Malaysian probe into fund scandal stalls after PM sacks deputy

KUALA LUMPUR (Reuters) - A Malaysian parliamentary investigation into a graft scandal at a state investment fund embroiling Prime Minister Najib Razak has been put on hold as cracks in the ruling party appeared to widen on Wednesday.

The allegations of extensive graft at the debt-laden fund are the biggest threat to Najib’s credibility since he took office in 2009 and could threaten the grip his United Malays National Organisation (UMNO) has kept on politics since independence in 1957.

Najib sacked his deputy on Tuesday after he called on Najib publicly to explain the situation around 1Malaysia Development Bhd (1MDB) [TERRN.UL], which has debts of more than $11 billion and is being investigated for financial mismanagement and graft.

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 Najib and an interim government report has found nothing suspicious.

The man overseeing the parliamentary investigation into 1MDB, Public Accounts Committee (PAC) chairman Nur Jazlan Mohamed, was appointed deputy home minister on Tuesday and said he would therefore resign from his committee post.

“All proceedings that had been arranged for August, including 1MDB, will be halted until the new PAC line-up is announced at the next Dewan Rakyat sitting,” he said, referring to parliament.

Members of the PAC are not allowed to hold any position in the cabinet. Parliament will choose new PAC members in October.

But opposition leaders are demanding more answers on 1MDB and have called on British Prime Minister David Cameron, who visits on Thursday, to bring up the issue in talks with Najib.

Sacked deputy prime minister Muhyiddin Yassin held a news conference on Wednesday in which he said he would not be involved in efforts that would cause a break-up of UMNO. He said the party came first and he did not feel his position as UMNO deputy president was threatened.

Malaysia's Prime Minister Najib Razak greets family members of victims of Malaysia Airines flight MH17 during a memorial service to mark the first anniversary in Sepang, Malaysia, July 11, 2015. REUTERS/Olivia Harris

“I’ve been in the party for long. Though I am no longer hold a government post but I do not abandon my role in the party. I will still continue my part as deputy party president,” he told reporters.

Asked if he would support an opposition call for a no-confidence motion against Najib, Muhyiddin said he would stick to the party line.

Several UMNO party leaders were reported to have visited Muhyiddin at his home on Tuesday after he was dropped from the cabinet.

Muhyiddin warned on the weekend 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.

Najib responded in a televised statement on Tuesday by saying cabinet ministers airing differences in the open could turn public opinion against the government.

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

Mahathir, who has not commented on the scandal in recent days, said in April Muhyiddin would make a better prime minister than Najib, media has reported.

Among the politicians who visited Muhyiddin on Tuesday was Mahathir’s son, Mukhriz Mahathir, media reported.

UMNO deputy permanent chairman Mohamad Aziz said Najib’s decision to drop Muhyiddin could destroy the party.

“If it happens, we know who is to blame,” he was quoted telling The Star newspaper.

Amid growing public outrage over the scandal, electoral reform group Bersih called for mass rallies in three cities across Malaysia on Aug 28-29 to push for Najib’s resignation.

The group’s last rally, pushing for electoral reform in 2012, was broken up by police.

Editing by Robert Birsel and Nick Macfie