The massive damage to the economy in the wake of the East Asian financial crisis six years ago was "almost entirely" Prime Minister Dr Mahathir Mohamad's doing, said a top university professor today.

University Malaya's Prof K S Jomo said in the months following the 1997 financial crisis, former finance minister and deputy premier Anwar Ibrahim dutifully went along with Mahathir's rescue plans, which inadvertently made the situation worse.

Jomo ( photo ), who is a lecturer at the university's faculty of economics and administration, said Mahathir's attempt to defend the ringgit in mid-July as the country was battered by the crisis cost the country RM9 billion.

A month later, the cabinet rubber-stamped a massive scheme to help bail out some of the country's ailing business tycoons.

"The cabinet approved a scheme in August to set up a RM60 billion fund to save 'selected shareholders' - not just 'selected companies', mind you - clearly sending the signal that the bailout fund would be for cronies!" Jomo told malaysiakini in an interview .

This was followed by the government's directive that only up-front payments were accepted for the purchase of certain 'designated' shares. Jomo said the aim was to try to pre-empt short-selling, but this resulted in reducing liquidity in the market.

"In October, Anwar's budget for 1998 basically announced 'business as usual', implying the authorities were in a state of denial."

And later in mid-November, Anwar was forced to allow the bailout of big-time crony company Renong by UEM.

"Each of these episodes resulted in massive drops in the value of the ringgit and the Kuala Lumpur Stock Exchange Composite Index," lamented Jomo.

Anwar an IMF stooge?

Jomo, who is one of the country's top economists and an author of a dozen of books, said that Anwar turned to International Monentary Fund-type policies in late 1997 - either in frustration or humiliation - after Mahathir's policies not only failed to stem the financial hemorrhaging but instead exacerbated the crisis.

However, Anwar's IMF-type measures too failed to put a stop to the economic blood-letting. According to Jomo, Anwar had "to get out of the pit, only to find things getting worse".

"So, blame Anwar for this next period by all means, but wrong as it was, this about-turn is insufficient evidence to allege that Anwar was an IMF stooge," he said.

"In fact, these so-called IMF-type policies were being advocated by almost the entire national economic policy-making establishment, including Tun Daim (Zainuddin), who favoured an even more drastic cut in government spending than proposed by Anwar."

Anwar, who is currently serving a 15-year jail sentence for corruption and sodomy, had been accused by his mentor-turned-nemesis Mahathir for following IMF's market-orientated policies before he brought in capital controls.

The outgoing prime minister, who is due to retire at the end of the month, has cited this as one of the reasons why Anwar was sacked from office.

Volatile portfolio capital to blame

Jomo also said it was not fair to compare Malaysia to other Asian countries which had to go cap in hand for emergency loans from the IMF.

"Malaysia simply never had to, and no one in Malaysia was proposing such a move. Prudential regulations introduced earlier had limited foreign borrowing, especially short-term credit," he explained.

However, he said Malaysia's vulnerability to the 1997-98 financial crisis was due to its 'success' in attracting portfolio capital.

"Such capital inflows are notoriously volatile," lamented Jomo.

"After the late 1993 collapse of the stock market due to such capital flight, Anwar, as finance minister, introduced controls on such inflows, but lobbyists got them lifted half a year later, creating the conditions for the mid-1990s' asset price bubbles and the sudden exodus after mid-1997."

Q&A: Mahathir's initial measures intensifies 1997 financial crisis

Tomorrow: Public discourse on economy 'shallow'