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Malaysia 2015: Najib Razak’s hardest year

In 2015 Malaysian Prime Minister Najib Razak’s leadership was badly shaken by the eruption of a huge corruption scandal in July. This same scandal contributed to making the Malaysian economic outlook negative, while the national currency fell to an all-time low against the US dollar. This was accompanied by a massive protest movement (Bersih 4.0), aimed at forcing Najib’s resignation, a goal that, however, at least up to the time of writing, has not been reached. At the same time, clear signals of discontent towards Najib’s leadership started to become visible even within UMNO, the Prime Minister’s own party.

In November the announcement was made that the Trans-Pacific Partnership (TPP) agreement had been signed by the Trade Ministers of 12 countries, including Malaysia. As the TPP is considered an important aspect of the US strategy to counter China’s influence in the Asia-Pacific region, Malaysia’s presence among the TPP signatories highlighted its role as a US strategic partner in the region. That same role was highlighted once again by Barack Obama’s November visit to Kuala Lumpur, on the occasion of the US-ASEAN meeting. However, Malaysia’s behaviour vis-à-vis China, in the months before the TPP announcement, showed that Kuala Lumpur’s closeness with the US was qualified by the need not to enter on a collision course with Beijing. Although Malaysia too has been involved in the disputes pitting China against several ASEAN countries in the South China Sea, Kuala Lumpur’s protests against Beijing’s assertiveness have been particularly weak. Indeed, Malaysia appears to be trying to perform a kind of balancing act, trying to appease both the US and China. At the same time, Malaysia, as Chairman of ASEAN for 2015, maneuvered to moderate the more aggressive anti-China positions of some of the other ASEAN members.

  1. Introduction

2015 was a year of domestic controversies in Malaysia, mainly related to the leadership of Prime Minister Najib Razak. The jailing of the opposition leader Anwar Ibrahim on an old and controversial allegation of «sodomy» came just before the eruption of a huge scandal related to a state-owned investment company called 1Malaysia Development Berhad (1MDB). The 1MDB scandal personally involved the Prime Minister and cost him credibility and part of his political capital.

Even before and independently of the 1MDB scandal, Malaysia had been confronted by many challenges in 2015. This was the year of the final negotiation of the Trans-Pacific Partnership (TPP) of which Malaysia was one of the most enthusiastic and assertive supporters. At the same time, 2015 was important for the future of the Association of South-East Asian Nations (ASEAN), of which Malaysia is one of the founding members and was the chairman for the year under review. On 1 January 2016, ASEAN was expected to become a real integrated market, due to the fall of barriers and the establishment of a commercial union.[1] Accordingly, ASEAN in 2015 gave Malaysia the responsibility for leading this union of ten countries to the conclusion of a process that started back in 1967. However, while the process of economic integration was undoubtedly progressing, ASEAN appeared divided on many political issues, above all the attitude to take towards China. Whereas China is the main economic partner of most of the ASEAN members, it has territorial disputes with many of them, including Malaysia. The positions within ASEAN, related to China’s assertiveness in the South China Sea, showed important divisions among its members. Malaysia tried to moderate these divisions, while at the same time attempting to appease both China and the Unites States, the latter being a traditional Malaysian ally.

In the remainder of this chapter all these issues will be analysed. The first to be put under examination will be the eruption of the 1MDB scandal and its political and economic implications.

The second problem to be analysed will be the state of the Malaysian economy, a special emphasis being placed on the plummeting of the ringgit, the national currency, which was under pressure for the whole year for many reasons, not least the eruption of the 1MDB scandal.

The third issue to be discussed will be the domestic political situation, characterised by the collapse of the united opposition and the launching of a new street protest by civil society organisations, giving rise to the so called Bersih 4.0 movement. However, it will be shown that the main challenge to Najib Razak’s leadership came from within his own party, the United Malay National Organisation (UMNO). Signals of discontent became frequent after the involvement of the Prime Minister in the 1MDB scandal was exposed in July. Najib had to deal both with the vitriolic attacks from the former Prime Minister Mahathir Mohammed and with the rebellion of important party cadres. Despite all these problems, eventually Najib managed to maintain his control over his party and hold on to his Prime Ministership. In December, the UMNO general assembly was unusually tense and difficult. Challenged by a section of his own party, dealing with a huge scandal and confronted by an economic slowdown and a currency crisis, Najib faced his hardest year since the beginning of his prime ministership in 2009. Nevertheless, Najib showed his ability to bounce back and to continue to lead his country.

The fourth issue to be dealt with will be Malaysia’s foreign policy, particularly with respect to the relations with China and the US.

  1. The 1MDB scandal

«1Malaysia Development Berhad»[2] originated from a  sovereign wealth fund, named Terengganu Investment Authority (TIA). TIA, founded in 2008, aimed at promoting the economic development of Terengganu, a state situated in north-eastern Peninsular Malaysia. In January 2009, TIA was renamed 1Malaysia Development Berhad  (1MDB) and its activities were expanded to the whole of Malaysia. This development was part of the big and pompous «1Malaysia Plan», announced by Najib Razak on 16 September 2008, when he was not yet the Prime Minister, but the Deputy Prime Minister and the heir apparent to the then Prime Minister Abdullah Ahmad Badawi.[3] The company was run by a Board of Advisors, a Board of Directors, and a Senior Management Team. The Board of Advisors was chaired by the Prime Minister himself.[4]

Initially 1MDB’s focus was mainly on real estate, energy, tourism and agribusiness. In 2009, the decision of the company to get involved in funding the huge Tun Razak Development Project drew criticism from the parliamentary opposition. The lack of transparency in the company’s governance was another important source of criticism. The then opposition leader, Anwar Ibrahim, openly questioned the lack of transparency in the governance of 1MDB and went as far as to insinuate that the Prime Minister himself might have some personal interest in the funding of the project.[5] In 2010, another member of parliament from the opposition, Tony Pua, questioned Najib’s role as chairman of the 1MDB Advisory Board, complaining about the lack of transparency in the accounts of the company.[6] In September 2013 the 1MDB attracted attention once again, as it asked for a six-month extension in presenting its annual report. All this occurred in spite of the fact that the 1MDB accounts had regularly been audited by international firms such as KPMG and Ernst and Young.[7]

At the beginning of year 2015, it became public knowledge that 1MDB was in deep crisis and that it had accumulated losses worth 42 billion of ringgits (more than 11 billion US dollars).[8] This huge debt caused both the value of the ringgit to plummet and the country’s economic outlook to worsen.

In March, an investigative journalism portal – Sarawak Report – began alleging that a controversial Penang based businessman, Jho Low, had initiated a joint venture with 1MDB and Petro Saudi International, which had allowed him to pocket US$ 700 million.[9] While both Petro Saudi and 1MDB denied any connections with Jho Low, the same portal alleged in July that US$ 1.16 billion from 1MDB had been transferred to the account of a company controlled by Jho Low, Good Star Limited, and that, through this company, over US$ 700 million had been deposited in a personal account made out to Najib Razak.[10] The report alleged that even the prime minister’s wife, Rosmah Mansor, had benefited from a transfer of cash to her personal account made by Jho Low, and had received valuable gifts such as jewellery and gold.[11] After this report as many as five international police teams, including the FBI, started to investigate 1MDB’s accounts around the world.[12]

Najib, while dismissing any allegation of corruption, launched a campaign targeting whoever might criticize him. He sacked his deputy prime minister, Muhyiddin Yassin, along with four ministers for their tepid defence of his person after the scandal came to light.[13] Then Najib, at the beginning of August, started a more vigorous counterattack campaign. On 1 August, clearly referencing the editor and founder of Sarawak Report – Clare Rewcastle Brown, a British citizen born in Malaysia – Najib said that «white people should stay out of Malaysia’s affairs».[14] After three days a Kuala Lumpur Court issued an arrest warrant for Rewcastle-Brow «for activities detrimental to parliamentary democracy under Section 124B and 124I of the Penal Code».[15] However, Interpol, after receiving the international arrest warrant, rejected it and finally dismissed it on 27 August.[16]

  1. The Economy: the fall of the ringgit

Following the eruption of the big scandal involving the leadership of the country at the highest level, the outlook of the Malaysian economy became negative and the ringgit fell to an all-time low against the US dollar. However, the state of the Malaysian economy had already been faltering even before the scandal broke out over the summer. The low international prices for crude oil and other commodities – such as palm oil, of which Malaysia is the second largest producer worldwide – had hit the country hard. The deceleration of the Chinese economy had affected Malaysian exports too, particularly because China was the major destination for Malaysian commodities and manufactured goods. Malaysia recorded its 13th consecutive month of falling exports in October.[17] Despite these difficulties, the Malaysian GDP growth projection for 2015 was at 4.7%, a healthy level given the global environment and the domestic financial and political turmoil.[18] Domestic demand remained high and grew by 5.9%, despite the introduction of the new Goods and Services Tax (GST),[19] on which more later. Furthermore, the export forecasts seemed to improve, due to the depreciation of the ringgit, whereas the possibility took shape that the robust growth in the US might partially compensate for the Chinese economic slowdown.

The value of the Malaysian currency started to drop at the end of 2014, reaching 3.44 against the US dollar on 3 December 2014, its lowest point since February 2010. Then, in the first quarter of 2015, the value of the ringgit dropped again. In March the exchange rate went down to 3.71 against the US dollar, and, in June, further declined to 3.77, the lowest level since January 2006.[20] However, in August, after news started making the rounds of a huge debt accumulated by 1MDB, the ringgit broke another negative record, plummeting to 4.00 against the US dollar. This was an even lower value than that witnessed in the aftermath of the big Asian financial crisis of 1997, when the ringgit-US dollar exchange rate reached 3.80 to 1.[21]

This fall had much to do with the decline in the price of commodities at the international level. Other reasons were the devaluation of the Chinese yuan, which strengthened the US dollar against other Asian currencies. But, after July 2015, a powerful additional cause was the 1MDB debt. Prime minister Najib Razak’s involvement in the scandal, evidence of huge mismanagement of public money, and uncertainty about the real dimension of the company’s debt pushed international rating companies, such as Fitch, to change the long-term outlook for Malaysia from stable to negative.[22] Even though the Governor of the Malaysian Central  Bank, Ms. Zeti Akhtar Aziz, tried to reassure investors, claiming in June that the continuing weakening of the ringgit was a short-term problem,[23] in July a Financial Times report predicted that the ringgit was expected to sink even more, reaching 3.88 by the end of the year.[24] In fact, as already noted, this forecast, which created panic among international investors, was even too optimistic, given that the ringgit plunged to 4.00 against the US dollar at the end of December.

Furthermore, Malaysia’s deficit problem remained unresolved. The new Goods and Service Tax (GST), discussed by the Malaysian political élite since 1992, was finally implemented on 1 April 2015. This new tax, which aimed at replacing a complicated system of sales taxes and service taxes, was considered a priority by international observers. In 2013, in its Structural Policy Country Notes, the Organization for Economic Co-operation and Development (OECD) had stated that «Malaysia should introduce a GST as soon as possible».[25] According to international agencies, the GST should bring broad and steady fiscal revenue for a state such as Malaysia, which has registered high deficit levels and high public debt in the past few years. But the GST rate was put at a mere 6%, while 13 economic sectors – the most important, including all agricultural products and all exported goods and services – were exempted from it.[26] Thus, it is unlikely that the introduction of the GST will have any significant impact on the deficit. Given the fact that direct taxation is also very low, and given that public expenses continued to grow even in many unproductive sectors, it is not surprising that the goal, announced by the Malaysian government, of bringing the deficit below the 3% of GDP was not reached in 2015.[27]

  1. The collapse of the united opposition

The explosion of the 1MDB scandal should have been a godsend opportunity for the opposition, formally unified in the Pakatan Rakyat (People’s Alliance). But the Pakatan Rakyat (PR), which includes three parties representing different classes and communities that have differing visions for the future of the country, had found it difficult to survive since the loss of its leader, Anwar Ibrahim, who was jailed on 10 February 2015 on an old and controversial conviction for «sodomy». Just a few weeks after Anwar’s imprisonment, the alliance entered a period of crisis. In fact the relations between two of the parties of the three-party-alliance – the Islamist Pan-Malaysian Islamic Party (PAS) and the secular, and ethnically largely Chinese, Democratic Action Party (DAP) – were already badly damaged after the «Kajang move». As noted elsewhere,[28] there was a long struggle among the opposition parties in the second half of 2014 aimed at controlling Selangor, the richest and most populous state in Malaysia and a stronghold of the opposition. This struggle directly involved Anwar, who tried to secure the post of Menteri Besar (Chief Minister), first for himself and then for his wife Wan Azizah. The result was an open battle between PAS and DAP, with Anwar’s multi-ethnic People’s Justice Party (PKR) being caught in the middle.

After the long internal fight related to the «Kajang move», the opposition was briefly able to reunite following the 7 March 2014 Kuala Lumpur Court of Appeal’s overturn of Anwar’s acquittal. The opposition parties jointly protested against the decision, which they all claimed to be politically motivated.[29] But divisions soon rose to the surface again as Anwar’s new conviction left the opposition without the only leader charismatic enough to heal its divisions. In March, a few weeks after Anwar’s jailing, controversies emerged within the PR regarding the Prevention of Terrorism Act (POTA), a law aimed at preventing the spreading of terrorist ideologies in Malaysia. Many civil society organizations denounced the act as illiberal and potentially antidemocratic.[30] The most controversial piece of the law was the reintroduction of detention without trial for a period up to 59 days and the fact that the continued detention of a suspected terrorist after this period would not be confirmed by a normal court but by a special Prevention of Terrorism Board.[31]

The controversial law was approved by the Federal Parliament on 7 April 2015, after 12 hours of debate, at 2.25 am, with 79 votes in favour and 60 against.[32] Decisive for the approval of the law was the absence of 26 PR lawmakers. This absence was strongly condemned by PR activists on social media, and led to a major fracture within the opposition ranks. The absent lawmakers were mainly from PKR, Anwar’s Party, and from PAS, while those critical of the absence mainly belonged to DAP.[33]

In March another issue came to the fore. The enforcement of laws based on Islamic Law, or Shari‘a, has for years been a source of friction between PAS and the secular parties, particularly in Kelantan, the Northern state where PAS has ruled since 1971. At the end of March the Kelantan Legislative Assembly passed some amendments to its Syariah Criminal Code (II) Enactment, 1993 – namely the local Islamic penal code, also named «hudud»[34] – which quickly became a source of legitimate public concern. In 1993, the Syariah Criminal Code had established a dual penal system of punishment, with the Malaysian Penal Code applicable to non-Muslim citizens, whereas Muslims citizens were subject to the much tougher Islamic Law. Following the 2015 amendments, Islamic norms became, in some cases, applicable to non-Muslim citizens too.[35] Specifically, clauses 56, 57, and 58 of the act left it to the judge to decide which law to apply in cases of crimes jointly committed by a Muslim and a non-Muslim. In these cases the non-Muslim citizen might be subject to the same punishment as the Muslim, including amputation in the case of theft (clause 58).[36] «Many noted that the provisions did not explain if hudud would remain exclusively applied to Muslims in the event that a criminal act was perpetrated by both a Muslim and a non-Muslim».[37] This move from the PAS alarmed secular parties all over the country. In June the frictions became open and PAS voted to sever ties with DAP.[38] PKR, caught in the middle,[39] could not do much to avoid the collapse of the alliance. The three parties continued to work together in some local administrations, but the prospect that, in a foreseeable future, the Malaysian parliamentary opposition would once again be able to act as a united political force appeared improbable.[40]

  1. On the streets again: Bersih 4.0

If the political opposition proved itself unable to capitalize on the 1MDB scandal because of internal divisions and lack of a common leadership, the protests against corruption were once again taken up by Malaysian civil society. The scandal brought people onto the streets again and led to the birth of a protest movement named Bersih 4.0. The original Bersih («clean») movement was launched in 2006 to protest against the unfair electoral system. In those days the official name of the movement was «Coalition for Clean and Fair Elections» (Gabungan Pilihanraya Bersih dan Adil) and it was organized by NGOs which sought to reform the existing electoral system to ensure fairer elections.[41] The movement was started again in 2010 (Bersih 2.0) in response to the reluctance of the government to meet the protestors’ demands. Later on, in 2012, Bersih 3.0 came to the fore with a broader set of objectives: they not only sought the reform of the electoral system, but also set out to fight against corruption in government, and to promote environmentally linked campaigns, notably the opposition to the Australian based company Lynas rare earth project.[42]

The Bersih 4.0 movement, mainly prompted by the 1MDB scandal, demanded Najib’s resignation. The movement was initiated by a series of planned rallies carried out on 29 and 30 August 2015, just before the country’s National Day (August 31). The rallies, held in Kuala Lumpur, Kota Kinabalu and Kuching, called for clean and transparent governance. The demonstrations were successful, particularly in the capital city. Despite many attempts to intimidate protestors and provocations by the police and UMNO supporters,[43] the rallies saw the participation of thousands of people. According to Bersih’s estimations, in Kuala Lumpur alone 250.000 people gathered for the rally, whereas estimates made by the police were, as usual, much lower (around 25,000).[44] There were no major incidents and, unlike the previous Bersih rallies, police did not intervene with tear gas or with charges. The movement succeeded in highlighting the political demands of a large sector of Malaysian civil society. But, as in the previous editions, the effectiveness of the movement seemed to be low. Interestingly, former PM Mahathir Mohammed participated in a Bersih rally, a fact which will be discussed later.

It is interesting to note that the public perception of Bersih 4.0 as a largely Malaysian Chinese movement was widespread in the country, particularly among Malays.[45] The political divide among Malays and Malaysian Chinese has grown steadily in the past few years. The recent split between the opposition parties and the increasing pro-Malay attitude of the UMNO-dominated government deepened this divide.[46]

  1. The struggle within UMNO: the final stage of arm wrestling between Najib and Mahathir?

The weakness of the opposition and the limited effectiveness of the protests coming from civil society organizations explain why Najib was left relatively unscathed by the 1MDB scandal. However, the main challenge for Najib did not come from the opposition or the civil society street demonstrations, but from within his own government and party. As has become usual in the past years, when a political struggle develops within the National Front (Barisan Nasional, BN), and particularly within the major party of the coalition, the UMNO, a central role is usually played by Mahathir Mohamed. This authentic éminence grise of Malaysian politics, who was prime minister for 22 years (from 1981 to 2003), even though he turned 90 in 2015, still enjoys great prestige and considerable political influence among both the political establishment and Malaysian citizens at large. In Malaysia everybody still remembers what had happened to Anwar Ibrahim and Abdullah Badawi, two former Mahathir protégés who had dared to challenge him, and, as a consequence, had seen their political fortunes rapidly decline. The story of Anwar Ibrahim, who was Deputy Prime Minister and Finance Minister under Mahathir, is widely known and has been told elsewhere by the present author.[47] For his part, Abdullah Badawi, who was Prime Minister from 2003 to 2009, was officially made to step down for bad economic performance after attracting criticism from Mahathir.[48] Indeed it was Najib Razak who replaced Badawi, with Mahathir’s blessing. However, by 2013 Mahathir turned his criticism against the new PM, branding his 1Malaysia Plan an «unproductive scheme».[49] After the eruption of the 1MDB scandal, Mahathir started attacking the prime minister personally. He openly criticized the «lavish» lifestyle of Najib’s wife in his blog and advocated the PM’s resignation.[50] On 30 August he went as far as to participate in the Bersih 4.0 rally, whose participants were labelled by Najib as «shallow and poor in patriotism».[51]

On 12 October Mahathir strongly criticized Najib again, asserting that Malaysia under the Najib government had become a «pariah» state. He wrote on his blog: «In the eyes of the world Malaysia has become a pariah state, a state where anyone can be hauled up and questioned by the police, detained and charged through abusing laws of the country».[52] After a few days, during an extensive interview with the British newspaper The Guardian, Mahathir made public a private conversation he had had some months before with Najib. The contents of this interview proved to be very embarrassing for the incumbent Malaysian PM. Mahathir said: «What he is telling me is that bribery is OK. If you bribe with a few dollars, I suppose it doesn’t work, but if you give [money] to a person who has never seen a million ringgit he will turn around».[53] Mahathir, in the interview, went on to say: «The only thing that we can do is to have the Prime Minister resign or step down or to be removed. Because he is the principal person who has brought about this bad image for the country».[54]

Mahathir has indeed remained influential in Malaysian politics but, at the moment of writing, it is still not clear how much harm he had caused the incumbent PM with his vitriolic attacks. He advocated a confidence motion be launched against Najib in parliament but the opposition held back with respect to this matter.[55] As already noted, the three main opposition parties were deeply divided and probably did not want to push for a resignation that might lead to an unknown scenario, possibly dangerous for the opposition too.

Given the reluctance of the opposition to push strongly against Najib, Mahathir’s appeal received a warmer response from some UMNO MPs. This was the case of the Kedah MP Anina Saadudin who, on 28 August, filed a lawsuit against Najib.[56] The allegations made by Ms. Saadudin concerned the misuse of party funds. She went to court to recover, on behalf of UMNO, 2,6 billion Malaysian ringgit (around US$ 650 million), which were reportedly in the PM’s private accounts.[57] However, shortly after this, she was expelled from the party.[58]

Up to the time of writing, Najib has been able to resist any attempt to remove him from his post as Prime Minister. Notwithstanding the growing pressure on him, Najib still enjoyed the backing of most of UMNO’s powerful division chiefs.[59] However, in November, at least some among the UMNO division chiefs urged Najib’s resignation. For his part, UMNO’s Deputy President and former Deputy Prime Minister Muhyiddin Yassin demanded a full explanation on the 1MDB issue.[60] The general assembly of UMNO on 10 December was one of the most agitated in the history of the party. Usually these meetings are quite routine and generally smooth; but in November 2015 the assembly had to deal with protests outside the venue of the meeting and internal criticism. For the first time in UMNO’s history, the assembly saw only the president, namely Najib himself, speak at the winding up-session, a clear signal that Najib and his followers did not want to face surprises from within the organization. Declaring himself a «magnanimous» person, Najib Razak ended his speech at the general assembly by extending a handshake to his most vociferous critic within the UMNO leadership, Muhyiddin Yassin. Muhyiddin accepted Najib’s hand, «as delegates shouted and applauded the apparent show of unity».[61]

Apparently Najib won this round, restoring unity in the UMNO’s ranks. But denying Muhyiddin Yassin the possibility of speaking can also be seen as a signal of fear and of weakness. The next general elections were scheduled for 2018, allowing Najib time both to retake full control over his own party and to rebuild his public image. But that is an uphill task, which could be made more difficult if new problems come up in the near future, related to the investigations on Najib’s private accounts. More importantly, it remains to be seen how Malaysian public opinion will react to a weakened leadership. According to Ooi Kee Beng, Deputy Director of the Singapore-based Iseas-Yusof Ishak Institute: «The only way UMNO can turn things around for itself is with a new leader, a new agenda and a new direction in leadership».[62]

  1. A balancing act policy: Malaysia between the US and China

On 5 October 2015 the trade ministers of 12 countries announced the final agreement for the Trans-Pacific Partnership (TPP) in Atlanta. Although in order to be enforced the treaty still needed to be ratified by all the parliaments, the 5 October agreement meant that the main step had been taken.

The TPP has generally been considered a crucially important element in the US strategy to counter China’s influence in the Asia-Pacific region.[63] Malaysia is pivotal in the enforcement of this strategy. A visit of Barack Obama to Kuala Lumpur in November for the US-ASEAN meeting highlighted once again Malaysia’s role as a US strategic partner in the region. Signing the TPP was just one among many pro-US steps Malaysia, traditionally an American ally, has taken in the recent past. After 2013, with a series of agreements, Malaysian Prime Minister Najib Razak has steadily conceded to the US whatever Washington has requested. Indeed Malaysia has showed itself eager to meet US requirements by allowing the US Navy to fly spy planes from Malaysian airstrips, by cooperating in joint military exercises and by collaborating in countering the funding of international terrorist organizations.[64]

On its side, the US was careful not to harm the Malaysian leadership by drawing attention to some already present frictions. These were several, and included: the jailing of the opposition leader Anwar Ibrahim (which attracted criticism of the Malaysian judicial system at the international level); an alleged human rights crackdown just before Obama’s visit; the arbitrary employment, in the wake of the 1MDB scandal, of criminal defamation and internal security laws to prosecute dissent among journalists and opposition activists. Obama, who was visiting Malaysia for the second time in just two years and who was the first US president to visit the country in over half a century, carefully avoided mentioning the troubles Najib was facing at home and the issues of human rights and democracy more broadly.[65]

In the months before the TPP announcement, Malaysia was partially involved in the dispute concerning the Spratly Islands in the South China Sea, namely the same dispute which had already caused a worsening in the relations between China and other ASEAN countries. Nevertheless, Malaysia’s protests against China regarding the increasing Chinese military presence in the disputed area were relatively cautious. Even though Malaysia itself was involved in the dispute, in the past few years it has appeared to act mostly to moderate other ASEAN members, such as Vietnam and the Philippines, whose opposition to China’s assertiveness in the area was much stronger. Something changed between March 2013 and February 2014 when Chinese warships held exercises twice in the waters near James Shoal, an atoll 80 kilometres from the Borneo seashore, the control over which is a point of dispute among Malaysia, China, and Taiwan. Kuala Lumpur reacted with official protests to Beijing.[66] In October 2013 Malaysia announced plans to build a navy base in Bintulu (Sarawak state), the closest major town to the contested atoll, stating that the aim of this base was to protect oil and gas reserves in the region.[67] However, according to Reuters’s analyst Stuart Grundgings, «despite its shifting stance, Malaysia will likely stop short of risking any chill in ties with China».[68] He added: «Malaysia has given the impression of seeing the South China Sea dispute as a hitch in an otherwise thriving and historic relationship».[69]

After the diplomatic tensions between the two countries over the handling of the flight MH 370 disaster cooled down,[70] the Malaysian government did its best to try to appease China, its main economic partner. In October 2015 the two countries conducted the first-ever joint troop exercises in the Strait of Malacca and, in November of the same year, the Malaysian Government gave permission to Chinese warships patrolling the South China Sea to stop at Malaysian ports.

After the bilateral talks held in Kuala Lumpur on 20 November, both Najib and Obama admitted that the South China Sea problem had been one of the main points of discussion. Obama underlined the involvement of all the ASEAN countries in the dispute saying that «there are a number of claimants there»[71] and that «the United States is not one of them, but the United States does strongly believe in the need to apply the rule of law and international norms in the resolution of maritime disputes».[72] However, Najib’s position was decidedly much more cautious. The Malaysian Prime Minister carefully avoided any mention not only of China, but of the other ASEAN countries as well, in an attempt to de-emphasise the importance of the issue. In the press conference after the meeting, Najib stated: «We know the position of the United States, (inaudible) position consistent with the role. And we hope that periodic tensions are not escalated, and that we be able to find a negotiated settlement that’s consonant with the principle of international law and that respects the rights of big and small nations, as well».[73]

This declaration did not mention other claimants to the waters and islets of the South China Sea, in an attempt not to attract criticism from either China or other ASEAN members. This was something that Kuala Lumpur wanted to avoid at any cost, in order not to create additional problems related to its chairmanship in a crucial year for regional economic integration. As noted in March by the Foreign Minister of Malaysia: «As chairman of ASEAN for 2015, Malaysia bears the responsibility to ensure that the agenda to establish the ASEAN Community by the end of this year will be materialized».[74]

Indeed, Malaysia was performing a kind of balancing act between China and the US with an eye on the politics of regional integration, which has been a cornerstone of Malaysian foreign policy for the last 30 years. Yet, ASEAN members are not in agreement about how to cope with China. The four ASEAN member states that have maritime disputes with China (Malaysia, the Philippines, Vietnam and Brunei) have overlapping claims and each of them do not recognize the claims of their fellow ASEAN countries with respect to the disputed islands. Furthermore, there are evident contrasts within the organization about how to relate with China. Often, states which have no direct role in the South China Sea disputes, such as Myanmar, Cambodia and Indonesia, have tried to moderate the position of the other ASEAN countries vis-à-vis China.[75]

On 4 November 2015 the ASEAN Defence Ministers Plus (ADMM-Plus)[76] had a meeting in Kuala Lumpur. For the first time the ADMM-Plus did not issue a joint statement at the end of the meeting. It seems that the final statement had been blocked by China over the issue of the South China Sea.[77] Officially, ASEAN deals with these disputes following the Six-Point Principles, aiming at fully implementing the 2002 Declaration on the Conduct of Parties in the South China Sea[78] and the 2011 Guidelines for the Implementation of the same Declaration.[79] Nonetheless, it is clear that many of the countries within the organization thought that these disputes should be dealt with by each state separately and should be left out from the debate within ASEAN.[80]

The Malaysian position on the issue seems to be a paradox. On the one hand, Malaysia is a party in the South China Sea disputes and a strong and long-time ally of the US, which is to say the nation that has been more resolute in the last few years in reacting to China’s assertiveness in the area. Hence, apparently, Malaysia has a visible interest in uniting as many ASEAN countries as possible on a common anti-China platform. But, on the other hand, China represents the most important market for Malaysian exports and Malaysia is the largest Chinese economic partner among the ASEAN countries. This creates an imperative for Najib’s Government not to harm Malaysia’s relations with China. So, the Malaysian Prime Minister made every possible effort not to involve ASEAN in the South China Sea dispute at all.


[1] As expected, the birth of the AEC (ASEAN Economic Community) was announced on 1 January 2016. Because the present chapter deals with the year 2015, this topic is not discussed here. However, for some introductory remarks on the subject – which will be examined in Asia Maior 2016 – see: Patrick Low, ‘ASEAN Economic Community faces numerous challenges’, South China Morning Post, 6 January 2016; and Deborah Elms, ‘Witnessing the birth of the ASEAN Economic Community (AEC)’, Asian Trade Centre, 12 January 2016.

[2] Berhad in Basha Malay means «private».

[3] United Malays National Organisation – Ideology – 1Malaysia ( See also Office of the Prime Minister, Putrajaya, Malaysia, National unity ultimate objective of 1Malaysia, says Najib, 16 June 2009.

[4] For some introductory information on the 1MDB, see its official website at, and Bloomberg’s Company Overview of 1Malaysia Development Berhad (

[5] Joseph Sipalan, ‘Government Gambling on Untested 1MDB’, Malaysiakini, 18 October 2015.

[6] Clara Chooi, ‘Pua says 1MDB profits suspect’, The Malaysian Insider, 9 October 2010.

[7] ‘KPMG EY terminated from auditing 1MDB, auditors tell PAC’, The Malaysian Insider, 17 June 2015.

[8] ‘Ringgit under pressure over 1MDB Debt’, The Malaysian Insider, 23 February 2015.

[9] ‘Jho Low allegedly siphoned off US$700 million from 1MDB, says website’, The Malaysian Insider, 1 March 2015.

[10] ‘Sensational Findings! Prime Minister Najib Razak’s Personal Accounts Linked To 1MDB Money Trail’, Sarawak Report, 2 July 2015.

[11] Ibid.

[12] Saheli Roy Choudhury, ‘Timeline: the Twists and Turns in the tale of 1MDB’, CNBC, 21 September 2015.

[13] Oliver Holmes & David Munk, ‘Malaysian PM Najib used state funds for bribery, says former leader Mahathir’, The Guardian, 23 October 2015.

[14] Kamles Kumar, ‘White people’ should stay out of Malaysia’s affairs: Najib says’, The Malay Online, 1 August 2015.

[15] ‘Malaysia obtains arrest warrant for Sarawak Report founder’, The Straits Times, 4 August 2015.

[16] ‘Interpol rejects Malaysian cops’ red notice bid on Clare’, Malaysiakini, 27 August 2015.

[17] ‘Exports contraction moderates in December’, Focus Economics, 2015 (

[18] The World Bank, Malaysia Economic Monitor, June 2015 (

[19] Ibid.

[20] ‘Ringgit falls on reduced demand as Europe prepares for Greek debt default’, The Malay Online, 12 June 2015.

[21] International Monetary Fund, ‘Malaysia Recent Economic Developments’, Staff Country Reports, Washington: International Monetary Fund Publication Services, 1999, p. 1983.

[22] ‘Fitch affirms Malaysia’s LTFV rating at A-’, 30 June 2015 (

[23] Ramon Navaratham, ‘The declining ringgit – is it temporary?’, Free Malaysia Today, 11 June 2015.

[24] Mabel Ho & Ling Low, ‘Why is the value of the ringgit falling?’,, July 2015.

[25] OECD, Structural Policy Country Notes, Malaysia, 2013.

[26] ‘Essential items, services to be exempted from Malaysia’s GST’, The Straits Times, 11 January 2015.

[27] Rupa Damodaran, ‘Malaysia’s fiscal deficit target challenging: Credit Suisse’, The New Straits Times, 13 January 2016.

[28] Stefano Caldirola, ‘Malaysia 2014: Reforms and challenges in the year of flight MH 370’, Asia Maior 2014, p. 157.

[29] ‘Malaysia courts upholds Anwar Ibrahim sodomy conviction’, BBC News, 10 February 2015.

[30] Amnesty International, Malaysia: New anti-terrorism law a shocking onslaught against human rights, 7 April 2015.

[31] Elizabeth Zachariah, ‘POTA not like ISA, deputy prime minister tells critics’, The Malaysian Insider, 6 April 2015.

[32] Karen Arukesamy, ‘POTA passed after heated debate’, The Sun Daily, 7 April 2015.

[33] ‘PR pilloried over POTA’, The Borneo Post, 8 April 2015.

[34] PAS to table hudud law amendments in Kelantan legislative assembly’, Malay Mail Online, 14 March 2015; ‘Kelantan State Legislative Assembly passes Hudud Bill’, Astro Awani, 19 March 2015.

[35] Zurairi Ar and Boo Su-Lyn,Snapshot of Malaysia after hudud: A nation divided’, Malay Mail Online, 28 March 2015; Jaclyn L. Neo and Dian A. H. Shah, ‘Hudud and the Struggle for Malaysia’s Constitutional Soul’,, 25 June 2015.

[36] Syed Jaymal Zahiid, ‘Despite amendments, not-Muslim left out of Kelantan’s hudud bill?’, The Malay Online, 19 March 2015.

[37] Ibid.

[38] ‘PAS Ulama approves motion to sever ties with DAP… but stay in Pakatan’, The Malay Online, 3 June 2015; ‘Inevitable split for Pakatan’, Sin Chew Daily, 5 June 2015.

[39] ‘PKR won’t cut ties with DAP and PAS’, The Straits Times, 18 June 2015.

[40] Prashanth Parameswaran,‘What Does the Collapse of Malaysia’s Opposition Mean?’, The Diplomat, 16 June 2015; Gabriel Domínguez, ‘Why has Malaysia’s opposition alliance collapsed?’, Deutsche Welle, 18 June 2015.

[41] Stefano Caldirola, ‘La Malaysia in bilico: Najib Tun Razak alla prova delle elezioni’, Asia Maior 2013, pp. 253–255.

[42] Jonathan Head, ‘Lynas learns fate for Malaysia rare earth refinery’, BBC News, 10 October 2012.

[43] Rahmah Ghazali & Dina Murad, ‘Bersih 4: ‘«Red Shirts» ready to face off at rally’, The Star Online, 27 August 2015.

[44] Niluksi Koswanage, ‘Thousands of Malaysians Rally in Capital to Demand Najib’s Resignation’, 29 August 2015.

[45] ‘A grand day out; Malaysia’s masses protest against corruption’, The Economist, 30 August 2015.

[46] ‘Playing with fire’, The Economist, 26 September 2015.

[47] Stefano Caldirola, ‘Malaysia 2014: Reforms and challenges in the year of flight MH 370’, Asia Maior 2014, pp. 156–160.

[48] Bridget Welsh & James H. U. Chin (eds.), Awakening. The Abdullah Badawi Years in Malaysia, Strategic Information and Research Development Centre, Kuala Lumpur, 2013, pp. 3–66.

[49] ‘Mahathir: No need to continue BR1M in Budget 2014’, ABN News, 20 October 2013.

[50] Thomas Fuller & Louise Story, ‘Power Struggle in Malaysia pits former premier against a Protégé’, The New York Times, 17 June 2015.

[51] ‘Najib says Bersih rally participants «shallow and poor» in patriotism’, The Straits Times, 29 August 2015.

[52] Lindsay Murdoch, ‘A pariah state: Dr. Mahathir intensifies attack on Malaysian PM Najib Razak’, The Sydney Morning Herald, 12 October 2015.

[53] Oliver Holmes & David Munk, ‘Malaysian PM Najib used state funds for bribery, says former leader Mahathir’, The Guardian, 23 October 2015.

[54] Ibid.

[55] ‘Malaysia’s scandal-hit PM faces no-confidence vote’, The Guardian, 19 October 2015.

[56] ‘UMNO member files lawsuit against Malaysia PM Najib’, Channel News Asia, 29 August 2015.

[57] Ida Lim, ‘Anina Saadudin: why I am suing Najib’, Malay Mail Online, 27 September 2015.

[58] ‘Anina sacked from UMNO’, The Rakyat Post, 1 September 2015.

[59] The UMNO Division Chiefs are the party’s leadership, whose members are elected at a local level throughout Malaysia. According to an internal poll in October 2015, 154 Division Chiefs out of a total of 191 were strongly backing Najib and wanted stern actions taken against internal dissidents. See ‘154 Umno chiefs want action on errant party leaders’ Malaysiakini, 30 October 2015.

[60] ‘UMNO meets amid tensions over funding scandal’, Malaysiakini, 8 December 2015.

[61] ‘Najib, Muhyiddin shake hands at close of UMNO General Assembly’, Malaysian Insider, 12 December 2015.

[62] ‘UMNO meets amid tensions over funding scandal’, Malaysiakini, 8 December 2015.

[63] With a reference to TPP, President Barack Obama stated: «When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy». The White House, Office of the Press Secretary, Statement by the President on Trans-Pacific Partnership, 5 October 2015.

[64] Cheng-Chwee Kuik, ‘Malaysia’s Balancing Act’, New York Times, 7 December 2015.

[65] Colleen McCain Nelson, ‘Obama Faces a Diplomatic Dilemma on Malaysia Trip’, The Wall Street Journal, 19 November 2015.

[66] Stefano Caldirola, ‘Malaysia 2014: Reforms and challenges in the year of flight MH 370’, Asia Maior 2014, p. 168.

[67] Malaysian Defense Minister Hishammuddin Tun Hussein, press conference reported on HIS Jane’s Information Group, 19 October 2013.

[68] Stuart Grungings, ‘Insight – China’s assertiveness hardens Malaysian stance in sea dispute’, Reuters, 26 February 2014.

[69] Ibid.

[70] Stefano Caldirola, ‘Malaysia 2014: Reforms and challenges in the year of flight MH 370’, pp. 160–168.

[71] The White House, Office of the Press Secretary, Remarks by President Obama and Prime Minister Najib of Malaysia after bilateral meeting, 20 November, 2015.

[72] Ibid.

[73] Ibid. 

[74] Lin Hao & Zhao Bochao, ‘News Analysis: Challenges lie ahead for building ASEAN Economic community’, Xinhua, 25 April 2015.

[75] Murray Hiebert, Phuong Nguyen e Gregory B. Poling, Perspectives on the South China Sea, A Report of the CSIS Sumitro Chair for Southeast Asian Studies, Centre for Strategic and International Studies/New York: Rowman and Littlefield, 2014, pp. 1–5. Available on line at

[76] The ASEAN Defence Ministers Plus (ADMM-Plus) includes the ten ASEAN countries Defence Ministers, plus those of the US, China, Australia, New Zealand, India, Japan, the Republic of Korea and Russia.

[77] Chau Bao Nguyen, ‘ASEAN’s uncertain stance in the South China Sea’, East Asia Forum, 25 November 2015.

[78] CIL (Centre for International Law) documents database, National University of Singapore, 2002 Declaration on the conduct of the parties in the South China sea. Adopted by the Foreign Ministers of ASEAN and the People’s Republic of China at the 8th ASEAN Summit in Phnom Penh, Cambodia, 4 November 2002.

[79] CIL (Centre for International Law) documents database, National University of Singapore, Guidelines for the Implementation of DOC 2011, pp. 3–4 (

[80] Prashant Parameshwaran, ‘Does ASEAN have a South China Sea position?’, The Diplomat, 26 March 2015.


Giorgio Borsa

The Founder of Asia Maior

Università di Pavia

The "Cesare Bonacossa" Centre for the Study of Extra-European Peoples


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