The last Asia Pacific Economic forum (APEC) summit, held in Manila in late 1996, was a jolly affair. When the 21 leaders lined up for photographs in colourful batik shirts, President Clinton playfully started a Mexican wave and got all 18 world leaders to do it, except for a rather bemused President Jiang Zemin of China.

That was then. Now the 1998 APEC summit, which begins in the old Malay tin town of Selangor outside Kuala Lumpur this weekend, is more concerned with Mexican-type bail-outs and their consequences. Much of the region has gone from boom to recession in 16 months. Indonesia, South Korea and Thailand have swallowed the harsh medicine imposed by the International Monetary Fund in return for massive rescue packages. The summit will take place in a crisis-ridden atmosphere and with social instability rising in some member-countries.

Indonesia's President Suharto, the grand old man of APEC, has been swept from power. Malaysia is wracked by protests against the Prime Minister, Dr Mahathir Mohamad, now the region's longest-serving patriarchal ruler. He sacked his deputy, Mr Anwar Ibrahim, on September 2nd and had him arrested on September 20th after massive anti-government protests in the capital. Mr Anwar is now being tried on 10 charges of corruption and sodomy.

The summit was to have been the crowning glory of Dr Mahathir's 18 years as Prime Minister, but now he will be shunned by those attending who perceive Mr Anwar to be a champion of the very openness APEC promotes and the trial to be politically motivated.

President Joseph Estrada of the Philippines and the Indonesian leader, President B.J. Habibie, both threatened at one stage to boycott the APEC summit because of their friendship with Mr Anwar, breaking the south-east Asian convention whereby leaders do not criticise each other publicly.

The Canadian Prime Minister, Mr Jean Chretien, is expected to visit Mr Anwar's wife, Dr Wan Azizah Wan Ismail, an unprecedented snub to the country's leader, who says his former deputy is morally unfit to govern. Mr Clinton has changed the status of his visit to "unofficial" to avoid a bilateral meeting with the host leader.

He might not even attend now because of the crisis over Iraq.

The prospect of pro-Anwar demonstrations during the visit has put the focus inevitably on Malaysia's internal troubles. The Bukit Jalil Sports Complex where the APEC officials will meet has been converted into something of an armed camp. Four watercannon trucks and 200 police vehicles were moved into place during the week, and a small army of 5,000 police personnel, mainly riot police from the Federal Reserve Unit and General Operations Force and an additional 800 traffic policemen, has been marshalled to provide security.

Kuala Lumpur police said they were bracing for any eventuality during the ministerial meetings tomorrow and Monday and the gathering of world leaders on Tuesday and Wednesday. Groups planning to hold demonstrations have been warned to seek a police permit, or be dispersed as an illegal gathering.

APEC was set up by Australia in 1989 to promote trade liberalisation and economic co-operation in the Asia-Pacific region. Its most notable achievement was the Bogor declaration of 1994, when it agreed under the chairmanship of President Suharto to aim for free and open trade and investment by the year 2010 for developed countries and 2020 for developing countries. APEC this year will take in three new members, Russia, Vietnam and Peru, though President Yeltsin is too ill to attend. They may find they are joining an exclusive club just as it is going downhill.

APEC's impotence in the face of the biggest economic challenge to affect Asia since the second World War, and its inability to produce realistic responses to the crisis which has overwhelmed Asian economies, has raised serious questions about its value as an instrument of world policy. The former Australian prime minister, Mr Paul Keating, said recently that the organisation's members should ask themselves "Has APEC reached the end of the road?"

The circumstances of the host country make it difficult for APEC to reaffirm its commitment to free and open trade. Dr Mahathir, who boycotted the 1993 summit in Seattle because he claimed the US was using APEC to open up Asian markets for American companies, imposed controls on short-term capital flows and currency movements two months ago and fixed the exchange rate of the Malaysian ringgit. He is proposing sweeping controls on hedge funds.

Ridiculed last year in Vancouver for his warnings of the dangers of speculative funds, the beleaguered Malaysian Prime Minister will gain some sympathy for his view that "anarchy" in the world's financial regime should not be allowed to continue, despite distaste for his handling of the Anwar affair.

The function of short-term capital flows in causing contagion has become a global concern. The Business Times of Malaysia this week expressed the objections of developing countries to speculative capital. The foreign exchange market is necessary to support international trade, it said, but market players from the more developed economies have gone far beyond the original purpose of its existence.

"With their powerful leverage capacities, hedge funds and other short-term investors are today dictating the outlook for the world economy. It is impossible to expect developing economies to subscribe to the fully liberalised world market concept, which is being touted in the APEC meetings, when their capacities are relatively limited and fair trading practices are still non-existent. These are the challenges facing the world today, and the fact remains that a significant part of the APEC grouping still stands outside the magic circle containing those in control of the world economy."

The Prime Minister of Singapore, Mr Goh Chok Tong, warned, however, that "it is essential to send the right signal to investors; APEC countries must continue their commitment to trade liberalisation."

The US ambassador to APEC, Mr John Wolf, said leaders hopefully "will stress that the path toward renewed growth is one that builds on opening markets and competing internationally".

The Kuala Lumpur summit is due to discuss voluntary tariff reductions in nine sectors selected for fast-track action: environmental goods, fish products, forest products, medical equipment, energy, toys, jewellery, chemicals and telecommunications equipment.

For political reasons Japan does not want to speed up trade liberalisation in forestry and fishing and is likely to use the APEC forum to announce an aid package to Asian countries to assist fishing and forestry.

If unable to reach agreement on tariffs, APEC will be signing its own death warrant. If it fails to take any serious initiatives on tackling the world's financial crisis, then all the world leaders will have to take away with them will be the specially-designed APEC gift presented to participants, a Malaysian Barbie doll with black hair and sultry brown eyes, clad in traditionally-rich brown and gold songket kebaya, complete with keronsang (fastening brooches), bangles, matching handbag, shoes and selendang.