Malaysia, already known as a maverick in international economic circles, has gone a risky step further by hurling racial insults at major investing nations as veteran Prime Minister Dr Mahathir Mohamad prepares to step down.

Not only did Mahathir last week publicly label Westerners as warmongering, greedy, sexual deviants, his trade minister said at the weekend she did not think his remarks would hurt the economy - because they were true and, in any case, Western businessmen based their decisions only on profits.

"Take China for example. China is condemned by the United States. But its private sector goes to China like ants scrambling for sugar," said Rafidah Aziz.

Mahathir also told a weekend news conference that his address to a ruling party assembly last week, in which he insulted key investors in Malaysia such as the United States and Britain, was unlikely to hurt the economy.

"I don't think so. Even if it does, it will only be for a short while."

Same thing

He defended his speech, in which he attacked what he called the European race and their descendants in America, Australia and New Zealand, saying: "I believe in calling a spade a spade.

"I think other people say the same thing. Except that they say 'foreigners or the big powers'. Everybody has been saying this all the time.

"I don't think Europeans should feel hurt just because I used the right word. It is freedom of speech."

Mahathir, who is due to step down in October after 22 years in power, has long been known for his criticisms of the West, but he acknowledged in his address that his latest attack was likely to be seen as "racist" and would hurt many friendly countries.

But, he said, "I consider exposing who the Europeans are has become so important that the risk must be taken."

Mahathir said Europeans were "very greedy and like to take forcibly the territories and rights of other people".

They wanted to conquer the world again and impose their cultural values on others, such as "the practice of free sex including sodomy as a right," he said.

Diplomatic fallout

While Mahathir and Rafidah may be right in suggesting that his remarks will not hurt the economy, there will undoubtedly be diplomatic fallout.

The outspoken premier has already been warned by the United States that it has been irritated by his bitter criticisms of Washington's foreign policy and specifically the war on Iraq.

US ambassador Marie Huhtala said last month relations had been strained by statements castigating the United States "in antagonistic, occasionally offensive, terms".

Mahathir, who is also finance minister, won his economic maverick spurs by refusing to follow International Monetary Fund (IMF) prescriptions at the height of the Asian crisis in 1997-98, instead imposing capital controls and pegging the ringgit to the US dollar.

His moves were widely disparaged at the time, but the IMF has since grudgingly admitted that Malaysia weathered the storm better than most.

Some analysts point out, however, that as the region looks to an economic upturn, Malaysia is struggling to lure foreign funds, with investors wary of putting their money into a country where they could again have problems getting it out.

In apparent recognition of this, trade minister Rafidah announced Saturday that Malaysia had lifted all export and equity curbs on foreign participation in manufacturing to woo investment amid stiff regional competition.

Malaysia is under pressure from other low-cost producers in the region such as China and Thailand, with approved manufacturing investment in 2002 dropping 36 percent from a year earlier to RM16.53 billion (US$4.35 billion).

The Iraq war and the Sars outbreak in the region have compounded Malaysia's woes, forcing it to cut its economic forecast to 4.5 percent this year from previous estimates of 6.0-6.5 percent. - AFP