-ridden 1MDB fund under central bank scrutiny
Malaysia’s central bank said on June 3 it had launched a “formal inquiry” into strategic development fund 1Malaysia Development Bhd (1MDB), which is struggling under a huge debt burden and suspicions of massive fraud and mismanagement.
Prime Minister Najib Razak launched the state-owned fund in 2009 but is now fighting to limit the political fallout from its precarious situation, with opponents in his ruling party calling for his ousting over the issue.
1MDB is said to be weighed down by $11.4 billion in debt, which has prompted warnings it could affect the country’s credit rating. Earlier, 1MDB in a statement said its debt was accounted for and gave a breakdown of how it was used.
Najib and the company deny allegations or wrongdoing, which center largely on murky overseas transactions. Critics allege that hundreds of millions of dollars appear to have been siphoned off. 1MDB says all money is accounted for but it has been taken to task over accusations of incomplete or shifting explanations.
“With respect to 1MDB, a formal enquiry has commenced to examine any contravention of the Central Bank’s rules and legislation,” the central bank said in a statement.
It said it was taking statements from individuals involved in the governance process and obtaining information from other relevant domestic and foreign parties. The central bank, however, stated that it does not have the power to investigate in areas such as fraud, tax evasion, corruption, cheating and criminal breach of trust.
“These will need to be pursued by other law enforcement agencies,” it added.
Najib has ordered the auditor-general’s office to investigate 1MDB while the public accounts committee consisting of lawmakers has also launched investigations.
Meanwhile, Malaysia’s second finance minister Datuk Seri Ahmad Husni Hanadzlah said that 1MDB debt issue needs to be resolved or Malaysia would risk “a negative chain of events”, including a possible downgrade of the country’s credit rating or a plunge in value of the ringgit to a level it had during the 1997-1998 Asian financial crisis.
He said if the government is forced to shoulder the 1MDB debt on top of its development expenditure of $14 billion for next year, it would cause the government to fail to meet its targeted Budget 2015 deficit of 3.2 per cent and revert to over 4 per cent instead, he said.
“What will happen? Our ratings will drop, when our ratings drop, our companies borrow from abroad, our currency value will drop like in 1998 then, when at one point the exchange rate was over 4 ringgit to the US dollar, how to pay debts?”
Malaysia's central bank said on June 3 it had launched a "formal inquiry" into strategic development fund 1Malaysia Development Bhd (1MDB), which is struggling under a huge debt burden and suspicions of massive fraud and mismanagement. Prime Minister Najib Razak launched the state-owned fund in 2009 but is now fighting to limit the political fallout from its precarious situation, with opponents in his ruling party calling for his ousting over the issue. 1MDB is said to be weighed down by $11.4 billion in debt, which has prompted warnings it could affect the country's credit rating. Earlier, 1MDB in a statement...
Malaysia’s central bank said on June 3 it had launched a “formal inquiry” into strategic development fund 1Malaysia Development Bhd (1MDB), which is struggling under a huge debt burden and suspicions of massive fraud and mismanagement.
Prime Minister Najib Razak launched the state-owned fund in 2009 but is now fighting to limit the political fallout from its precarious situation, with opponents in his ruling party calling for his ousting over the issue.
1MDB is said to be weighed down by $11.4 billion in debt, which has prompted warnings it could affect the country’s credit rating. Earlier, 1MDB in a statement said its debt was accounted for and gave a breakdown of how it was used.
Najib and the company deny allegations or wrongdoing, which center largely on murky overseas transactions. Critics allege that hundreds of millions of dollars appear to have been siphoned off. 1MDB says all money is accounted for but it has been taken to task over accusations of incomplete or shifting explanations.
“With respect to 1MDB, a formal enquiry has commenced to examine any contravention of the Central Bank’s rules and legislation,” the central bank said in a statement.
It said it was taking statements from individuals involved in the governance process and obtaining information from other relevant domestic and foreign parties. The central bank, however, stated that it does not have the power to investigate in areas such as fraud, tax evasion, corruption, cheating and criminal breach of trust.
“These will need to be pursued by other law enforcement agencies,” it added.
Najib has ordered the auditor-general’s office to investigate 1MDB while the public accounts committee consisting of lawmakers has also launched investigations.
Meanwhile, Malaysia’s second finance minister Datuk Seri Ahmad Husni Hanadzlah said that 1MDB debt issue needs to be resolved or Malaysia would risk “a negative chain of events”, including a possible downgrade of the country’s credit rating or a plunge in value of the ringgit to a level it had during the 1997-1998 Asian financial crisis.
He said if the government is forced to shoulder the 1MDB debt on top of its development expenditure of $14 billion for next year, it would cause the government to fail to meet its targeted Budget 2015 deficit of 3.2 per cent and revert to over 4 per cent instead, he said.
“What will happen? Our ratings will drop, when our ratings drop, our companies borrow from abroad, our currency value will drop like in 1998 then, when at one point the exchange rate was over 4 ringgit to the US dollar, how to pay debts?”
