Update: Malaysian PM reshuffles cabinet, dumps deputy after 1MDB criticism

[KUALA LUMPUR] Malaysian Prime Minister Najib Razak sacked his deputy and four other ministers in a cabinet reshuffle on Tuesday, and replaced the attorney general, in a bid to stifle questions over a graft scandal at debt-laden state investment fund 1MDB.

Deputy Prime Minister Muhyiddin Yassin was dropped days after he publicly called on Mr Najib to explain the scandal engulfing 1Malaysia Development Bhd, which has debts of more than US$11 billion and is being investigated for financial mismanagement and graft.

The allegations of extensive graft are the biggest threat to Mr Najib's credibility since he took office in 2009, and could even threaten the grip his United Malays National Organisation (UMNO) party has kept on Malaysian politics since independence in 1957.

"It would be fine if he was removing underperforming ministers, but now he's just removing those who questioned him,"said political analyst Wan Saiful Wan Jan, of the Institute for Democracy and Economic Affairs. "There's no doubt that he is unable to answer the questions surrounding 1MDB." This month, the Wall Street Journal reported that investigators looking into 1MDB had traced close to US$700 million of deposits into personal accounts belonging to Mr Najib.

Mr Najib has denied taking any money for personal gain, saying the corruption allegations are part of a malicious campaign to force him from office. 1MDB has denied transferring funds to Mr Najib and an interim government report has found nothing suspicious.

Malaysians are waiting to see if Mr Najib takes legal action against the Wall Street Journal, though he has taken action to shut down domestic media pursuing the scandal.

Besides the reshuffle, the government replaced Attorney General Abdul Gani Patail, who had led investigations into 1MDB, with Mohamed Apandi Ali. It cited Mr Patail's failing health for the change ahead of his retirement in October.

Media reports at the weekend said Mr Muhyiddin had warned that Barisan Nasional, the ruling coalition led by UMNO, would lose power if it did not do a better job of explaining the scandal to the public.

Mr Najib responded in a televised statement on Tuesday by saying cabinet ministers airing differences in the open could turn public opinion against the government. "The decision to replace Tan Sri Muhyiddin Yassin was very difficult, but leadership is about doing what you think is right," Mr Najib said. "I welcome vigorous debate, and accept and tolerate criticism or even dissent. However, this process should take place in cabinet as part of the decision-making process."

The benchmark stock index ended at its lowest since July 10 after the announcement, underperforming a flat MSCI Asia ex-Japan index. The ringgit remains mostly unchanged, at 3.8130 against the dollar. "I think as long as Mr Muhyiddin doesn't mount a challenge, the market will recover and may even go up," said a fund manager based in Kuala Lumpur, who declined to be identified as he is not authorised to speak to the media. "The worry now is that he will fight back."

But Mr Muhyiddin said he accepted Mr Najib's decision with an open heart, while maintaining his view on 1MDB. "On the issue of 1MDB, I have my own principles and views ... if I am dropped from the cabinet because of this personal stand on this issue then I accept it," he said in a statement after the reshuffle.

The opposition urged Mr Muhyiddin, and other ministers from the ruling coalition, to join forces with it in a vote of no confidence against Mr Najib in parliament.

Mr Muhyiddin had been a frequent critic of Mr Najib, who was already under pressure from influential former prime minister Mahathir Mohamad, who has called for him to step down.

Mr Muhyiddin has been replaced by home minister Ahmad Zahid Hamidi, a right-wing politician well liked by UMNO members. Others dropped were rural and regional development minister Shafie Apdal and senior ministers Palanivel Govindasamy, Hasan Malek and Ewon Ebin.

Mr Muhyiddin is the second deputy prime minister to be dropped in Malaysia's political history, after Anwar Ibrahim was sacked from the job in 1998, on charges of corruption and sodomy levelled by then prime minister Mahathir.

Mr Anwar, who formed an opposition coalition that posed the greatest threat to Barisan Nasional, was jailed for five years in February on a charge of sodomy he said was politically motivated to end his career.

Mr Najib said Tuesday's reshuffle would strengthen the unity of the ruling coalition as it prepares for elections in 2018.

Mr Najib has tried to consolidate support among the core leaders of UMNO, which represents the majority ethnic Malay community, as the 1MDB scandal unfolded.

Former attorney general Mr Patail headed a task force comprised of central bank, police and anti-corruption officials that had conducted raids and arrests as it investigated 1MDB.

His replacement, Mr Apandi, is a former federal court judge with strong UMNO ties.

REUTERS