Malaysians have been transfixed by months of allegations that hundreds of millions of dollars disappeared from deals involving heavily indebted state investment company 1Malaysia Development Berhad (1MDB).
On July 2, the Wall Street Journal reported that nearly US$700 million was deposited into Najib's personal bank accounts beginning in early 2013. Najib initially rejected the Journal report, and both he and 1MDB vehemently deny any wrongdoing.
But members of his cabinet and Malaysia's anti-graft agency now acknowledge the transfers, calling them "political donations" from unidentified Middle Eastern sources, saying there was nothing improper but giving no further details.
The accounts have since been closed and the whereabouts of the money is unknown. The official explanations are widely rejected by the public, said Malaysia politics researcher James Chin. "Najib's credibility is destroyed. None of these explanations are believed, so he is digging his heels in," he said.
It is the first time a Malaysian leader has faced criminal allegations, and news of possible graft at the top level has gripped the country. With protesters taking to the streets yesterday to call for his ousting, it is also the biggest political crisis for Najib since he took power in 2009.
"Malaysia's leader is still facing a legitimacy crisis with declining domestic support," said Bridget Welsh, senior research associate at the Centre for East Asia Democratic Studies at the National Taiwan University.
Alleging a "political conspiracy" by unnamed opponents, Najib recently sacked or reassigned officials who were investigating the scandal, and purged cabinet members who called for answers.
A newspaper known for its 1MDB reporting has been suspended for three months and Najib sparked free-speech concerns by saying his government would step up internet regulation.
This was to prevent anyone "being criminally defamed, and so that the internet does not become an ungoverned space dominated by insults and untruths," he said.
The message being sent is that Najib's leadership is moving further towards a hardline trajectory, Welsh said. "History shows that crackdowns, arrests and threats backfire, and are at best temporary measures that fail to address the underlying demands for a better Malaysia."
A nation of 30 million, Malaysia is predominantly Malay Muslim with significant Chinese and Indian minorities. It is one of the region's lynchpin economies, with ambitions to rise from middle income status to developed nation level this decade. Najib's increasing authoritarianism is a setback for the hopes of many Malaysians that their country was slowly embracing elements of liberal democracy.
The scandal started with investigations into 1MDB, which was set up in 2009 by Najib to develop new industries. But in just six years, it amassed 42 billion ringgit (HK$77 billion) in debt after its energy ventures abroad faltered. Critics have long voiced concern over its massive debt and lack of transparency. Najib still chairs its advisory board.
Police, meanwhile, have gone on a witch-hunt to determine who leaked the documents showing transfers to Najib's accounts. Police have questioned nine members of the anti-graft agency, seven central bank officials and have said they may also question central bank governor Zeti Akhtar Aziz.
The situation has accelerated an exodus by foreign investors already worried about Malaysia's economy who now fear the scandal is dominating Najib's attention, said Chua Hak Bin, head economist for Asian emerging markets at Bank of America Merrill Lynch.
"The government is focused on (political) survival, but the economy is in danger of slipping into crisis as a result," Chua said. "Investors can't see the endgame, and that's worrying."
The ringgit currency has fallen 13 per cent since the Wall Street Journal revelations. It has dropped more than 30 per cent over the past year to an 18-year low, partly on fears the energy-exporting country's economic growth will be hit by faltering oil prices.
Despite the crisis, Najib has strengthened his footing in his United Malays National Organisation, or Umno, and taken full control of the government by placing loyalists in key positions. Umno is the linchpin of the National Front coalition that has ruled Malaysia since independence from Britain in 1957.
Support for the National Front has eroded in the last two general elections. In 2013, it won the polls but lost the popular vote for the first time to the opposition alliance led by Anwar Ibrahim, who is now in prison after being convicted of sodomising an aide in a case widely regarded as politically motivated.
Umno is entrenched as the defender of the majority ethnic Malays, protecting them through decades-old affirmative action policies in jobs, education and government contracts - and this is hard to dislodge, analysts said.
"This party has captured the state institutions and machinery and that's why they can control everything," Chin said.
"In Malay political culture, a strong leader is feared and admired, and that's how Najib is selling himself, as a strongman."
The 62-year-old Najib, whose father and uncle were the country's second and third prime ministers respectively, was educated in Britain. He returned to work for the central bank and the national oil company but was unexpectedly thrust into politics when his father, then-prime minister Abdul Razak Hussein, died in 1976.
At age 22, he was Malaysia's youngest lawmaker ever at the time and patiently worked his way to the top.
He speaks impeccable English and is seen as modern: he has his own blog and is an avid social media user.
Since becoming premier, Najib has battled criticism over his management of the economy, his family's lavish lifestyle and association with the killers of a Mongolian model nine years ago. Najib has said he had nothing to do with the model. Two security officers linked to Najib at the time were found guilty of her murder.
One of his most vocal critics is former prime minister Mahathir Mohamad, who stepped down in 2003 after 22 years in power. Mahathir has called for Najib to resign over the 1MDB affair, warning there was "something rotten" in the government.
Najib's own brother, Nazir Razak, who heads Malaysia's second-largest banking group CIMB, has also echoed concerns over the country's future. In an Instagram post last month, Nazir said "in this darkest hour of political times, we must remember to place the country and the (people) first. Not personal interests, not personal loyalties, not even party politics".
Ibrahim Suffian, who heads the Merdeka Centre for Opinion Research, said Umno and other National Front parties had rallied behind Najib because they feared the 1MDB crisis could sink the government.
The controversy over 1MDB came at a time of economic slowdown as falling commodity prices hurt Malaysia's export-driven economy and government revenue. The public is also grappling with higher living costs due to a new goods and services tax imposed in April.
Chin said Najib was more focused on consolidating power than fixing the economy.
"Najib has the upper hand now but if the economy sours further, it could spell trouble for him."
Agence France-Presse, Associated Press
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