Malaysia central bank: Zeti’s last stand

Alas poor Zeti Akhtar Aziz, Malaysia’s embattled central bank governor. At 68, and after 15 years in the job, she is due to retire next April. But it is not certain whether she will make it that far.

Her beloved ringgit has collapsed to its lowest level in 17 years, further than even during the crippling Asian financial crisis. The foreign reserves she carefully accumulated above $140 billion have fallen below $95 billion in the ringgit’s defence in 2015.

But for what? The ringgit’s plunge does not look like being arrested anytime soon. Most of Malaysia’s key indicators are going backwards. It’s highly possible Zeti will end her term with the economy back where it was when she began, or maybe in an even worse state, which would reasonably raise the question: what was it all for?

Zeti is the most prominent, and trusted, official on a panel of Malaysian worthies investigating corruption connected to the scandal-plagued sovereign fund 1MDB, which is chaired by the prime minister, Najib Razak. 

She has ploughed on with the probe as her investigating colleagues fall around her, victims of Najib’s metaphorical kris. It’s an open secret around Putrajaya and Kuala Lumpur that Najib and his magniloquent wife, Rosmah, would like to see Zeti removed from the panel, and from the central bank too. Her independence at the BNM grates on Najib, on whose watch, ironically, it was passed by a normally compliant parliament, in 2009.

Ugly campaign

Zeti isn’t a Najib naysayer yet, at least not publicly, but the sudden whispering campaign accusing her of corruption is ugly. 

Zeti is exposed. She would be the first to admit that the autonomy she won for Bank Negara Malaysia also depends on performance. Razak, who is also the finance minister, has the ultimate say-so over her governorship. He can turn that independence back on her, citing her own public statements that prudent currency and reserves management are solely her purview, and in the slumping ringgit and national nest egg he has Exhibits A and B.

Zeti also does herself no favours by insisting during recent interviews, including with Euromoney, that markets get Malaysia wrong, that the ringgit is merely one of 120 currencies that have fallen sharply this year, and no different to, say, the Australian dollar or Indonesia’s rupiah. 

This year’s ringgit crash, she unconvincingly argues, is the market ‘unfairly’ misreading Malaysia’s evolved economy as still commodity-dependent, and not really about its dysfunctional, distracted and probably corrupt government. 

Further reading

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Zeti has taken to using euphemisms like ‘domestic factors’ to describe what actually ails Malaysia. She can’t quite bring herself to say the problem lies with the opaque 1MDB, where sovereign billions aren’t properly accounted for in a company chaired by Razak – or the unexplained $700 million found deposited in his personal bank accounts.

Markets can be irrational, but after 12-18 months of intensifying scandals surrounding Najib and at 1MDB, markets are neither blind, nor heedless. 

Zeti has demonstrated through 15 matchless years of service that she is not one to pull her punches under political pressure. Now is not the time for her to start doing so. It would effectively mean that the BNM she tirelessly champions has not much advanced at all.

Zeti could go harder on what really ails the country. As Malaysia’s most trusted public official, she possesses something that the political class are in dire supply of – respect and moral authority.

If Najib sacks Zeti, he may remove, for himself, an irritating domestic pebble. But it would be a devastating blow for Malaysia’s credibility. The market’s response to her ouster could make the ringgit’s dive so far this year look like the unremarkable first act of an operatic tragedy for the country, and bring neighbouring Asean down too.

After all those years of stellar service, it would be sad if this was the background to Zeti’s departure. 

Malaysia’s political leaders are besieged by the fall-out from the 1MDB scandal. A whispering campaign is trying to drag in the hitherto-unsullied, long-serving central bank governor, Zeti Akhtar Aziz. She staunchly defends her reputation, but is far more concerned about the potential disruption to her long-term economic planning.