Kuala Lumpur, 3 May 1963
278. Secret
Malaysia
Serious deadlock continues over terms for inclusion of Brunei and Singapore. Brunei is holding out on mineral rights and financial issues and Singapore refuses to meet Federation demands on apportionment of Federal Revenue in Singapore.1
2. Federation believes only prospect of settlement with Singapore is to exert maximum pressure and has suggested to the British that they proceed with Malaysia without Singapore or Brunei. British have opposed request on grounds that Malaysia is package deal and in any case that if they proceeded as Malayans propose Britain would not be able to withhold independence from Singapore.
3. With time running out Razak cabled Tan Siew Sin this week suggesting resumption of financial talks with Singapore.2 Malayans, however, have maintained their stand. With Tunku’s concurrence Tan has replied that there is no prospect of talks succeeding and has suggested that Razak concentrate on persuading British to agree to proceed without Singapore and Brunei. Malayans argue that attitudes of Philippines and Indonesia make any postponement of Malaysia dangerous.
4. Tan will also take a personal letter from the Tunku when he meets Razak in London next week for financial talks. Clearly more than financial issues would be involved and talks are likely to be crucial for Malaysia.
5. While appreciating Lee Kuan Yew’s political difficulties I am impressed by Malayan argument that Singapore will become by far wealthiest centre of Malaysia and that unless Federation has adequate control of Federal Revenue in Singapore it will become politically dependent on Singapore and there will be grave risk of Federation disintegrating. I believe we should do what we can to support Federation case in London.
[NAA: A1838, 3006/4/7 part 7]
1 Negotiations between Malaya, Singapore, Brunei, Sarawak, and North Borneo on arrangements for merger into the proposed federation had been in progress since August 1961. A number of issues remained unresolved between Malaya and Singapore and Brunei. For Brunei, it was the disposal of its oil revenues, and for Singapore the problems were over responsibility for revenue collection and disbursement in the new federation. At this point in time the Malayan Minister of Finance, Tan Siew Sin, was arguing for 55–60 per cent of Singapore’s total revenue, while Lee Kuan Yew claimed that it had been understood that Singapore would have control of its own finance in return for minimum participation in federal politics.
2 Razak was in London as the Tunku’s representative negotiating the final terms of the merger with the British Government and preparing for a conference on the financial and defence implications of Malaysia set down for 13–15 May. See editorial note, Final Agreements on Malaysia.