Battered by a long financial crisis, and by criticism over sacking his successor, Mahathir now faces his toughest election battle ever. Can he save Malaysia Inc.?

By Ron Moreau and Tony Emerson

"Is it big enough for you?" cracks Mahathir Mohamed, calling from behind a desk at the end of his cavernous new office. The room is the size of a small gym, with an arched floor-to-ceiling window overlooking Putrajaya, the new $8 billion capital city that Mahathir is carving out of the palm plantations south of Kuala Lumpur. In the distance, across an artificial lake, rises the prime minister's new residence, a pinkish stone fantasy topped by a grand, green onion dome, with white stairs cascading about 20 flights through palm trees down to the shore. It is indeed quite big enough, even for a leader whose vision critics attack as fit for an Egyptian king. "It's not for me. I'm not going to be here very much longer," Mahathir says with a shrug. "It is the residence of the prime minister of Malaysia, not of Dr. Mahathir the Pharaoh."

Putrajaya will be remembered as the crowning achievement of Mahathir's 18-year reign or, perhaps, as the bunker where he made his last stand. In an interview with NEWSWEEK, Mahathir seems serene in the belief that he has
survived the last test — his one-man battle against the worst financial crisis to strike Asia since World War II. While collapsing currencies "humiliated" rulers and tycoons across the region, Mahathir says, he attacked. He denounced the "colonial" Western powers exploiting the crisis to "take control" of Asia, and shut off his nation to currency trading. If his attackers cast him as a dictator stuck in racial politics of the past, defying the modern global market, so be it. He says he can hold off the money traders with currency controls "indefinitely." At 74, he has not completed his lifelong mission to lift the Malay sons of the soil, or bumiputras, above their oppressors, whether they be American and European financiers or Chinese businessmen at home. "Sure, it's been difficult"
these past two years, he says. "The most difficult part is trying to manage the economy, when I'm not in control. In my country, I'm in control. In politics, I'm in control."

Now, the next test. With all of Southeast Asia recovering, lifting the Malaysian economy with it, Mahathir is widely expected to call elections as early as next month. He is already out campaigning, delivering a stump speech that echoes his firebrand nationalism from the 1960s, when he hectored fellow Malays to toss off their colonial reputation as "nature'sgentlemen" and seize Malaysia's wealth from the British and Chinese. He lectures Malays to be "grateful" for all that he and the ruling United Malay National Organization have done to raise their share of national wealth from 2 to 30 percent, and to save them from "foreign powers." Everywhere, he invokes the specter of 1969, when the largely Chinese opposition denied UMNO its customary two-thirds majority in Parliament — and Malays vented their rage on celebrating Chinese in a Kuala Lumpur bloodbath. The leader of the Chinese opposition, then and now, Lim Kit Siang, says "Mahathir's subliminal message is that there will be racial violence again if he isn't returned by a two-thirds majority."

For the first time in years, Mahathir could lose. No one had the power to stand up to Mahathir until he sacked his designated successor, Anwar Ibrahim, at the height of the economic crisis last September, then threw him in jail on charges of covering up a homosexual relationship with his chauffeur. Anwar was convicted of the cover-up in Asia's "trial of the century," during which police admitted "turning witnesses," and jailers gave Anwar a nasty black eye. "You couldn't find characters out of Central Casting to make the judiciary look more ridiculous," says a Western diplomat. Now facing a second trial for sexual misconduct, Anwar is fighting back from his prison cell, issuing a stream of reports accusing Mahathir of enriching and protecting business cronies, lavishing more than
$50 million on the new "palace." As former Finance minister, his revelations carry a certain weight. Mahathir's angry rebuttal — that Anwar had his own cronies and stole state secrets — only strengthens the growing
sense that the lid is coming off Malaysia Inc.

The campaign is shaping up as a referendum on Mahathir. Even those who see Anwar as a younger, slicker version of his mentor are flocking to opposition parties, which are registering new members at a rate of more than 10,000 per week. Led by the Justice Party of Anwar's wife, Azizah, the fractured opposition (box) is calling for abolition of colonial-era security laws and Special Branch secret police. They want reform of cronyism, of the judiciary and of an electoral system that, they say, still allows UMNO to marshal soldiers and their wives, even phantoms and the
dead, to cast votes for the ruling party. In the countryside, UMNO is a "one-stop shop" offering everything from student loans to funeral arrangements, and civil servants "educate" villagers about the ruling party's good deeds. Against those odds, the surging opposition probably can't win. But they might deny Mahathir the two-thirds majority he has used, in the past, to pass constitutional amendments sidelining Malay sultans and other challengers. It would be a crippling blow to Malaysia Inc.

BEFORE THE ANWAR affair, Malaysians had largely assumed that their prospering country was growing more liberal as well. In Kuala Lumpur, or "KL," a city of 1.5 million people and a tiny Malay elite, everyone knew that Mahathir and Anwar lived side by side in rambling Malay houses in leafy Daman-sara Heights. "We know our politicians intimately here," says a KL theater director. "It's like the whole country is Washington."

It's hard to overstate the shock last September when Mahathir, seizing on a poison-pen letter, went on TV to denounce his deputy. He used words, "anal intercourse" and "masturbation," never publicly uttered in this Muslim
nation. Malay offices, friends and even families split into Anwar and Mahathir camps, which will define this election. "KL is a small town, where maybe 2,000 people call the shots, and the police keep a book on everyone
who matters," says a Western diplomat. "Suddenly they realize that if this can happen to Anwar it can happen to anyone. That's a fear they didn't have before."

Both sides warn that the campaign will be the dirtiest in Malaysian history, which is saying something. Opposition magazines and Web sites are proliferating, with some hysterically comparing Mahathir to the great tyrants of history. Ruling-party hacks are starting to toy with the Justice Party, says Azizah, pulling speaking permits at the last minute, even taking a potshot at the house of one party member or lighting a bonfire outside the home of another. The Special Branch, which a diplomat describes as "hunter-gatherers" of information for UMNO, hover around opposition rallies. "The police have to watch us, because others are watching them. That's how Mahathir operates," says Azizah. "But it's not working. Even the police are starting to smile back when I wave."

In this atmosphere of gamesmanship it's difficult even for Mahathir to gauge true public sentiment. On a recent campaign trip to Anwar's home territory of Permatang Pauh, he sounded genuinely appreciative of the large
turnout, though most were UMNO loyalists bused in by party hacks to provide him a warm reception. That, anyway, is what locals said later. During his speech, Mahathir remarked to the crowd of 10,000 that at times he is beginning to feel "very isolated... very lonely" in his job. "Thank God," he said, "the people still seem to support the government."

It is commonplace to hear in KL that Mahathir has grown too large for Malaysia, certainly too powerful to be truly approachable. On a Sunday stroll through the stores of the Petronas Towers — the world's tallest building and the most famous of his megaprojects — Mahathir stirs startled whispers of "There goes the P.M.!" Most keep a respectful distance. Three nervous teenage girls ask to pose for a picture, giggling, "We adore him!"  They don't care about the Anwar affair, but one 17-year-old boy says students are angry — and he marches up and tells the prime minister so. Mahathir responds with a wan smile, almost a grimace.

His hunter-gatherers appear to be feeding Mahathir information that makes the reform movement easy to dismiss. On the stump, he says he has discovered mounting evidence that Anwar had been secretly building a power
base and conspiring with "foreign powers" to topple him. Anwar had embraced IMF-style reform, which Mahathir blames for igniting the riots that brought down Suharto in Indonesia. Aides call Anwar "a CIA agent." As for the
reform movement, Mahathir calls it an un-Malay rabble of ingrates, thugs and paid agents of Anwar's plot. "You pay them a few cents, they are quite happy to protest," he says.

Malaysians are less sure than ever what is allowed and what is not. For more than a decade, government censors have been granting the Instant Cafe Theatre in Kuala Lumpur permits for increasingly sardonic political reviews. Officials eager to demonstrate a "liberal" sense of humor have even invited the troop to international conferences in Kuala Lumpur, though they often complain afterward that this or that skit went too far. The troop has parodied Mahathir as the captain of the Titanic, hinted that he might soon go the way of Marcos and Suharto, and never gotten in real trouble. Now, however, locals are staying away, fearful that the cafe will be raided by police. "Even if I start talking politics at the dinner table, my relatives shoosh me," says director Jo Kukathas. "What we want is a government that doesn't condescend to us."

The same fear grips the main-stream press. Since a 1989 crackdown on the largest English dailies, editors have hewed to Mahathir's notion that reporters should help him develop the nation. Papers that violate the unwritten rules of "developmental journalism" risk losing their operating permits. "We know what he doesn't like," says a top national editor, noting that there is "definitely" a ban on publishing photos of the new palace. But is there? "You can't hide a house that big," says Mahathir, giving the green light (above photo). "People go around trying to figure out what I like, then trying to do what they think I like. Even simple things. But they've got me wrong. They've got me wrong."

Mahathir is from the poor provincial capital of Kedah, where he once worked as a banana seller in the wet market before putting himself through medical school. He made his controversial name in politics with pseudoscientific
attacks on Malay sloth and indigence, and with calls on his countrymen to lift themselves up, as he had. He still sees himself as an authority on the Malay soul. On a recent campaign return to Kedah, aides warm up the crowd
by boasting how his megaprojects had done Malays proud. Mahathir opens a new motorcycle factory, hands out bicycles to top local students. Then he denounces other youths, "brainwashed" by Anwar, who don't appreciate UMNO loans and scholarships, who ridicule Putrajaya. "I don't know what I have done to them," he complains. "Islam teaches us to be grateful, but they are not grateful." Off to the side, a group of young women in Islamic head scarves mutter that Kedah is still so poor, it's time for Mahathir to retire.

Mahathir wants to protect his legacy first. After the fall of Suharto, he became the longest-standing ruler in Asia, and he seems haunted by comparisons to the Indonesian kleptocracy and its billionaire leading family. Leaning forward in his office chair, he insists that Putrajaya is for Malaysia, not for him, and that while people shower him with cars and gifts, all go into a state museum on the resort island of Langkawi. He says his salary is about $4,000 a year. Whenever a deal involving one of his three children comes before the cabinet, says Mahathir, he recuses himself. Besides, he says, his children are not merely collecting rents from national monopolies. "They are not idiots, they are doing real business," he says.

His family is ready to defend Malaysia Inc., too. Mahathir's second son, Mokhzani, invites us to high tea at Carcosa, a luxury Kuala Lumpur hotel that is the former residence of the British high commissioner. The setting
itself helps explain some of his father's anticolonial bitterness. Perched amid 40-acre gardens on a high hill overlooking the Parliament, Carcosa was a standing reminder of how the British "lorded it over" the Malays. In
1986, the prime minister offered the British what Mokhzani calls "a deal they couldn't refuse," and took it away.

At the same time UMNO's campaign to take back national wealth from the British and Chinese was getting into high gear, and Mokhzani was one of the Malay businessmen who won a privatization contract — not, he points out, a  free national monopoly, like Suharto's children got. Now 38, Mokhzani makes a quick calculation in his head and figures his net worth at $60 million, mainly from a hospital-supply contract for the southern provinces of
Malaysia. "Someone once said my father should get whatever he wants, for all he has done for the country," says Mokhzani. "He is dragging Malays into the next century." At his inner sanctum in Putrajaya, Mahathir has regained control of the economy from the latter-day Western "colonialists," and is confident he can micromanage Malaysia Inc. Every day, he says, he meets with his National Economic Action Council, studying numbers. Car sales. Motorcycle sales. Bank reserves. "Everything. Every day," he says. "We sit down at that table in this office, and we do everything." OK, say housing sales are weak: Mahathir summons the builders, bankers, lawyers. They choose models, sales incentives and, for "one whole month, throughout the country, we sell houses. If we recover, it is not by accident, it is by design. To run a country, you have to know everything that is going on."

Building Putrajaya despite the financial crisis confirms that one man can triumph over global markets, over the so-called free-market experts. Or so Mahathir sees it. He hopes to rekindle all the Malay-pride projects slowed
or stalled by the Asian crisis, including the world's longest building, the world's longest bridge and Cyberjaya, a Malaysian Silicon Valley also carved out of the palm plantations. It could all happen, unless, of course, Mahathir is surprised at the polls by the opposition, which wants to cancel megaprojects as too grand. "They say Rome was not built in a day, but Putrajaya was, and at a time when people were going hungry," says a spokesman for the Muslim opposition party PAS. They promise to sell the palace to the highest bidder, even if it's one of those Western colonial powers.

Newsweek International, August 30, 1999