Malaysia avoided the worst of the 1997 Asian crisis. By pegging the currency, imposing capital controls and propping up state-linked enterprises, the view is the nation escaped the humiliating bailouts doled out to Thailand, Indonesia and South Korea -– coming out whole and proud.

This conventional wisdom is also wrong.

For proof, look no further than the 92-year-old man who’s returned from the past to save Malaysia’s future: Mahathir Mohamad, who was prime minister back in 1997 and mentor to the current one, Najib Razak.

Najib deserves lots of blame for today’s traumas, including controversy surrounding the 1Malaysia Development Bhd. state fund he created in 2009. Meant to finance Kuala Lumpur’s development into a global business hub, allegations of corruption at the fund show Malaysia isn’t ready for prime time.

Billions of missing dollars spurred investigations from Singapore to Washington to Zurich. Questions also surround US$700 million that found its way into Najib’s personal accounts.

The fiasco is but one example of how Najib’s 3,029 days in office have been a reform dead zone. The biggest problems facing Malaysia in April 2009 –- opacity and affirmative-action quotas that scare off foreign investment –- are even bigger now.

Najib sold himself as a kind of “bookend” change agent. The “New Economic Policy” his prime minister father introduced in 1971 gives preferential treatment to the Malay majority for jobs, education and government contracts.

Najib pledged to dismantle the system to increase competitiveness and boost innovation. Instead, he cemented it. As Indonesia and the Philippines march forward, Malaysia is, at best, walking in place.

But Mahathir deserves considerable blame, too. It’s great, to be sure, that the firebrand is speaking truth to power and calling Najib on his neglect and arrogance.

It’s grand, too, that Mahathir had a change of heart about his reformist deputy prime minister, Anwar Ibrahim, who he fired and later jailed in the late 1990s.

Imagine for a moment, though, where Malaysia might be if Mahathir hadn’t waged a war against George Soros, and capitalism itself, decades ago at the expense of forward motion.

Yes, the capital controls and currency peg averted financial disaster. In 1998, the International Monetary Fund derided the moves as “retrograde.” By 2002, the IMF changed tack, calling them a “stability anchor.”

But Malaysia stuck with these acute-care measures too long, deadening its animal spirits.

A crisis is a terrible thing to waste, as Nobel laureate Milton Friedman said. Mahathir should’ve used the turmoil of that period to do away with the apartheid economics undermining productivity and entrepreneurship.

Mahathir’s battle with Soros and his fellow currency speculators was an epic distraction. His weird charges that Jews, Soros among them, were picking on Muslim-majority Malaysia tarnished the national brand.

So did Mahathir firing the pro-free-market Anwar, who was later imprisoned on corruption and sodomy charges many saw as politically motivated (the two men are now joining forces against Najib).

Once the crisis ended, Mahathir rested on his laurels rather than getting under the economy’s hood.

In 2003, when he stepped aside after 22 years, Mahathir handed the reins to the hapless Abdullah Ahmad Badawi, a man notorious for dozing off at strategy meetings.

Then, in 2009, came Najib, whose tenure is clouded by scandals including 1MDB, which even pulled actor Leonardo DiCaprio and model Miranda Kerr into the fray.

Cash spirited from 1MDB may have bought Najib’s wife tens of millions of US dollars of jewelry, according to US Justice Department filings.

In 2014, when Malaysia Airlines flight MH370 disappeared, Putrajaya’s botched, opaque and paranoid response again exposed a government unaccustomed to basic accountability.

Najib’s response to crises is to circle the wagons and, ironically, borrow from Mahathir’s playbook.

Step one: pretend you are a victim and play the blame game. Step two: play the patronage card to buy loyalty within the United Malays National Organisation, which has ruled the nation for seven decades.

By not modernizing UMNO and affirmative-action policies when he had the chance, Mahathir bears responsibility to limiting the ability of opposition parties to challenge Putrajaya.

So enjoy the fireworks as Mahathir and Najib mix it up. And Najib, let’s face it, deserves it.

But until an unaccountable political system musters the courage to change, the odds of Malaysia experiencing a lost economic decade will rise no matter who wins this brawl.

Malaysia’s own crisis has been unfolding in slow motion since a 1997 crackup the nation claims it avoided. Soros may regret not maintaining his short on the place.

William Pesek is a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” Twitter: @williampesek.

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