Malaysia's drop in rank in the Corruption Perceptions Index from 54 to 55 out of 176 countries suggests that the Malaysian government must make serious reforms to the governance of government-linked companies (GLCs), says the Institute for Democracy and Economic Affairs (Ideas).

Commenting on the results, chief executive Wan Saiful Wan Jan said, “Although, in recent times the government particularly the Malaysian Anti-Corruption Commission (MACC) has done a lot of great work in catching corruption officials, it still does not address deeper needs for reform. In Malaysia’s case, our scores have been declining since 2014, from a score of 52 out of a possible 100 then to 49 today.”

Malaysia’s scores are derived from an aggregate score of eight surveys. According to the report, the drop is attributed to declining scores in the World Justice Project Rule of Law Index, Political Risk Services International Country Risk Guide, Political and Economic Risk Consultancy Asian Intelligence and the Bertelsmann Foundation Transformation Index - all indices which measure governance and rule of law.

“One of the main factors behind this recent slip is how the 1MDB scandal was handled. Many in the international community found Prime Minister Najib Abdul Razak’s inability to answer questions regarding the RM2.6 billion deposited into his account unsatisfactory, to say the least. And this issue has remained on the minds of global leaders, analysts and businesses alike as more news regarding the scandal surfaces abroad.

“However, 1MDB points to a deeper structural issue regarding the governance of GLCs. Although GLCs have existed since independence, they have started taking on more aggressive and expansive roles starting from Dr Mahathir Mohamad’s tenure as prime minister. During Dr Mahathir's time, the PM also took on the role of finance minister. We also saw greater government involvement in business.

“This started an unhealthy precedent in which case the lines between business and government started to blur. It has also caused conflicts of interests in terms of decision-making where by right the finance minister should advise the prime minister against unwise business decisions,” explained Wan Saiful.

“1MDB is just one example of what happens when government becomes too involved in businesses, instead of playing a purely regulatory role. But in truth, Malaysia has a dotted past with loss-making and poorly governed GLCs such as Bumiputera Malaysia Finance Limited (BMF), Pembinaan PFI Sdn Bhd, National Feedlot Corporation (NFC) and many others.

“The result is billions of ringgits in losses to the rakyat and debts which taxpayers still have to pay to this day.”

“What this tells us is that we need stricter regulations on GLCs and that the government should reduce the total number of GLCs altogether and just maintain those which meet the mark in terms of governance. It is also high time that the prime minister give up his portfolio as the finance minister,” concluded Wan Saiful.