Mahathir Mohamad circa 1998 would not recognize 2018's Mahathir -- and that is a good thing.
As prime minister in the 1990s, Mahathir was the father of Malaysia's modernization, presiding over rapid industrialization and huge infrastructure projects that put it on the global investment map. But investors came to distrust his autocratic tendencies, anti-capitalist rhetoric and the ways of a regime that critics denounced as kleptocratic. They took the opportunity to flee amid the 1997-1998 Asian crisis.
Today, at 92, Mahathir seems downright warm, fuzzy and business-friendly. In an uncharacteristically calm voice following last month's surprise election win, Mahathir said: "We strive to be a trading nation. A trading nation means markets and you do not quarrel with your markets. You try to be friends with them."
Those are words to comfort investors. But Malaysia has much to prove to global markets still shocked by the corruption and incompetence of Najib Razak's government. Searches of properties owned by Mahathir's predecessor turned up suitcases containing tens of millions of dollars in cash. The array of art, jewels, handbags and designer shoes Najib and his wife allegedly amassed might make Imelda Marcos blush.
The good news is that Mahathir is rushing ahead with his daunting to-do list. On the job for less than a month, he already ordered an investigation of 1Malaysia Development Berhad, the state fund Najib created in 2009, his first year in office. Najib denies wrongdoing but the $4.5 billion missing from 1MDB, and the $700 million mysteriously found in the former prime minister's personal accounts, have sealed his political fate.
Clawing back those billions will come in handy as Mahathir grapples with a much bigger debt load than was expected. Turns out, the 50% debt-to-gross-domestic-product ratio Najib claimed is closer to 80%. A transparent accounting of what Najib and his enablers did might restore Malaysia's image in markets.
Mahathir is canceling big-ticket infrastructure projects, including a high-speed rail link between Kuala Lumpur and Singapore. Fiscal watchdogs warned that the project -- costing between $15 billion and $25 billion -- would be a boon for graft on its way to white-elephant status. Team Mahathir is reviewing many big Chinese investment deals signed during Najib's tenure.
But the bad news is that Mahathir has yet to articulate plans to overcome the biggest challenges facing Malaysia.
The most immediate is impressing investors. Mahathir's initial priority is reining in government finances he says are in a "horrid state." How, though, can he reconcile the bevy of populist handouts he promised voters with his fiscal disciple pledge?
As Finance Minister Lim Guan Eng told the South China Morning Post a few days ago, "we want to be a 'what you see is what you get' government.'" It is hard not to see that Mahathir's pledges to cut taxes, renew fuel subsidies, write off farmers' debt and dole out cash bonuses to civil servants and pensioners will be impossible to meet. Plans to scrap the 6% national goods-and-services tax alone makes meeting 2.8% fiscal deficit target for 2018 (from 3% in 2017) seem fanciful.
Mahathir also will face difficulties instilling financial discipline within his Pakatan Harapan coalition, which is ruling for the very first time. The new government is being creative in launching a crowdsourcing effort to reduce national debt. A few donations, though, will be no panacea for a prime minister who promised far more in largesse than tax receipts are likely to generate.
Bringing the top executives of state-owned enterprises to account and tightening corporate governance must be priorities. Open tenders in public procurement should come as soon as possible. The push for transparency and efficiency would also get a serious boost by listing state oil company Petronas. It would be a vital first step toward reducing the role of state companies, paying down debt and signaling to investors that Malaysia is pro-business.
Mahathir must reverse steps he took in the 1990s to weaken the judiciary, water down parliament's powers, jail critics and neuter the media. Sadly, Najib learnt from his former mentor and deepened the assault on institutions that hold leaders accountable.
There is also the matter of foreign economic partners. Mahathir criticized Najib's cozy ties with China and his overreliance on mainland cash. Malaysia, Mahathir warns, risks becoming "the next Sri Lanka," a reference to heavy debts smaller countries take on as part of Chinese infrastructure projects.
In the search for alternatives, Mahathir would be wise to renew his old friendship with Japan, where he is due to pay a visit this month. Prime Minister Shinzo Abe, after all, is anxious to expand Japan's influence in Southeast Asia. Abe could kick in a generous plan to build a bullet-train link from Kuala Lumpur to Singapore -- with Tokyo and the private sector assuming most of the cost so as not to wreak Malaysia's balance sheet. Mahathir could reciprocate by giving Tokyo greater access to Malaysia's resources. It is a win-win that would throw Beijing off balance.
Dr M must prove the 90s are really over. Last week, another blast from Mahathir's past, financier George Soros, warned "we may be heading for another major financial crisis." In the late 90s, remember, Mahathir blamed Soros -- whom he called a "moron" -- for the ringgit's sharp drop. Now, as the ringgit comes under downward pressure anew, Mahathir is pointing to Najib's neglect. But Mahathir should look in the mirror, too.
In the years after 1997 and 1998, Indonesia, the Philippines, South Korea and Thailand, to varying degrees, let the forces of creative destruction cleanse financial systems. Mahathir's approach was from the populist playbook: impose capital controls, call currency trading "illegal" and circle the wagons. As a result, Malaysia still has one foot stuck in a bygone economic era.
Voters are looking forward as they give Mahathir a chance to right the wrongs of two decades ago. Mahathir, in turn, has the future in mind with plans to pass the baton to Anwar Ibrahim, his 70-year-old ally, in a year or two. Both men need to bridge the gap between the vibrant Malaysia of their dreams and political reality.
An obvious way it to shake up Malaysia's sprawling bureaucracy.
The new government plans to save about $2.5 billion on such reforms this year. Why not raise those ambitions? A labyrinthine bureaucracy that protects the status quo. It keeps the fruits of Malaysia's 5% annual economic growth from trickling down to those being left behind.
Perhaps the greatest challenge of all is the country's deep-rooted system of race-based quotas, which discriminate in favor of the dominant ethnic Malays at the expense of the Chinese and Indian ethnic minorities.
Mahathir and Anwar are painfully aware of the political passions involved. Back in the 1990s, when Anwar was Dr M's deputy prime minister, he enraged his boss by calling for an end to affirmative action.
Now, Anwar 2.0 is telling Malays fearing a loss of status and benefits not to worry. The new government, he says, will "honor the guarantees" for so-called Bumiputeras. That would be a grave mistake. Restricting the access of Chinese- and Indian-Malaysians to affordable housing, college scholarships, government jobs and contracts amounts to preserving economic apartheid.
These retrograde policies, says economist Udith Sikand of Gavekal Research, means that, "longer term, Malaysia is destined to remain stuck in the middle-income trap," which can afflict developing nations when they approach the $10,000 income level. That is where Malaysia is today. And it is where it might stay unless Mahathir and Anwar break with the past.
William Pesek is a Tokyo-based journalist and author of "Japanization: What the world can learn from Japan`s lost decades." He is a former columnist for Bloomberg and Barron's.