Kuala Lumpur, 16 August 1965
1791. Secret Priority
Malaysia/Singapore Outlook
Now that a week has passed since the separation of Singapore, there appears to be three critical factors which will affect the short-term future of Malaysia.
2. Assuming as I think we should that both the Singapore and Kuala Lumpur Governments intend to and indeed must try to work together, these factors or problems are:—
(i) economic relations with Singapore;
(ii) confrontation and defence relations with Singapore; and
(iii) political developments in Sarawak and Sabah.
3. Of these, the first is perhaps the most important and could affect the others. The start has not been auspicious. The speed with which Singapore moved to place Malaysian products on a foreign quota basis does not auger well. (It is argued that this was justified by international practice, but Singapore is not a member of GATT.)1 Already amongst both Chinese and European firms in Kuala Lumpur there is talk of cutting production and of redundancy. Singapore’s higher income per head made it, despite its smaller population, roughly 40 per cent of the old Malaysian market and millions of dollars of Malayan manufactured goods are reported to be choking the go-downs2 of Petaling Jaya3 and Kuala Lumpur after having been turned back at the causeway. You will recall that last week I spoke to Razak and urged a speedier agreement with Singapore to form a Joint Economic Council but while agreeing in principle he was not disposed to move quickly. I note, however, that there were talks between officials of the Singapore and Malaysian Finance Ministries over the weekend about the restrictions on Malayan goods and that they seemed to have progressed favourably.
4. As to confrontation and defence, you already know my views broadly. I do not take seriously the possibility in the short-term of Indonesia driving a wedge between Singapore and Kuala Lumpur. I was encouraged by the speed and unity of purpose of the meeting with Goh and Razak, both of whom are powerful in their Governments and clearly determined to continue joint defence. But I would like to see outstanding issues settled quickly. Suspicions and misunderstandings could develop and disagreements in other fields—economic or political—could spill over into defence.
5. The third major problem is the Borneo States. At present apart from a silly spate of rumours, there is no evidence to suggest the break up of the rest of Malaysia and I am satisfied that the Tunku and the Malaysian Government (with the possible exception of Stephens) are firm on this. The Sabah and Sarawak leaders, Lo and Ningkan, have pledged their support and indeed they have no real alternative. At least in the short run, the idea of a Chinese hegemony, which association with Singapore involves, can only appeal to a minority in Borneo. The Central Government’s recent announcement of free education in the Borneo States has relieved a long-standing irritation. Razak and Tunku intend early visits and have promised continued aid. Nevertheless, it is true that Sarawak in particular has closer commercial links (through the Chinese) with Singapore than with Kuala Lumpur just as it is true that the non-Chinese are not as pro-Malay as Kuala Lumpur had hoped back in 1963. Moreover, there is the pressure of confrontation and the extent of subversion among the Chinese in Sarawak to contend with. At present, I do not expect disintegration but as with the other problems discussed above, much will depend on the political efficiency and the drive of the Central Government leaders.
6. One possibility that has to be borne in mind is that Singapore may seek the separation of Sabah and Sarawak and their union with Singapore in a loose federation. Lee has spoken of this in referring to alternative arrangements in the past and can now offer trade and aid. This may even be an important factor in his past policy and his present disengagement. SUPP leaders are speaking of their close ties with Singapore and the need for a referendum to decide their future. Machinda has also called for a referendum. If Singapore in conjunction with parties of the Solidarity Convention4 now seeks actively to separate the Borneo Territories there will be serious conflicts between Singapore and Kuala Lumpur.
7. In order to ensure that links with Sabah and Sarawak are not exclusively through Singapore, the Malaysian Government will insist that Malaysian Airways should have direct flights between Kuala Lumpur and Borneo. This will mean that Malaysian Airways will have to divide its organisation between the two capitals; and will provoke strenuous opposition from Singapore.
8.
Apart from being a potential source of friction with Singapore, the Central Government will also find the Borneo States a heavy drain on its resources. Singapore’s departure involves a considerable loss of revenue without a compensating fall in expenditure.
Australian Policy
9. I believe that publicly we should emphasise the joint defence effort based on unchanged defence interests; we should discourage recriminations; and we could do all we can to demonstrate our continued confidence both in the Kuala Lumpur and Singapore Governments. Our defence aid should be continued on the basis of joint defence plans; our Colombo Plan aid both in training and capital aid should if possible be stepped up in Sarawak and Sabah. Privately, both in Singapore and Kuala Lumpur we should continue to urge the speedy conclusion of commercial and defence arrangements as well as emphasise the prime political requirement of avoiding recriminations and any form of politicking in each other’s territory. It is too much to expect a lull in public statements but at least we could encourage it.
[NAA: A1209, 1965/6571]
1 The General Agreement on Tariffs and Trade was first signed in 1947. The agreement was designed to provide an international forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes. In 1965, there were 65 GATT contracting parties.
2 Warehouses.
3 Petaling Jaya, approximately 40 km southwest of Kuala Lumpur, was established in the early 1950s as Malaysia’s first satellite town to support the fast developing Malayan capital.
4 See footnote 4, Document 268.