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Mahathir Could Get More Than He Bargained For


International Business: MALAYSIA

MAHATHIR COULD GET MORE THAN HE BARGAINED FOR

At November's APEC summit, he'll come under heavy pressure

The scene in the cramped, tropical courtroom on Oct. 5 in Kuala Lumpur was as farcical as it was cruel. Judge Augustine Paul, waving his long bony fingers as he spoke, denied bail to cashiered Deputy Prime Minister Anwar Ibrahim. The defendant wore a neck brace and bore bruises from what he says was a police beating in jail, where he awaits trial on charges of sodomy and abuse of power. One of his lawyers complains: "Right now, he's in limbo."

And so is Malaysia. Prime Minister Mahathir Mohamad, 72, has alienated his recession-struck country from the rest of the world by imposing capital controls and by jailing Anwar, the country's strongest proponent of economic reform. Now, Mahathir and his policies are coming under pressure from all sides. As the economy worsens, a reformasi movement smolders in the streets of the capital while multinational corporations are starting to complain. His biggest challenge may come on Nov. 17-18, when he hosts an economic summit of leaders from Asia, Japan, and the U.S. The next few weeks will test Malaysia and the isolationist strategy that Mahathir espouses to save the region's economies.STREET-CLEANING. A month ago, the Asia-Pacific Economic Cooperation (APEC) summit was not Mahathir's major worry. At that time, with Malaysia in recession and senior members of the ruling party, the United Malays National Organization (UMNO), starting to question Mahathir's 17-year Premiership, there were fears that Anwar would stage a political coup. Anwar was already preaching open markets and defying Mahathir's efforts to blame the recession on foreign speculators. On Sept. 2, Mahathir sacked Anwar as Deputy Prime Minister and Finance Minister and had him arrested 18 days later. Anwar says the charges against him are fabrications.

By hosting a smooth-running APEC summit, Mahathir would like to regain international credibility. He hopes that by banishing protesters and beggars from the streets, he can win at least a grudging acceptance for his contrarian economic plan. Still, he is likely to continue his harangue against international capital markets--the very issue that pitted him against the West and against Anwar. The burning question, says one diplomat: "How is Mahathir going to play it, and what dead cat is he going to throw on the table?"

The economy is still deteriorating despite the capital controls Mahathir had hoped would stop the slide. The economy will shrink 7% this year, and the ringgit is already trading at a 13% discount on the black market. It could get worse if U.S. and European multinationals such as Intel Corp. and Microsoft Corp. lose confidence. Companies aren't leaving yet, but some projects are on hold. Mahathir has promised that companies will be able to repatriate profits and dividends. "From our standpoint, it's wait and see," says Tom Freitag, president of the American Malaysian Chamber of Commerce.SYMPATHY. When Mahathir opens the APEC summit, he could get more than he bargained for. Visiting heads of state, Malaysia-based foreign executives, and Anwar supporters alike all have their own agendas. In meetings with the Prime Minister in early October, foreign business leaders urged him to tone down his anti-Western rhetoric. They also sought assurances that capital controls will remain in place no longer than mid-1999 and that he will welcome back the financial-services companies he shooed away by imposing the controls.

The reform movement also wants a hearing, and it may get one from the visiting heads of state. Anwar's wife, Azizah Ismail, is its de facto head. She wants to make her husband's case an international human-rights issue. She has requested meetings with President Clinton and other visiting leaders. Already, she has the sympathy of Western as well as Asian governments. President Joseph E. Estrada of the Philippines and B.J. Habibie of Indonesia have hinted that they may boycott the summit. Both are friends of Anwar's.

With world leaders coming to town, Mahathir has a great opportunity to do some damage control. Anwar's trial starts just before they arrive, and Mahathir could use their presence to ease up on him. He could reassure investors by setting a deadline for ending capital controls and taking a more conciliatory stance toward the West. But chances are he won't reform and that Malaysia will remain in limbo until its crisis forces a wrenching change.By Sheri Prasso in Kuala Lumpur


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