Malaysia's ruling party faces trust deficit, minister says

[KUALA LUMPUR] Malaysia's biggest political party faces a trust deficit, a government minister warned, highlighting the impact of a months long political scandal surrounding Prime Minister Najib Razak.

Members are losing their connection to the United Malays National Organisation, which leads the ruling coalition, Hishammuddin Hussein- one of the party's vice presidents - told reporters Tuesday in Kuala Lumpur. Hishammuddin, who called for unity, is also defense minister.

"UMNO is now facing a trust test, which is very complicated and worrying," Hishammuddin said. "But I am confident we will come out of this and strive to be better for our survival, the party and country." Mr Hishammuddin was speaking ahead of the party's annual general assembly in December. More than 700 resolutions were submitted by 191 divisions for the meeting, ranging from education to religion and the economy, he said.

The comments reflect the risk that the imbroglio that's embroiledNajib erodes support for a party that has been in power since independence in 1957 but won re-election in 2013 with its narrowest margin yet - it lost the popular vote for the first time. UMNO has its power base in the country's ethnic Malay population.

Mr Najib, who is UMNO's president, has faced criticism after it was disclosed that hundreds of millions of dollars ended up in his private accounts before the 2013 vote. He has removed detractors from cabinet including his deputy premier and a minister, even as they remained senior leaders in the party.

The premier, 62, has said the funds in accounts that have since been closed were political donations from the Middle East rather than public money, an initial conclusion also reached by the Malaysia Anti-Corruption Commission. The funds were to meet the needs of the party and the community and not a new practice, he has been cited as saying.

Former Prime Minister Mahathir Mohamad, 90, has been on a public campaign to get Najib out even before the donations scandal and allegations of financial irregularities at debt- ridden state investment company 1Malaysia Development Bhd led to political tensions and prompted thousands of anti-government protesters to rally in the capital.

He said over a year ago he was withdrawing support, citing worsening race relations and a tougher business environment after Najib took office in 2009. He warned that UMNO risked losing the next election - due by 2018 - if Najib stays as leader.

During his weekend visit to Malaysia, US President Barack Obama used a meeting with Mr Najib to express concern about governance more broadly in the country. Mr Najib has cracked down on dissenters while using sedition laws to detain media executives.

In his remarks after meeting Mr Obama, Mr Najib said Malaysia is "taking into account some of" the president's views. "Malaysia is committed to reforms," he said. "And we are committed to ensuring at the same time there is peace and stability." Mr Hishammuddin declined to say if any of the resolutions submitted referenced 1MDB and the donations. Mr Najib chairs the advisory board of 1MDB.

"There are many other channels for people" to discuss 1MDB and the funds that appeared in Najib's accounts, he said. "We have more important things to discuss during the assembly like the future of UMNO."

BLOOMBERG