During the Asian Financial Crisis of 1997/98, UMNO party leaders accused Mahathir of mismanaging the economic crisis. A concert of attacks followed, including a claim made by a Time magazine article that Mahathir has funnelled a $250 million loan to his son through political party connections. Also, senior UMNO members were reportedly unhappy that Mahathir exacerbated the ringgit’s fall with his harshest comments on the currency and stock markets. His actions led to more support for his resignation.
On the contrary, that did not happen because Mahathir’s political position at home had been significantly strengthened by the support he received from Malaysians including political rivals such as the Islamic Party (PAS) and the Chinese-based Democratic Action Party (DAP). Matters worsened when a swirl of poison-pen letters hit the scene targeting his deputy, Anwar Ibrahim. Those were quickly subdued after Mahathir made his official endorsement of Anwar as his successor in the presence of the members of the Supreme Council during UMNO’s 18-21 June Annual General Assembly.
Events surrounding Reformasi
In an unexpected twist of events, Mahathir shocked the region by demanding for Anwar’s resignation. Anwar’s refusal led him to sack his one-time heir apparent from all leadership positions with no reasons cited. This action triggered the Reformasi Movement.
Reformasi consisted of several mass demonstrations and rallies against the long-standing Barisan Nasional coalition government, and continued until Anwar was arrested and jailed in late 1998, whereupon it slowly died down. The target of the reformasi campaign was then Prime Minister Mahathir Mohamad, who was perceived as corrupt  and having stayed too long in office.
At the 1998 APEC Summit in Kuala Lumpur, the then-Vice President of the United States, Al Gore, gave a speech supporting Anwar and the reformasi movement in front of the Prime Minister of Malaysia and other Asia-Pacific premiers.
"Democracy confers a stamp of legitimacy that reforms must have in order to be effective." He went on: "And so, among nations suffering economic crises, we continue to hear calls for democracy, calls for reform, in many languages - People Power, doi moi, reformasi. We hear them today - right here, right now - among the brave people of Malaysia."
As a political commentator, former Deputy Prime Minister Musa Hitam remarked that "If the reformasi movement and demonstrations could be given any significance in terms of Malaysian politics — if there is anything that I could unhesitatingly come to [consider] a positive conclusion — it never turns racial. It's amazing. ... It is more issue-based than racial. I'm fascinated." Musa commented that prior to reformasi, "any demonstration of any nature in Kuala Lumpur or Penang would always turn racial. Even if they were against the government, they would burn the Chinese shops."
Conclusion and legacy
The legacy of the reformasi movement, however, was felt during Malaysia's 2008 general election, in which the People's Justice Party (PKR) led by Anwar Ibrahim won 31 parliamentary seats. As a result of the electoral success of the PKR, Parti Islam Se-Malaysia, and Democratic Action Party coalition, the Barisan Nasional government lost its two-thirds majority in Parliament.
Reformasi led to the formation of a new multiracial-based party named Parti Keadilan Nasional (National Justice Party). In 1999, a general election was held. The new Parti Keadilan Nasional, Parti Islam Se-Malaysia, and Democratic Action Party formed a Barisan Alternatif (Alternative Front), in a combined initiative to replace the standing Barisan Nasional (BN) coalition government. For the first time in Malaysia's history, UMNO, a Malay-based party and the dominant party in the BN coalition, received less than half of the total vote of ethnic Malays.
The Barisan Nasional, however, remained the biggest coalition in the Parliament, owing to large support from non-Malays, who feared the instabilities which might occur if the ruling coalition were toppled, as occurred in May 1969. The reformasi movement appears to have died out after the 1999 general election, and in the 2004 election, Parti Keadilan Nasional lost all of its seats in Parliament but one, which was held by its President, Wan Azizah, the wife of Anwar Ibrahim. The Barisan Nasional's sweeping victory was attributed to high expectations of the new Prime Minister Abdullah Badawi, who succeeded Mahathir in October 2003.
However, Anwar Ibrahim was released from prison in September 2004 and Parti Keadilan Nasional re-emerged as Parti Keadilan Rakyat (PKR) or People's Justice Party. PKR made huge gains in the 2008 general election, winning 31 seats and becoming the largest opposition party in parliament. In addition, five of the eleven state governments in peninsular Malaysia fell to the PKR, Parti Islam Se-Malaysia, and Democratic Action Party coalition. The Barisan Nasional government, for the first time since 1969, lost its two-thirds majority in Parliament.
- Kassim, Y. R (2005). Transition Politics in Southeast Asia, p. 213. Marshall Cavendish, Singapore.
- Billington, G. G (1998). Malaysia's Mahathir trumps 'anti-corruption' crowd. EIR, 25.
- Kassim, 2005.
- Billington, 1998.
- Alejandro Reyes. Tim Healy. Asiaweek. Shattered Summit.
- Hwang, In-Won (2003). Personalized Politics: The Malaysian State under Mahathir, p. 318. Institute of Southeast Asian Studies. ISBN 981-230-185-2.