What exactly happened during the choppy months when the Malaysian economy was battered by the 1997 financial crisis? Economics professor KS Jomo puts the tumultuous period in perspective in this exclusive interview .

Malaysiakini: Tell us about your new book?

Jomo:

M Way: Mahathir's Economic Legacy is likely to be seen as a back-handed tribute to outgoing Prime Minister Dr Mahathir Mohamad. The collection of articles is generally critical of most domestic economic policies during the Mahathir era, but more sympathetic to his international initiatives.

I have tried to be an honest critic. I criticise what I believe to have been his mistakes and errors, even if well intentioned. Also, those policies not in the national or public interest, the biases and abuses. His cronyism and tolerance of abuses have cost us a lot.

I also try to show that his policies have not been consistent, but rather quite different over the 22-plus years, i.e. there was no single Mahathir economic policy package. This is not a criticism but suggests that despite all his rhetoric, he did try to face up to problems, albeit in his often flawed way.

People tend to focus on Mahathir's rhetoric, which often obscures his more pragmatic self. While he may condemn the West's policies, he readily embraces their captains of industry and finance, except when they cross him, as in (the infamous currency speculator George) Soros' case.

He did not believe in genuine consultation, and ultimately trusted few others with economic policy making, often unnecessarily getting involved in micro-management. There was little transparency because he was not serious about accountability. If there was greater consultation, transparency and accountability, lots of disasters could have been averted and many billions saved.

Why be so critical when he is leaving? So that we learn from our mistakes, and I assure you they were very expensive mistakes.

Is it true that Anwar Ibrahim caused interest rates to go 'sky high' when he was running the show after the 1997 financial crisis began?

It is a bit of an exaggeration to say interest rates went sky high when they went up by less than 300 basis points, i.e. less than the other crisis-hit economies in the region.

But Anwar admitted he was heeding IMF advice?

Let's put things in perspective. In the first five months after the crisis began, Anwar did whatever Mahathir wanted.

Defending the ringgit meant losing over RM9 billion. Then the cabinet endorsed the bailout fund of RM60 billion, which only confirmed suspicions of cronyism as it was only for certain shareholders, not companies or on some other more legitimate basis.

'Designation' (to stop short-selling of KL Composite Index counters) made things worse by reducing market liquidity. The October 1997 Budget for 1998 only seemed to confirm denial. Then, changing the stock market rules to allow the UEM reverse takeover and bailout of Renong caused stock market capitalisation to drop by RM70 billion in three days!

No wonder the cabinet unanimously supported Anwar's alternative Dec 3, 1997 plan from the IMF through Bank Negara.

There is no doubt now that the IMF made the crisis worse, but we should also remember and acknowledge that Anwar changed his mind about the IMF when he realised that things were getting worse instead of better.

Also, it was Daim Zainuddin (the government's economic advisor), more than Anwar, who wanted tighter macro-economic policy in December 1997.

Then, it was also Anwar who began reflating the economy and trying to restore bank liquidity from May-June 1998, well before the September 1998 measures, which he did not oppose. Mahathir admitted as much, but later decided, for reasons best known to him, to smear Anwar with the IMF brush.

At a meeting with Anwar on May 9, 1998, I opposed his policies, the so-called IMF measures, and was surprised to get support from all the economists present, including people I had long disagreed with, for a Keynesian-style reflationary programme. At that same meeting, Anwar defended Mahathir against some of his Umno critics, especially from other factions. He emphasised the havoc caused by the offshore ringgit market, which became the main reason for the September 1998 controls.

That was my first - and last - meeting with Anwar while he was in government. And weeks before being sacked, he was still criticising those of us with supposedly outdated ideas. So I certainly was not in the Anwar camp, but I find many subsequent criticisms of an unjustly incarcerated man not only dishonest, but also most unfair.

It is also interesting to note that the mid-2003 stimulus package included many measures initiated by Anwar in mid-1998, e.g. for agriculture, small businesses, micro-credit, instead of the earlier Mahathir emphasis on public works construction 'jobs for the boys', e.g. computer labs, etc.

Luckily for them, Malaysians have short memories and cannot remember that it was Anwar who introduced such policies in mid-1998 before they were put on hold.

But isn't it true that one of the most decisive measures that helped stabilise interest rates and check the financial hemorrhage was the imposition of currency controls in order to insulate the economy from 'gypsy' capital?

Why insult gypsies for no reason? There is no need to adopt European prejudices. But let's go over this argument more carefully. Closing the door 14 months later was too late to check the blood-letting.

And as it turns out, the whole region stabilised and the other East Asian economies recovered from the last quarter of 1998, while we only recovered from the second quarter of 1999. Our recovery was only second to Korea's, but that had more to do with the pre-Y2K demand for electronics, petroleum and palm oil prices and La Nina reversing El Nino.

Killing the offshore ringgit market was the real achievement. And of course, the Malaysian experience demonstrates that imposing emergency capital controls did not have the disastrous effects opponents claimed it would.

All this is has been carefully documented and analysed in my other book, The Malaysian Eclipse .

But Dr Chandra Muzaffar in a malaysiakini article ' Anwar and the IMF ' argued that South Korea and Thailand supported the US invasion of Iraq because their governments were beholden to the US after the IMF programmes?

He knows better than to say that. This kind of conspiracy theory is quite unconvincing and does our criticisms of the IMF a great injustice. These countries have been long-time allies of the US since the Vietnam war and before.

In fact, there has been a resurgence of nationalism and anti-US sentiment precisely because of popular antipathy to the IMF programmes. (Thailand Prime Minister) Thaksin Shinawatra and (South Korean president) Noh Moo-Hyun would not have been elected otherwise.

Chandra also cited the Nobel laureate in economics, Joseph Stiglitz, who has praised Malaysia's capital controls in his book Globalization and its Discontents?

Well, Joe Stiglitz was my teacher and is an old friend. But quoting Nobel laureates is not the way to persuade people because there are probably more laureates who support the IMF. I have done the detailed analysis and to my knowledge, Stiglitz has not.

I am not saying the controls failed, but let us not exaggerate what was actually achieved. For example, interest rates in Thailand had long been higher than in Malaysia, but went below the Malaysian rates in the last quarter of 1998 without controls.

Anyway, I have no desire to get into a debate with Chandra, Stiglitz or anyone else. Let us seek truth from facts.