How Mahathir and Anwar became embroiled in a clash that threatens to send Malaysia into upheaval. To Prime Minister Mahathir Mohamad, who has a passion for flying and sailing, Malaysia's annual air and boat show on the island of Langkawi was an event he hated to miss--even as his nation stumbled through an economic crisis. So Mahathir decided to hold the Dec. 3, 1997, meeting of the Malaysian Cabinet on the island, instead of in the capital of Kuala Lumpur.

But by the time he arrived at the elegant Gunung Raya hilltop retreat, Mahathir was in for a jolt. His next-in-command--Deputy Prime Minister Anwar Ibrahim--had virtually concluded business without him, according to sources knowledgeable about the meeting. In what amounted to an economic coup, the cabinet had decided to adopt an austerity plan similar to those imposed on neighboring Thailand and Indonesia by the International Monetary Fund. The plan would slash public spending and halt infrastructure projects championed by Mahathir.

The new policy was a stunning rebuke to Mahathir. Since the onset of the Asian crisis five months earlier, he had been railing against a perceived Western conspiracy and insisting Malaysia could maintain its breakneck growth. Mahathir's reaction: He humbly agreed to go along with his Cabinet's decision--but on the very next day undermined it by announcing Malaysia would proceed with a controversial $2.7 billion rail and pipeline project. Alarmed investors immediately sent the ringgit to a new low.

Those intrigue-filled days in December were a prelude to what has become Malaysia's worst political crisis in nearly three decades. Although Mahathir and Anwar had long had differences over economic stewardship and management of political spoils, that rift widened as Asia's financial crisis wore on and the two leaders worked increasingly at cross purposes. Ultimately, the dispute led Mahathir to clamp controls on the currency and jail his deputy, casting himself as an international rogue. Continued here......