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FEER: Moving On
By S. Jayasankaran

14/9/2001 1:32 am Fri

The Far Eastern Economic Review
Issue cover-dated 20th September 2001

Moving On

A skeletal agreement needed a dose of compromise and some special intervention from Singapore

By S. Jayasankaran/KUALA LUMPUR

IT TOOK MORE THAN 10 YEARS for Malaysia and Singapore to arrive at the skeletal pact signed on September 4 by Malaysian Prime Minister Mahathir Mohamad and Singapore Senior Minister Lee Kuan Yew. Even so, it wasn't the best deal for Singapore. "It wasn't one which I would say was balanced," Lee told reporters. "But a deal is a deal . . . let's move on."

Why, then, after a decade of bickering over issues as varied as water supply and airspace, would Singapore settle for an unbalanced deal?

Easy: Because of deep anxiety in the republic concerning the future of the Malaysian government and the potential for difficulty once Mahathir leaves office. Lee alluded to the "problematic" possibility that the opposition led by Malaysia's Islamic Party could take over the national government in the next general elections. Malaysia's majority ethnic Malays, the traditional core support of the ruling United Malays National Organization, have been divided ever since the 1998 ouster of Deputy Premier Anwar Ibrahim.

Furthermore, Singapore government officials say there is concern that whoever succeeds Mahathir will not have the same clout as the strong-willed premier. "They want to settle this while Mahathir is still around," says a Singaporean official. "He can get things done."

He certainly can, judging by Singapore's compromises. The republic gave in on every Malaysian request except on the pricing of water, of which Malaysia supplies almost 45% of Singapore's needs. Currently, Singapore pays 3 sen ($0.008) for every 1,000 gallons of untreated water from Malaysia under a 1961, British-induced covenant. Malaysia wanted the price bumped up to 60 sen; Lee counter-offered at 45 sen. Both sides agreed to let the bureaucrats work out the final price. The increase will cost the republic an extra 45 million ringgit ($11.8 million) annually. Lee accepted a commitment from Kuala Lumpur to supply water to Singapore after the current agreement expires in 2061, though not at the volume Singapore wanted.


Singapore also agreed to allow Malaysians to withdraw their savings from the republic's Central Provident Fund, a mandatory pension plan, after they've stopped working there, rather than waiting until they turn 55. Lee agreed to allow the money, over S$3 billion ($1.7 billion), to be available for withdrawal over a period of two years once the deal is inked.

Finally, Kuala Lumpur restored the right of Singapore's air force to use Malaysian airspace; in return, the republic allowed the Malaysian immigration checkpoint on the Kuala Lumpur-Singapore railway line to be moved, and gave Kuala Lumpur 12 parcels of land in compensation. Finally, Singapore agreed to Malaysian demands to build a new bridge to replace the causeway that links the two countries, which would be destroyed in the year 2007. Singapore also agreed to have Malaysia build a tunnel to link a newly electrified rail service to the Kranji station in Singapore.

Don't expect the agreement to bring greater investment from the republic. Such deals--especially property purchases by Singaporeans in Malaysia and the republic's government-linked companies buying of stakes in strategic Malaysian companies--had fallen off significantly in the wake of the Asian financial crisis in 1997 amid continuing acrimony between the two countries. Suspicions remain. "It's a welcome development," says Rajeev Malik, a senior economist at JP Morgan in Singapore. "But the whole exercise seems to be about insuring against things going wrong in the future rather than being driven by great opportunities going forward."

That it took Lee Kuan Yew to personally intervene twice--he came to Malaysia in August last year--isn't surprising. Mahathir, 76, appears to prefer dealing with Lee, 77, whom he has known for more than four decades, rather than his Singapore counterpart, Goh Chok Tong. According to a senior Asian diplomat, Goh did try to work out an aid-for-water deal with Mahathir when Malaysia was hit hard by the Asian Crisis. But Mahathir, presumably reluctant to bargain at a point of weakness, begged off. The deal stalled--until Lee stepped in.

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