5/10/2018 Fall of Malaysia’s Ruling Party, After Six Decades in Power, Shakes Vital U.S.

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ASIA

Fall of Malaysia’s Ruling Party, A er Six Decades in

Power, Shakes Vital U.S. Ally
The return of Mahathir Mohamad spells historic shift in the country’s relationship with China and
promises a beefed-up anticorruption probe

By James Hookway and Tom Wright

May 10, 2018 7 06 p.m. ET

KUALA LUMPUR, Malaysia—Around 2 a.m. Thursday, the global ramifications of a shocking

political turn started to unfold: A 92-year-old former prime minister, returning after a long
absence, would reclaim office and upset the balance of power in a strategically vital region—
rethinking deals with neighboring China and accelerating investigations of a sweeping
international corruption scandal.

The parliamentary election brought back to power Mahathir Mohamad, Malaysia’s ruler from
1981 to 2003, who had soured on his onetime protégé Prime Minister Najib Razak and
assembled a coalition of former political foes to unseat him. The voting marked the first time
Mr. Najib’s party was out of power since Malaysia won independence from Britain in 1957.

The result cast Malaysia in contrast with much of the rest of Southeast Asia, where fragile
democracies have struggled or one-party rule has persisted. Thailand has been under military
rule for years, and enthusiasm for democracy in Myanmar has been dashed by the
government’s failure to stop a purge of the Rohingya Muslim minority. Globally, hard-line
leaders are in power in nations including Turkey and Hungary.

As the U.S. investigated the scandal involving Mr. Najib’s government, the prime minister built
closer ties to China, which emerged as a significant investor. Mr. Najib planned multibillion-
dollar ports and a $13 billion railroad connecting Malaysia’s South China Sea coast to the more
industrialized areas in the west of the country.

The newly elected Dr. Mahathir wasted no time questioning China’s role, saying at his
swearing-in as prime minister late Thursday that some projects would have to be renegotiated

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if his government concluded they didn’t provide enough of an economic boost for Malaysians.

“China comes with a lot of money and says you can borrow this money,” Dr. Mahathir said in an
interview before Wednesday’s vote. “But you must think, ‘How do I repay?’ Some countries see
only the project and not the payment part of it. That’s how they lose chunks of their country.”
Dr. Mahathir has also criticized the U.S. in the past, in particular during the Asian financial
crisis in the late 1990s.

Defeated Malaysian Prime Minister Najib Razak on Thursday. The U.S. has investigated a scandal involving Mr. Najib’s
government. PHOTO: AARON FAVILA ASSOCIATED PRESS

Mr. Najib was brought down chiefly by an epic corruption scandal that stretched from Malaysia
to the Middle East, Switzerland and Hollywood, centered on a development fund called 1MDB
from which billions were missing. Coverage of the scandal, most notably in The Wall Street
Journal, was devoured by Malaysians, especially on Facebook. This prevented Mr. Najib from
putting the scandal behind him, even though he blocked domestic investigations of the fund.

Playing into the vote as well was a lessening of the divide between well-educated, wealthier
urban voters and rural ones. Whereas in past elections the opposition won support in the
capital of Kuala Lumpur, this time residents all along the country’s more developed southern
coast also voted against the long-dominant party, United Malays National Organisation, known
as UMNO. The opposition was able to make inroads, as well, in rural areas that had been
strongholds of the ruling party.

One reason was the fiery opposition leader and former longtime prime minister, Dr. Mahathir,
who was beloved in the countryside. Rather than try to explain 1MDB—a complicated financial
scandal that involves offshore bank accounts in places such as the British Virgin Islands—he
would say at rallies that Mr. Najib and his wife lived a life of luxury because of money stolen
from the fund, while voters struggled with rising living costs and an unpopular new tax.

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In the scandal, U.S.

authorities allege
that at least $4.5
billion was
misappropriated
from the
development fund
between 2009 and
2015. The U.S.
authorities have
alleged in civil
lawsuits that $681
Malaysians celebrated the election in Petaling Jaya. PHOTO: FARIS HADZIQ SOPA ZUMA PRESS million flowed from

the fund into

personal accounts of “Malaysian Official 1,” which people familiar with the matter said was a
reference to Mr. Najib. He and 1MDB have denied wrongdoing and said they would cooperate
with any lawful international investigation.

As the scandal grew in 2015, it led to a split in the ruling UMNO party. Dr. Mahathir, once
the party’s elder statesman, decided Mr. Najib had become a liability. Unable to force him
out, Dr. Mahathir left the party and joined the opposition coalition, teaming up with a former
political nemesis to lead the charge against the prime minister.

The coalition created easy-to-understand videos about 1MDB they showed to rural voters.
In one, a politician poked fun at Mr. Najib’s claim the $681 million that flowed into his
accounts was a donation from someone in Saudi Arabia, a notion challenged by the Justice
Department in lawsuits filed in July 2016.

Even when campaign discussion turned to domestic policy, corruption sometimes became an
issue. Mr. Najib began offering financial inducements such as tax breaks for those aged 26 and
under; Dr. Mahathir attacked these as bribes.

In the voting, the allied opposition parties won 122 seats in the 222-seat parliament, to 79
for the National Front coalition led by Mr. Najib’s UNMO. As Mr. Najib and his wife, Rosmah
Mansour, watched the results come in during the wee hours of Thursday, a stream of advisers
and family members hurried in and out and the mood grew increasingly somber, according to a
person who was present.

Some counseled the prime minister to step aside gracefully. Others urged him to stand firm,
saying there was still a possibility of prying away some lawmakers from the opposition
“Alliance of Hope” coalition. Such political hardball had paid off for Mr. Najib before, they
reminded him, when he was faced with a draft arrest warrant for corruption in 2015.
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In the end, he charted a middle way. At a news conference later Thursday, a downcast Mr. Najib
acknowledged the election result but appeared to stall for time. He pointed out that no single
party had won a majority, meaning it was up to Malaysia’s King Muhammad V, Sultan of
Kelantan, to decide who should form the next government.

Mr. Najib, whose father and uncle had both served as prime minister, didn’t challenge the
result.

What now happens to the former prime minister is uncertain. In its election manifesto, the
opposition coalition pledged to reopen 1MDB investigations within 100 days of taking office. Mr.
Najib in 2015 had not only fired an attorney general who was preparing to arrest him, he also
had mothballed a 1MDB investigation by the Malaysian Anti-Corruption Commission, which
had recommended the prime minister’s arrest for corruption.

Rais Hussin, a member of Dr. Mahathir’s coalition who had a central role in its strategy,
said the new government would cooperate with foreign investigations, which include
Singapore and Switzerland besides the U.S. The U.S. is seeking to seize assets worth nearly $2
billion—mansions, a yacht, even the proceeds of Hollywood films—financed with money the U.S.
alleges was taken from the 1MDB development fund.

The U.S. Justice Department also is building a criminal case. Among those it has been
investigating is Jho Low, a 36-year-old Malaysian financier and associate of Mr. Najib, whom
Justice Department lawsuits paint as the ringleader of the alleged fraud. He has denied
wrongdoing. Mr. Low’s exact whereabouts is unknown; he has been living recently in Bangkok
and Shanghai.

Mr. Hussin said the new government would establish a Royal Commission of Inquiry into the
1MDB scandal that would interview people and review evidence before possibly making
recommendations for prosecutions or further investigations.

“We will not engage in politics of revenge. It will be politics guided by rule of law,” Mr. Hussin
said.

The vote, he said, “was the Malaysian tsunami, the Malaysian spring. Najib used all the powers
of the state to stop us, but at the end of the day, the people had enough.”

Among steps the incoming government plans, said allies, is to repeal a new law Mr. Najib
enacted outlawing so-called fake news efforts, in an apparent attempt to improve his electoral
chances. The problem with the law is that it could be used to criminalize political discussions,
the opposition said.

As regards China, Bridget Welsh, a professor at John Cabot University in Rome and a longtime
observer of Malaysian politics, said Dr. Mahathir might look to revise projects that are sited in

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strategic locations or which involve significant tracts of land.

“He needs to show his nationalist credentials to some degree and this is a good vehicle to do
that,” she said. “The challenge is that the neighborhood has changed since he was last prime
minister, and China is now the big driver.”

In Beijing, China’s
Ministry of Foreign
Affairs spokesman, Geng
Shuang, said relations
between the two
countries have been
gaining momentum.
“This needs to be
cherished by both sides,”
he said.

The stunning turn of

Malaysian opposition leader Anwar Ibrahim in 2014. PHOTO: FARIS HADZIQ ZUMA PRESS events will have another
twist in the coming
weeks. Dr. Mahathir intends to pardon a onetime deputy he imprisoned in 1998 on a charge of
sodomy, Anwar Ibrahim.

Mr. Ibrahim, 70, served six years before his conviction was overturned. In an election run five
years ago, his coalition won the popular vote against Mr. Najib but didn’t gain a majority in
parliament. He then was jailed on a sodomy charge once again, with a release date that is set for
June.

Dr. Mahathir has said he would step aside from the prime minister role within a few months in
favor of Mr. Ibrahim, who remains politically popular.

Dr. Mahathir readily acknowledges his past reputation as tough politician who blocked his
rivals ruthlessly and centralized all power.

“My reputation as a dictator and an unjust man, my jailing of Anwar—they have all come back,”
he said in April. “Some people in the opposition ask, ‘What is the difference between Najib and
him? It’s like Coca-Cola and Pepsi-Cola. There’s not much difference, so why should we bother
changing the government?’

“But if I had really been so bad they wouldn’t have wanted me to be prime minister again,” he
said, smiling.

—Bradley Hope in London contributed to this article.

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A billboard showed Mahathir Mohamad and Anwar Ibrahim last month in Langkawi, Malaysia. PHOTO: FAZRY
ISMAIL EPA SHUTTERSTOCK

Write to James Hookway at james.hookway@wsj.com and Tom Wright at tom.wright@wsj.com

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