KUALA LUMPUR (Sept 6): Former deputy secretary-general at the Ministry of Finance (MOF) Datuk Siti Zauyah Mohd Desa said that in 2013 — when 1Malaysia Development Bhd (1MDB) was trying to get the Government to back a US$3 billion (RM13.36 billion) loan for the purpose of a joint venture (JV) with Abu Dhabi — Malaysia’s debt rating was weak, and there was also a lack of confidence in the loan subscription.
Testifying as the prosecution’s 26th witness in the ongoing 1MDB-Tanore trial, where former prime minister Datuk Seri Najib Razak is the only accused, Siti Zauyah explained that the Government’s move led by Najib to issue a letter of support (LOS) was not the right move for the country because its fiscal situation was “weak”.
An LOS is an indirect guarantee, where the parent company would have to settle the debt obligation if the company fails to repay the loan. And if the holding company fails to do so, the Government would be held accountable for the loan.
Upon cross-examination by Najib’s lawyer Wan Aizuddin Wan Mohammed who asked her about the LOS, Siti Zauyah said that it was part of her division’s duty to take care of the country’s image, and her responsibility included looking out for the financial implications for the country.
Siti Zauyah: It was so obvious that our Government was weak at that time.
Wan Aizuddin: Are you talking about now or then? Can you elaborate — weak in what sense?
Siti Zauyah: I can't recall our rating at that time. [If it is] an A-, it means we are bankable, and we can repay the liabilities.
Wan Aizuddin: Are we talking about the Cabinet paper?
Siti Zauyah: No. The fact that we (Malaysia) had a lack of support shows no confidence from whoever that wanted to subscribe to the loan and who wanted to provide the loan.
Wan Aizuddin then asked the witness about her previous statement.
Wan Aizuddin: Did you say the LOS was a necessity (crucial in getting the US$3 billion loan)?
Siti Zauyah: I didn't say that.
Wan Aizuddin: Who said that?
Siti Zauyah: The Treasury secretary-general (Tan Sri Dr Mohd Irwan Serigar Abdullah).
Wan Aizuddin also asked the witness about a memo in March 2013 for the then finance minister based on changes to the LOS. The memo contained suggestions by MOF Inc regarding the JV.
The memo was sent to Najib from then Treasury secretary-general Irwan's office.
In her witness statement, Siti Zauyah said that each of the suggestions presented in the memo was discussed between her division — the MOF's loans management, financial market and actuarial division — and the Treasury's lawyer.
She said that Irwan did not want MOF officers to make any suggestions in the memorandum that the prime minister would not agree with. In fact, she further elaborated that Irwan asked the MOF to accept everything Goldman Sachs had asked for.
Goldman Sachs was given the mandate to raise US$3 billion for 1MDB.
"His (Irwan’s) instruction was to accept everything that Goldman Sachs asked for," the witness said.
Wan Aizuddin asked her if it frustrated her that Irwan moved on with the LOS despite her opinions that this was not right for the country, to which Siti Zauyah answered that it was Irwan's prerogative to do so.
Wan Aizuddin: And he moved forward with it. Did it frustrate you?
Siti Zauyah: It was his prerogative. My concern was to alert him to the liabilities.
Wan Aizuddin asked if the witness agreed that it was represented to the Cabinet that the LOS was a necessity.
"I can't answer that. You have to ask the Treasury secretary-general (Irwan)," she said.
Wan Aizuddin then moved on to ask Siti Zauyah whether 1MDB had ever provided MOF Inc an update of what they did with the US$3 billion that they received through the Government LOS.
The witness said that 1MDB was unresponsive, even though she had called the company and sent letters to them.
Wan Aizuddin: You said that many times, the MOF had requested for documents and information from 1MDB. If it was not given to the MOF, it was because of the weakness of the company's management.
Wan Aizuddin then suggested that Najib cannot be blamed if it was the fault of 1MDB’s management.
Siti Zauyah: That was their responsibility.
Wan Aizuddin: You can't attribute the fault of 1MDB officers to the prime minister, the minister of finance or the chairman of the board of advisers [back then]. (All these roles were held by Najib.)
Siti Zauyah added that in situations before and after the LOS issuance, there were no details of the nature of 1MDB's investments.
The trial before judge Datuk Collin Lawrence Sequerah continues in the afternoon.
Najib is charged with four counts of abuse of power and 21 counts of money laundering of RM2.28 billion of 1MDB funds.
The Edge is covering the trial live here.
Users of The Edge Markets app may tap here to access the live report.