Asia Times: Again, testy neighbors' ties hit a snag



	July 28, 1999	atimes.com

Southeast Asia

Again, testy neighbors' ties hit a snag
By Ivan Gan

SINGAPORE - Singapore and its northern neighbor, Malaysia, are at odds again, this time due to irritants ranging from frozen shares to the supply of precious water.

The two countries, once part of the Federation of Malaya before they parted over racial differences in 1965, had pledged to resolve all bilateral issues in a package at the summit of Association of Southeast Asian Nations (ASEAN) leaders in Vietnam in December 1998.

In the past, the two have crossed swords over a long-time agreement on Malaysia's supply of precious water to the city-state of Singapore, as well as critical remarks by Singapore's leaders about Malaysia.

Despite the pledge to resolve differences, no substantive result has been achieved after three high-level meetings between officials from the two countries.

"We have not reached any consensus, and we will try to reach a settlement no matter how long it takes. But if we are unable to do so, then the package is a failure," Malaysian Foreign Minister Datuk Syed Hamid said recently.

The issues discussed during the bilateral meetings included disputes over the siting of Malaysia's Customs, Immigration and Quarantine (CIQ) facilities and a long-term water supply agreement.

The CIQ controversy touches on the issue of sovereignty, as Malaysia had refused to move its CIQ facilities for rail travelers at the Tanjong Pagar Terminal in Singapore to the border (at Woodlands) between the two neighbors in August 1998. Malaysia has owned the railway land since British colonial times.

Besides the fight over land, ties between the two countries have been strained in recent months over the discussion of a new 100-year water deal.

The spats that mainly ethnic Chinese Singapore and Malaysia, a majority of whose people are Muslim Malays, find themselves in from time to time actually underscore their close economic ties. Singapore is Malaysia's third largest trading partner after Japan and the United States and Malaysia gets the biggest chunk of Singaporean investments. The two are also rivals in information technology, with Malaysia aiming to outshine Singapore through its government-supported projects to make it a "smart" society.

But Singapore's reliance on Malaysia for its water is a strategic vulnerability - one that its 3.9 million people know only too well.

Under the present deals, which will lapse in 2061, Malaysia supplies raw water to Singapore, which then treats the water and sells some of it back to Malaysia.

When Singapore proposed that Johore, an adjacent Malaysian state, double its supply of water to the city state under a new 100-year agreement, the Malaysians reacted by asking Singapore to look elsewhere for water.

This led to rising tensions over the issue of a long-term water supply agreement, which has surfaced periodically ever since Singapore became independent in 1965 after remaining part of Malaysia for two years.

Under the 1961 and 1962 bilateral agreements, more than one billion liters of raw water from Johore are piped daily to Singapore reservoirs. It sells 159 million liters of treated water back to Malaysia.

In June, Singapore accused Malaysian officials of stalling negotiations over the new water supply agreement by disregarding previous agreements reached between Malaysia's Prime Minister Mahathir Mohamad and his Singaporean counterpart, Goh Chok Tong.

A spokesman for Singapore's foreign ministry said that the Malaysians "have insisted on starting the negotiations from scratch and made many demands."

On top of fresh tensions over water, an increasing threat to bilateral relations involves the concerns of about 172,000 Singaporean investors over their frozen shares in Central Limit Order Book (CLOB) - a market for Malaysian shares in Singapore.

When Kuala Lumpur ordered the de-listing of Malaysian blue chip stocks from Singapore's stock exchange in the early 1990s, trading in the shares of 112 Malaysian companies was shifted to the CLOB market.

However, trading on CLOB was suspended when Malaysia imposed capital controls in September 1998 in order to prevent capital flight at the height of the Asian financial crisis. This left distraught investors in Singapore to wonder whether they will be able to recover investments worth almost $4 billion.

Efforts to resolve the CLOB issue have been stepped up over the last two months, with four offers by the Kuala Lumpur Stock Exchange (KLSE). But no breakthrough has been reached, as the Stock Exchange of Singapore (SES) is not satisfied with the solutions offered by the Malaysians.

From the Singaporeans' viewpoint, all the plans to facilitate a resumption of trading in the CLOB shares on KLSE entailed huge discounts on the underlying value of the shares or restrictions on trading.

The latest offer in July by two Malaysian firms to exchange shares from their own companies for CLOB shares failed to placate investors, as their shares would suffer a discount of 42 percent and cannot be cashed for five years.

Singapore's stock exchange proposed that the shares of CLOB investors be transferred into individual accounts with Malaysian brokers, which would be subjected to selling restrictions.

This failed to break the impasse, as Malaysia feared that a sudden rash of selling might devalue the buoyant stock market.

Some analysts think that irate investors might compel the Singapore government to exert pressure upon its Malaysian counterpart to expedite a fair solution to the CLOB issue, which was not included for discussion in the package of bilateral issues that was decided upon at Hanoi.

This might set the scene for a further slide in ties, as Malaysia's deputy premier Abdullah Ahmad Badawi had ruled out a political initiative to resolve the dispute in June.

In other words, Singapore-Malaysia ties will remain rocky for some time, as the knotty issues over water, territory and shares continue to generate frustration in the two countries.

Singapore's Goh tries to be optimistic, but he also said: "I think it may be another 12 months for us to come to the end point of negotiations."

(Inter Press Service)

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©1999 Asia Times Online Co., Ltd.

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