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Sarawak vote bolsters scandal-hit Najib

The electoral triumph of Malaysia's ruling coalition in the country's largest state may be a well-needed confidence boost for Prime Minister Najib Razak as he battles a high-profile corruption scandal.

Sarawak, located in the island of Borneo, held its 11th state elections on Saturday, with the Barisan Nasional (BN) party securing 72 out of 82 seats.

The results effectively allow Najib to maintain the status quo and contain political risks from the 1Malaysia Development Bhd (1MDB) scandal, explained Trinh Nguyen, an economist at Natixis.

Last June, the 62-year old leader was accused of receiving $681 million in his bank account from 1MDB, a debt-laden state investment fund that is now under investigation in Malaysia and six other countries. In March this year, the Wall Street Journal, who first broke the scandal, updated that figure to more than $1 billion. Najib has denied any wrongdoing and was cleared by the country's attorney general in January, who attributed the initial $681 million to a legal political donation from the Saudi royal family that was mostly returned.

The country's finance ministry, the sole shareholder of 1MDB, recently dissolved the fund's board of advisers and said it would take over the remaining assets following 1MDB's failure to pay a $50.3 million coupon on a $1.75 billion bond in late April. Should 1MDB go into default, the government will have to assume 1MDB's obligations. But that may be a risky burden for Kuala Lumpur to bear, with state finances already hit by low oil prices—Malaysia is the world's second-largest exporter of liquefied natural gas.

As of January, 1MDB's debt stood at $12.5 billion, according to Reuters.

"Confidence is a major issue for Malaysia, and Najib needs as much political boost as he can get at the moment. And this is why the Sarawak elections are important - he needs the thumbs up from the populace. The 1MDB saga is likely to continue to sap confidence on his management of the economy," said Nguyen, adding that Sarawak is one of the key states Najib counts on to win national elections in 2018.

But some Malaysia-watchers like Oh Ei Sun, Najib's former political secretary and current senior fellow at Singapore's Nanyang Technological University, dismissed the significance of the Sarawak vote.

"BN's overwhelming Sarawak win is due mainly to the Adenan factor," he said, referring to Sarawak's popular chief minister Adenan Satem, an ally of Najib.

Adenan has ushered in fresh reforms in the last two years after more than three decades of stale rule so Sarawakian voters are willing to give him another five years to prove his mantle, he added.

"The win has very little wider implications as to the popularity of national BN, the two upcoming by-elections should be better barometers of BN's support."

By-elections for the country's Sungai Besar and Kuala Kangsar parliamentary seats are expected to be held shortly following the deaths of two members of parliaments last week.

Financial markets responded mixed to Saturday's results, with the ringgit (MYR) strengthening modestly against the greenback on Monday while the benchmark KLCI index slipped half a percent.

"MYR could enjoy a brief relief bounce on the ruling party's clean sweep of the seats in Sarawak, though rallies may not be sustained," noted Vishnu Varathan, senior economist at Mizuho Bank.

Sarawak, which contributes 10.6 percent to national gross domestic product, has long been a stronghold for the BN, although critics of the establishment noticed what they believe are unusual voting patterns.

A Malaysian activist group advocating clean and fair elections, known as Bersih 2.0, pointed out voter turnout spiked from 52 percent at 4pm local time to 70.1 percent when polling closed an hour later. Bersih chair Maria Chin Abdullah has requested an explanation from the country's Election Commission to explain the sharp increase, local media reported.

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