July 27, 2020 / 8:56 AM / 13 days ago

Verdict in first 1MDB case packs risk for Malaysian government

KUALA LUMPUR (Reuters) - Whichever way the verdict goes on Tuesday in the first 1MDB corruption trial of Malaysia’s former leader Najib Razak, the outcome will be fraught with risk for Prime Minister Muhyiddin Yassin, political sources and analysts say.

FILE PHOTO: Malaysia's former Prime Minister Najib Razak speaks during an interview with Reuters in Kuala Lumpur, Malaysia March 4, 2020. REUTERS/Lim Huey Teng

A guilty verdict could boost Muhyiddin’s credibility with the public, but weaken his coalition, which counts Najib’s United Malays National Organisation (UMNO) as its biggest component - and potentially trigger snap polls.

An acquittal could turn public sentiment against Muhyiddin, and encourage the opposition to challenge the ruling coalition’s two-seat majority in parliament.

UMNO lost a 2018 election amid widespread anger over allegations of graft on a massive scale.

But the party returned to power in a coalition led by Muhyiddin in March, after veteran leader Mahathir Mohamad resigned as premier amid infighting within the alliance that toppled Najib.

While Najib no longer leads UMNO, he remains highly influential despite fighting dozens of charges over a multi-billion-dollar graft scandal at state fund 1MDB.

Prosecutors allege more than $1 billion went into Najib’s accounts from 1MDB, but Najib has denied any wrongdoing and pleaded not guilty.

The verdict on Tuesday is in a case that involves only around $10 million, but as it is the first of many its outcome is being especially closely watched.

“A guilty verdict would be unacceptable to UMNO, and may further weaken Muhyiddin’s administration or lead to snap polls,” said Adib Zalkapli, Malaysia director with political risk consultancy BowerGroupAsia.

Najib’s camp could withdraw support for the prime minister, a source close to UMNO and another close to Muhyiddin said.

“There is a real threat,” said the source close to the prime minister.

Spokesmen for Najib and Muhyiddin did not immediately respond to requests for comment.

Mahathir and his uneasy ally in opposition, Anwar Ibrahim, have accused Muhyiddin of stealing power by shifting alliances to UMNO instead of earning it at the ballot box.

While agreed on the goal of ousting Muhyiddin, the opposition camp is split over who should be its prime ministerial candidate.

Muhyiddin was also helped last week by the $3.9 billion settlement reached with U.S. investment bank Goldman Sachs (GS.N) for its role in the 1MDB scandal.

He has gained public support too for his administration’s handling of the coronavirus pandemic.

But opposition lawmakers reckon they could benefit from a backlash against Muhyiddin if Najib is acquitted.

“People will be extremely angry, and we could gain momentum politically,” said Chang Lih Kang, an opposition lawmaker with Anwar’s party. “It’s not good to go into election with a baggage like Najib.”

FILE PHOTO: Motorcyclists pass a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia, February 3, 2016. REUTERS/Olivia Harris

Yet, UMNO leaders, including Najib, have been pushing for snap polls to capitalise on perceptions among Malays, the country’s ethnic majority, that Mahathir’s administration had neglected their interests.

“If an election is held tomorrow, UMNO would win together with PAS, perhaps close to half the total seats,” said Oh Ei Sun, a senior fellow with Singapore’s Institute of International Affairs, referring to the main Islamic party.

In such a scenario, Muhyiddin and his Bersatu party, made up largely of former UMNO members, could also struggle to secure a relevant role, political analysts said.

Additional reporting by Rozanna Latiff; Editing by Simon Cameron-Moore

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