For a man who's up against the full force of Malaysia's political machinery and judicial system, Anwar seems almost unnaturally relaxed. He jokes about the accusations of sodomy, adultery, corruption and endangering national security that have been reproduced daily in graphic detail by local newspapers. "The best one is when they said you were wearing a wig," laughs his wife, ophthalmologist Wan Azizah Wan Ismail.

But when Anwar is asked if he's worried that he will be arrested, the smile disappears. "I don't worry: I know I'll be arrested," he says flatly. Anwar's voice is calm, but this grim assessment seems to cause a momentary crack in his wife's resolve; her hand jerks tensely up toward her mouth.

Most Malaysians would agree that it's now just a question of time before the charismatic 51-year-old is charged. That will be a sad day for Azizah and her children. But more is at stake than the fate of one man and his family.

For supporters of Prime Minister Mahathir Mohamad, the man who fired Anwar, the dismissal is a straightforward issue of ministerial misconduct and national security. "I'm sure Dr. Mahathir has a vast store of evidence that he can't disclose," says lawyer Rais Yatim, a former government minister who rejoined the ruling United Malays National Organization last year after almost a decade in the opposition. "This was a guy who loved Anwar. He wouldn't do this without a cause."

But for those sympathetic to Anwar, both in and out of Malaysia, the case is a watershed that will determine the tenor of political life for years to come. The first impact will be seen on the economy: With Anwar gone and Mahathir personally in charge of the Finance Ministry, there are no voices left in government to question his unorthodox economic theories, manifested most recently in the imposition of exchange controls on September 1.

More broadly, many see the conflict between the two men as symbolic of a generational struggle that is familiar across Asia: A clash between an elderly nation-builder who believes strong authority is essential to a developing country's growth and unity, and a more progressive, internationally minded reformer who advocates wider freedoms at all levels of society. "I feel sad for Malaysia. Anwar Ibrahim could have taken Malaysia to its new peak, but now the whole process of succession is in jeopardy," says a senior Asean diplomat.

The first round in the clash, which may also be the last, clearly went to Mahathir. His only potential challenger has been eliminated, reinforcing his absolute grip over party politics and government policy. Not only does he hold the portfolios of prime minister, home minister and finance minister but also he has named a protege--Ali Abul Hassan Sulaiman, who managed the premier's privatization programme--to head the central bank. The previous Bank Negara governor, a perceived Anwar supporter, stepped down with his deputy when Mahathir introduced capital controls.

Anwar, bereft of any political organization and under threat of arrest, would appear largely powerless to fight back. What's more, the prime minister's controversial decision to curb trading of the ringgit has produced some immediate domestic benefits: It stabilized the exchange rate and pulled ringgit back into the country. The stream of returning ringgit converged with a wave of local institutional buying to provide a much-needed shot in the arm to the anaemic Kuala Lumpur Stock Exchange, which leaped almost 50% in the first five days after the controls were announced.

In the longer term, however, Mahathir's consolidation of power may have created problems even more difficult than the ones it solved. The economy is just one: By severing Malaysia's links with the global financial system, Mahathir has sent this trade-driven country into uncharted economic territory. Moreover, Anwar's ouster has shattered one of the best-planned successions in Asia, leaving a 72-year-old man as the main pillar of the country's stability. All that raises questions about the wisdom of concentrating so much power in the hands of one man.

It remains to be seen, however, how much Anwar's resistance will rattle Mahathir's rule. Expulsion from Umno has been perceived as a political death sentence. (Mahathir himself, expelled in 1969, is one of the few Malaysian politicians to have risen again--it took him four years.) Yet the magnitude and abruptness of Anwar's fall from grace--he had been Mahathir's protege for almost two decades--has stunned Malaysians and prompted an outpouring of sympathy.

Much rides on whether Mahathir can fix the economy, which shrank almost 5% in the first half of the year after nearly a decade of unfettered growth. Despite the recent euphoria on the stockmarket, currency controls mark a radical departure from the open-market policies upon which Malaysia built its economy, and carry some inherent risks.

"At least we're moving in one direction now," adds a businessman close to the ruling party, welcoming Anwar's ouster as an end to conflicting economic messages from the top. "But Mahathir still has to get us out of the woods. If he screws up this time, he has to go."

Many local businessmen are optimistic, saying that the stable currency--pegged at 3.80 ringgit to $1--makes budget planning possible again. "With one stroke of the pen, Mahathir has taken away a big headache of accountants," says a Malaysian who operates a joint-venture factory with a European firm. Like most other business people interviewed inside Malaysia, he declined to be named.

Some foreign businessmen are less sanguine. "The political situation is highly unsatisfactory," says one who has worked in Malaysia for more than three decades. "We've seen constant U-turns and doubling back on policy in recent months. If the capital controls don't work, will he reverse himself again?"

Mahathir and Anwar repeatedly contradicted each other on economic policy, even as they denied the existence of a long-running power struggle. In the wake of Indonesian President Suharto's downfall in May, Anwar delivered a series of speeches calling for the reform and "creative destruction" of Asia's old political traditions. Then, at Umno's annual assembly in June, Anwar's allies launched a barrage of allegations about "corruption and nepotism" in Mahathir's administration--the same charges wielded against Suharto. The prime minister retaliated almost immediately by beginning to slash Anwar's influence in the government.

Anwar says the events in Indonesia altered the way Mahathir looked at his chosen heir. "Now I remind him of Habibie," he says, referring to Suharto protege and successor B.J. Habibie.

Neighbouring countries were careful not to publicly criticize Anwar's ouster. But it's no secret that Anwar has close links of ideology and friendship to the region's reformers, including Habibie and Thai Foreign Minister Surin Pitsuwan, who said he expected "more political activity" to follow the deputy premier's ouster. There's a strong Islamic element in Anwar's ties with Indonesia, reflected in a small demonstration by Muslim activists outside the Malaysian embassy in Jakarta on September 8. Singaporeans, meanwhile, are irritated by the exchange controls, which forced a halt to trading of Malaysian shares on the island.

The most important drama, however, will be played out inside Malaysia, where Anwar clearly has a lot of support. Each day since his ouster, thousands of people--ranging from punk rockers with orange-dyed hair to bearded Islamic teachers, businessmen, activists and opposition politicians--have come to visit the former minister at his relatively modest private house in Kuala Lumpur. "You groom him like a son, then you kill the son," grumbles a middle-age businessman sitting outside Anwar's house.

For those who can't drop by, Anwar has launched his own Web site (www.anwar.com.my), on which he has posted his defence, including two letters he sent Mahathir in late August detailing his evidence of "a conspiracy at the highest levels of government," which has led authorities to consider sedition charges against him. Some enterprising entrepreneurs have begun selling tapes of his latest speeches, while Anwar says he will soon launch a nationwide speaking tour to set up a reform movement.

Both publicly and in meetings with Umno leaders, Mahathir has emphasized that Anwar is morally unfit to hold office. The press has printed new revelations about Anwar's alleged misdeeds almost daily. For some, the sense of overkill has evoked sympathy. "Instead of providing an official explanation for the sacking, the media is indulging in an orgy of lies and half-truths designed to character-assassinate Anwar," says political scientist Chandra Muzaffar, who himself was detained during a crackdown by Mahathir in 1987.

"A lot of middle-class Malays don't like what they're seeing," says a political analyst in Kuala Lumpur. "You don't pull down a deputy prime minister like that. Unfortunately, these people don't matter," the analyst adds, pointing out that the ruling party is dominated by a supreme council of about 40 people who uphold the party line and the 1,900 delegates who vote at Umno general assemblies.

Indeed, with no party apparatus of his own, Anwar has very little chance of turning his support into a political comeback. He's a charismatic orator who proved his mettle as a student organizer; he spent nearly two years in detention without trial before Mahathir brought him into Umno in 1982. But without a government or party post, Anwar will have trouble getting his message across in a country where the media are closely aligned with the ruling coalition. "In 10 days, Anwar will be forgotten," insists Abdul Azim Mohamad Zabidi, Umno youth chief for Kuala Lumpur and a staunch Mahathir supporter.

Still, Anwar can cause Mahathir a severe headache. Even scattered demonstrations by Anwar supporters, captured by foreign TV cameras, could frighten off the foreign investment that is vital to Malaysia's economic recovery. And in the long run, economic pain is liable to translate into more political dissatisfaction.

Many political observers believe Anwar will be sent to jail, rather than allowed to travel the country whipping up support and giving his version of events. The question is whether the authorities will wait until the end of the Commonwealth Games, which open on September 11 and are to be closed by Queen Elizabeth, head of the Commonwealth, on September 21.

If he is arrested and denied bail, sympathy for Anwar may grow but it will no longer be possible for him to meet supporters. And if the authorities produce convincing evidence to back charges that he endangered national security, much of the support for him is likely to evaporate. Some of the other allegations against him, including those of sexual and financial misconduct, could prove especially damaging for a politician who has long built up his image as a devout Muslim, a dedicated family man and an honest official.

Even if Anwar's ouster signifies the end of his political career, some analysts believe his confrontation with Mahathir still marks a watershed. "By standing up against authority and fighting for justice, I think Anwar has made a contribution to the transformation of Malaysian political culture in the long run," says political scientist Chandra, who lauds the former deputy premier's stress on accountability, civil society and freedom of expression.

As long as Mahathir commands the loyalty of Umno, though, he will remain firmly in control. And for now, Umno stalwarts appear ready to give Mahathir the benefit of doubt on Anwar's ouster. "He must have had strong reasons to do it," says Umno youth's Azim, a few days after Anwar's downfall. "This is not a political move, this is national security." Then the self-confident Azim hesitates and adds more sombrely: "If he has done this purely for political reasons, then it's a dark day for Malaysia."