Salomon Smith Barney Inc. While some international investors say they will almost surely shun the bond, others say they will be watching closely to see if the yield is attractive enough to lure them in. Malaysia's decision to impose controls hasn't been vindicated, many analysts and officials insist. In the first place, they say, the country's success is attributable mainly to the sound financial policies it adopted, especially its moves to restructure its banking system by getting rid of bad loans and injecting fresh capital into banks. Had Malaysia undertaken those steps without controls, it might have done even better, critics contend, noting that Malaysia's Asian neighbors have also enjoyed solid rebounds in their stock and currency markets. That's the kind of thing that has really been the catalyst for recovery in Asia.
Capital controls is a sideshow.
IMF officials make similar arguments and point out that Malaysia has also improved its relations with investors by changing the absolute prohibition on withdrawals of funds to a less onerous tax. They've wisely used the breathing space provided by the controls. But whether or not Mahathir can claim his move proved justified, at the very least he can say it didn't turn his country into the perennial financial pariah some critics expected. Deryck Maughan, left, co-CEO of Salomon Smith Barney, listens in 1998 as Prime Minister Mahathir Mohamed discusses plans to recapitalize banks. The Wall Street firm is managing a new bond issue for the Malaysian government.