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Tuesday, Sept 15
Anwar warns of catastrophe if Mahathir moves fail
By BARRY PORTER (South China Morning Post)

KUALA LUMPUR: Ousted Malaysian finance minister Anwar Ibrahim has made his most outspoken attack to date on Prime Minister Mahathir Mohamad's new economic policies, warning if they backfire it would be "catastrophic" for the economy.

He said the country's tough new capital controls were too radical and could have serious ramifications for foreign investment.

Speaking to Business Post , Mr Anwar - who was also deputy prime minister - said he shared some of Dr Mahathir's concerns about the need to regulate international currency speculators and control sharp movements of capital.

But he thought Dr Mahathir's new package of economic reforms for Malaysia announced last week was too severe.

Dr Mahathir ruled Malaysia's currency - the ringgit - will no longer be recognised abroad and all international trade will have to be conducted in foreign currency.

A fixed exchange rate of M$3.80 to the US dollar has been set for an indefinite period and central bank approval is now required for anyone wanting to take the equivalent of M$10,000 (about HK$20,390) or above out of the country.

By doing this, Dr Mahathir hopes to aggressively slash interest rates to reflate Malaysia's battered economy without having to worry about the detrimental effect this would have had on the currency under normal free-market conditions.

Critics warned it could be a bureaucratic nightmare and could scare genuine long-term foreign investors away.

Mr Anwar said: "Firstly, I support the need for changes in the architecture of the international financial system, which is the general mood these days.

"Secondly, short-term capital moves are of major concern and therefore any moves to temporarily restrict them to make sure that the currency will settle will be acceptable. But radical moves will lead to serious ramifications."

Mr Anwar said he hoped Dr Mahathir's reforms work for Malaysia's sake.

"If it fails it will be catastrophic for the economy," he said.

If he were in power, Mr Anwar said he would order an automatic rethink.

"Certainly I would look at it and try and make the necessary adjustments so that we could give some transparency and certainty to foreign investors," he said. "We have been liberal in our currency since the 1960s, more so in the 1980s when Mahathir became prime minister.

"To reverse this direction isn't easy. Foreign investors are a major problem."

Mr Anwar, who claims to have been the victim of a political conspiracy, accepts his downfall was partly due to a disagreement with Dr Mahathir over macroeconomic policy.

However, more importantly, he claims the prime minister and his associates were paranoid he might make a challenge for the leadership despite numerous assurances to the contrary.

Mr Anwar said he objected to bailouts and claims Dr Mahathir became too obsessed with saving the businesses of rich tycoons at the expense of the rest of the country.

In fact, Mr Anwar believes his downfall was largely because of a stance against corruption and cronyism.

"I was an obstacle," he said.

Asked whether such tycoons had ganged up on him fearing for their livelihoods if he ever became prime minister, Mr Anwar said: "Quite a few I know for a fact."

Asked to name them, Mr Anwar said: "Some of them are linked to the prime minister, but also to some of his big associates."