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Malaysia's Mahathir widens graft crackdown, seeks to cut national debt

By Joseph Sipalan

KUALA LUMPUR (Reuters) - Ninety-two-year-old Malaysian Prime Minister Mahathir Mohamad held his first cabinet meeting on Wednesday as officials widen a probe into corruption linked to the previous government with raids on sites linked to the head of a Muslim pilgrimage fund.

Mahathir led an opposition coalition to a shock victory in elections this month after campaigning on rising living costs and a promise to clean up corruption. On Wednesday he vowed to cut the national debt of 1 trillion ringgit (188.62 billion pounds).

He has also barred former premier Najib Razak and his wife, Rosmah Mansor, from leaving the country, and ordered the anti-graft agency to investigate the disappearance of billions of dollars from state fund 1Malaysia Development Berhad (1MDB).

Najib, who had ruled the country for a decade, said that Mahathir and his finance minister's "alarming and confusing" remarks about the country's debts and 1MDB liabilities "tell half the story" and had caused the stockmarket to fall, in a late-night Facebook post.

"While you may want to slander and put all the blame on me to give a perception of a dire financial position to justify why you cannot deliver on your manifesto promises...you must remember that the country and our people comes first," he wrote.

Investigators have already searched Najib's home and several properties, seizing cash, jewellery and luxury items estimated to be worth millions of dollars.

The Malaysian Anti-Corruption Commission (MACC) will finish taking a statement from Najib, who ruled the country for almost a decade, on Thursday.

In a separate development, police on Tuesday raided five sites linked to Abdul Azeez Abdul Rahim, the former government-appointed chairman of Tabung Haji, a fund for Muslim pilgrims to Mecca, an MACC official told Reuters.

A number of documents, jewellery and cash were confiscated, said the source, who declined to be identified due to the sensitivity of the issue. Abdul Azeez Abdul Rahim was not immediately available for comment.

Najib has consistently denied any wrongdoing at 1MDB.

New Finance Minister Lim Guan Eng said on Wednesday that he has asked for PricewaterhouseCoopers to be appointed for a review and audit of 1MDB.

"The directors of 1MDB confirmed that 1MDB was 'insolvent' and was unable to repay its debts," Lim said.

Lim said on Tuesday Najib's government deceived parliament over 1MDB finances and suppressed an investigation by intimidating and purging anti-corruption agents.

Mahathir, who was also prime minister for 22 years from 1981, said after his first cabinet meeting his government would try to cut the national debt, which he put at 65 percent of GDP, by reviewing projects and a 10 percent reduction in cabinet ministers' salaries.

The previous government had said the national debt had been below its self-imposed ceiling of 55 percent of GDP. Malaysia's stock market <.KLSE> closed 2.2 percent lower, its largest daily fall in more than two years, while the ringgit edged down 0.2 percent against the dollar.

Mahathir also said he would review the search by a U.S. firm for Malaysia Airlines Flight MH370 which disappeared on its way from Kuala Lumpur to Beijing on March 8, 2014, with 239 people on board in one of the world's biggest aviation mysteries.

The new transport minister later said the search would end on Tuesday.

Mahathir also said his government would decide "very soon" on whether to continue with the Singapore-Kuala Lumpur high speed rail project.

Mahathir has already announced plans to revoke a controversial goods and services tax that was intended to rake in 43.8 billion ringgit this year, and reinstate fuel subsidies amid rising oil prices.

(Additional reporting by Rozanna Latiff, Emily Chow, Praveen Menon and Tom Westbrook; Writing by Kanupriya Kapoor and Simon Cameron-Moore; Editing by Nick Macfie and Toby Chopra)