By: Our Correspondent

A Reuters news service report that 1Malaysia Development Bhd., the ill-starred and debt-ridden state investment fund, may be restructured and possibly dissolved, has to be considered a devastating political blow for Prime Minister Najib Tun Razak, who has been under intense criticism for months over the fund’s debts and its opaque accounts.

Reuters quoted sources with direct knowledge of the matter as saying the investment fund,  conceived in 2009 by Najib with the help of a family friend, Taek Jho Low, is to be left as a skeletal structure in a debt repayment plan in which most of its assets will be sold off.

Legions of critics including former Prime Minister Mahathir Mohammad, opposition Democratic Action Party shadow minister Tony Pua and others have been demanding answers about the fund’s finances over a near-default on a loan payment.  Concerns over the fund’s finances led to fears it could lead to a default that would cripple the country’s entire financial system.  The near-default drove down the value of the ringgit and affected the quality of government bonds.

“I think the prime minister has never been under this much pressure,” said a source with close ties to the government. “Cracks are showing and deep cracks at that.  It all depends on whether he can marshal his forces to determine how long he can stay. He is a dead man walking,  but he can still walk a long time.”

Najib has come under deepening criticism, including indirectly from his own brothers, for a prime minister’s office spokesman’s statement to the New York Times, that what appears to be a huge fortune stemmed from “legacy assets” from his family.  The brothers issued a formal statement that there were no legacy assets and that their father, Malaysia’s second prime minister, died in relatively modest circumstances. 

According to extensive reporting by the blog Sarawak Report, the fund appeared to be run as much by Jho Low, as he is known, as by Malaysian government officials, who often took a back seat to Low’s investment plans.  In some cases, according to the report, which is run by Clare Rewcastle Brown, officials weren’t informed of plans until hours before billion-dollar deals were made. Jho Low, according to the article, diverted US$700 million of 1MDB money into his own accounts to buy a Sarawak bank.