270. National Intelligence Estimate1

NIE 54/59–65



With the separation of Singapore and Malaysia, the political arrangements between them and with the UK have become much more fluid and the entire area is more unstable now than at any time in the past decade. Singapore is more exposed than before; Malaysia is less certain of the loyalty of its Borneo components; and the UK is less convinced of the value of retaining its military commitment in both Singapore and Malaysia. Internally, the communal rivalries which the Malaysian federation was designed to lessen continue unabated and offer encouragement to disruptive forces from both Communist China and Indonesia. (Para. 29)
Over the next two years, Singapore’s withdrawal from the Malaysian federation is unlikely to alter the basic political power structure [Page 593]within Singapore or Malaysia. Although periodic flareups with the central government in Kuala Lumpur are likely, Sabah and Sarawak will probably remain within Malaysia but will demand gradually increasing autonomy. (Paras. 4–8, 14–19)
Political relations between the two countries will be clouded by strong antagonism between their leaders and by mutual suspicions between Malays and ethnic Chinese. These circumstances, as much as practical considerations of national self-interest, will determine the degree of cooperation in economic as well as political affairs. The Malaysian economy is likely to be adversely affected by the loss of Singapore revenues, and Singapore faces a problem of finding new markets. (Paras. 9–19)
Both Malaysia and Singapore are headed toward a nonalignment which would include increased trade with Communist countries and a more active role among the Afro-Asians. Singapore, particularly, is likely to remain critical of US foreign policy. (Paras. 25–28)
Recent events in Indonesia offer little prospect of early settlement of Confrontation, though military activity is likely to remain at about its current low level. The British would like to reduce their military investment, but will probably continue a substantial commitment in the area for at least the next two or three years. (Paras. 20–24)


I. The Separation

On 9 August 1965, under pressure from the Malaysian Government, Singapore announced its separation from the two-year-old federation.2 The union foundered primarily because of a political power struggle, rooted in racial antagonisms, between Malays in Malaya who were determined to preserve their domination of the central government, and ethnic Chinese of Singapore who sought to extend their influence into the Malayan peninsula. Their Prime Ministers—Malaysia’s Tunku Abdul Rahman and Singapore’s Lee Kuan Yew—could not resolve their fundamentally differing views on exactly what Malaysia should become. Singapore’s People’s Action Party (PAP) under Lee sought a noncommunal nation, arguing that the constitutional privileges of the Malays should be progressively curtailed. Kuala Lumpur’s leadership advocated a much more gradual change, maintaining that the Malays must be protected and assisted until they were able [Page 594]to hold their own in competition with the Chinese. Bringing the subject of Malay privilege into question at all, especially in public, aroused most Malay leaders.
Superimposed on this chronic racial problem were personal and economic frictions which forced the issue. There exist strong personal animosities between the Tunku and Lee, and Lee’s personal ambitions clashed sharply with those of a number of other central government leaders, including conservative Chinese as well as nationalist Malays. Mutual suspicions exacerbated disagreements between the two governments concerning issues of finance, trade, and industrial development.
The terms of the separation agreement are vague and only a few technical questions are resolved. For the most part, the agreement merely states good intentions, e.g., there is a broad promise of economic cooperation. The most important provisions are: (a) all treaties, agreements, and conventions between Malaysia and other countries that pertain to Singapore remain in effect; (b) each country agrees not to enter into treaties with foreign countries that would be detrimental to the independence and defense of the other; (c) the UK and Malaysia will continue to maintain bases and military facilities in Singapore. Thus, because a great deal of interdependence is to continue, much depends on the good will and common sense of the two governments.

II. Immediate Impact

The separation of Singapore did not end the contest for power between Kuala Lumpur and Singapore. At least temporarily, it reduced the ability of the principal political parties in each country to encroach upon the political arena of the other. But public acrimony between Lee and the Tunku, which was renewed in mid-September, and Lee’s plan to resume limited barter trade with Indonesia in the face of very strong opposition from Malaysia have raised tensions once more.
Despite the unexpected shock of separation, there was no disorder in either Singapore or Malaysia. The Singapore Government acted promptly to take over responsibilities formerly handled by the federal government, and quickly demonstrated that, at least for the present, its own police could cope with local problems of law and order. In fact, communal tensions were actually eased. Singapore’s Malay population, only 14 percent of the total, was somewhat deflated and a few felt deserted by Kuala Lumpur, but there was no exodus from the island. The local Chinese business community was gratified by the prospect of an end to federal taxes and of reopening profitable commercial relations with Indonesia.
We see no immediate political threat to the governing People’s Action Party either from internal dissension or from the opposition. There may be some shifts in the cabinet and changes in the PAP’s [Page 595]central executive committee. It is even possible that Lee might resign or be forced out by his colleagues. Nevertheless, in our view, such changes would not seriously weaken the basic solidarity within the PAP. Singapore’s present stability in part reflects leftist weakness following a steady government effort during the last two years to reduce Communist influence in the labor movement, student organizations, and the Barisan Sosialis Party (BSP). The PAP’s extensive experience in handling the Communist threat in Singapore and the demonstrated effectiveness of the government’s internal security apparatus are almost certainly sufficient to handle any threat to public order likely to occur in the short term.
Malaysian political stability also appears little affected by the break. Prime Minister Abdul Rahman’s Alliance party,3 which has governed in Kuala Lumpur for nearly a decade, is not seriously challenged at present, although some of its Malay and Chinese elements criticized the separation of Singapore. Several opposition parties have joined the Malaysian Solidarity Conference, set up earlier this year as a coalition to oppose the Alliance and to work for a noncommunal Malaysia. Since the separation, they have attempted to embarrass the Kuala Lumpur government by asserting that it is suppressing opposition and stifling the voices of non-Malays. But this charge implies a degree of democracy which in fact has never existed in Malaya and is made by inherently weak political parties that have always operated near the edge of suppression. Moreover, Kuala Lumpur inherited from the British a colonial tradition of stern treatment for acts of sedition and a highly developed internal security system which serves to inhibit political opposition.
Political leaders in both Sabah and Sarawak were angered that the Kuala Lumpur government failed to consult with them before engineering the separation of Singapore. For a week or so, there were demands for plebiscites to determine the future status of these states, and considerable uncertainty whether one or both would opt to follow Singapore’s example. However, their total inability to defend themselves and Sarawak’s poor economic position forced most leaders of the two states to realize that, at least for the time being, they would be wiser to remain in Malaysia.

III. Problems and Prospects

  • A. Economic
    Separation has so far caused virtually no disruption to either economy because only loose economic ties had been created in the [Page 596]federation. Some harmonization of taxes took place but, outside the field of finance, there was very little cooperation or coordination on economic policies during the two-year life of the union. In particular, a common market—which had been a precondition of Singapore’s entry into Malaysia—was not created, and no effective steps had been taken to coordinate industrial policy or economic planning. In fact, additional barriers to internal trade in manufactured goods were erected during 1964–1965 to protect local manufacturing interests.
    Singapore. Entrepot trade and manufacturing are the bases of Singapore’s economy, with the British military establishment fulfilling important economic functions as both employer and consumer.4 Increased economic growth is necessary to maintain employment and to finance the welfare measures that provide the basis of the PAP’s popular support. Although Singapore has been relatively successful in stimulating the growth of domestic industry, a market larger than Singapore’s population of under two million must be found. There is little prospect for expanding entrepot trade; neighboring countries are increasingly establishing direct trade links for their primary products and are developing their own industries to replace imports. Singapore could develop along the lines of Hong Kong—once primarily an entrepot, now a manufacturing center—but Singapore’s pattern of labor-intensive industrialization, which has been directed at local, Malaysian, and Indonesian markets, would have to be redirected toward world markets. In some degree Singapore will compete with Hong Kong, but lacks its advantages as an established world supplier and as a financial and trading conduit for Communist China.
    Malaysia. The federal government in Kuala Lumpur has lost a potentially important source of revenue. During 1964, Singapore made a net contribution to the federal government of about $13 million, and was expected to contribute a larger amount in 1965. While there is no question of Malaysia’s economic viability over the next several years, the country’s ambitious economic development plans will almost certainly have to be revised downward. Already defense appropriations incurred because of Indonesia’s Confrontation campaign have forced some reductions in expenditures for public development. Malaysia’s major economic weakness continues to be its heavy dependence on the export of a few basic commodities. The price of rubber has been declining for several years. The prospects for continuing high prices for Malaysia’s exports of tin, iron ore, and timber are good, but the [Page 597]maintenance of current levels of production will require substantial new exploration and investment.
    Prospects. Both countries have achieved considerable economic growth, but further growth will require increased capital investment, domestic and foreign. Economic assistance for development will almost certainly continue to be provided by international organizations (e.g., IBRD), but foreign investors will be reluctant to risk their capital until the political situation is clarified. Competition between Malaysia and Singapore for foreign investment capital will almost certainly intensify. Malaysia’s need for Singapore’s port facilities and Singapore’s need for Malaysia’s markets are factors favoring some degree of economic cooperation. However, we believe that for the next year or two, the degree of economic cooperation between Singapore and Malaysia will be determined for the most part by their political relations. The major threats to this cooperation lie in the personal antagonisms between their top leaders and the PAP’s intention to continue its political activity in Malaysia. Probably the easiest and most effective way for Malaysia to retaliate against Singapore would be to apply economic sanctions.
    The Singapore Government and local merchants will try to expand their exports to as many markets as possible. The merchants of Singapore regard Communist China and Indonesia as offering important opportunities. In fact, however, the possibilities for a significant increase of exports to China in the short run are limited and, though barter trade with Indonesia will probably be resumed, it is unlikely that it will approach pre-Confrontation levels of trade.
  • B. Political
    Relations between the present governments of Singapore and Malaysia are unlikely to improve in the next two or three years. We foresee periods of high tension with acrimonious exchanges, though neither side is likely deliberately to foment disorder in the other’s territory. As long as the present leaders remain, we see no abatement of personality clashes. The Tunku seems intent on trying to isolate Lee from his colleagues, while Lee is convinced that moderate forces in Kuala Lumpur are already in disarray and that Malaysia is seeking to strangle Singapore economically. He further fears that an end to Confrontation might lead to a British military withdrawal from the area. In Lee’s view, this would remove the major moderating influence on the Malaysian government and raise the spectre of resurgent anti-Chinese, pan-Malay sentiment in both Malaysia and Indonesia.
    Singapore. Lee and the PAP are unlikely to change their non-Communist orientation. There is no non-Communist alternative to the PAP in Singapore now and none is likely to develop in the next two or three years. The pro-Communist BSP is the only other large, well [Page 598]organized, and well financed party, and would profit if Lee finds it impossible to meet the basic economic and political needs of the Singapore people. Lee’s heavy reliance on the British bases poses a serious dilemma for him: it exposes him to criticism among Afro-Asian countries as a colonialist stooge, yet the bases are essential to Singapore’s defense and make a vital contribution to its economy. Although an occasional demonstration against the bases cannot be ruled out, the BSP and the leftist unions will probably not choose to press the issue because of popular recognition that the bases are important to the working people of Singapore.
    Malaysia. The ruling Alliance party is not seriously challenged by any political opponent; its principal problem lies in the growing divisions within its own ranks. Since separation, the Tunku has castigated some of the more extreme Malay leaders for exploiting racial issues and has curtailed their power. However, many remain in positions of influence. Over the past two years, younger Malay and Chinese elements in the Alliance have gradually increased their political power and begun to challenge the older, conservative leadership more openly.
    This challenge is not yet such as to threaten the Tunku’s position should he choose to retain power. We believe that the jockeying and maneuvering in the Alliance will continue and that, as a consequence, the Tunku is likely to resign within the next year or so, probably on grounds of ill health. If he leaves the political scene, there appears to be no one else with the necessary stature to cope with the communal issue. His heir-apparent, Deputy Prime Minister Razak, in attempting to consolidate his political and governmental power, would probably cater to pan-Malay and extremist views. In any event, during a period of political transition in Kuala Lumpur, compromise and cooperation with Singapore would be even less likely.
    In Sarawak and Sabah, local leaders believe that Singapore’s separation has strengthened their positions vis-à-vis the central government, and indeed, top Malaysian officials have felt obliged to give them renewed assurances on defense and developmental aid. Attitudes toward Kuala Lumpur will also be affected by the complex political maneuverings within Sarawak and Sabah, where the strength of parties sympathetic to the Alliance is not so overwhelming as in Malaya itself. In Sabah, an important element of the Alliance periodically comes close to the point of breaking away to form an opposition party. In Sarawak, the moderate Chinese left is strongly sympathetic to the PAP and has many close ties with Singapore. In addition, Sarawak has a strong Chinese pro-Communist dissident movement with the potential to challenge government control over large areas should the Commonwealth withdraw its troops.
    The future of the Borneo states in Malaysia is highly uncertain. There will probably be periodic flareups of irritation at the Kuala Lumpur government over what Borneo leaders consider its highhanded manner and discrimination against non-Muslims. There is always the possibility that Sarawak or Sabah might decide to withdraw from Malaysia and seek either independence or some type of union with Singapore or neighboring Brunei. On balance, however, we believe that both states will remain within Malaysia, at least for the next year or two, but will demand greater autonomy.
  • C. Foreign Policy
    Confrontation. The recent dramatic events in Indonesia—the attempted coup of 30 September and its aftermath—will almost certainly not result in an early settlement of Djakarta’s campaign against Malaysia. The anti-Communist military leaders now vying with Sukarno for control of Indonesia are highly nationalistic and interested in expanding Indonesian hegemony. Nevertheless, they are less personally committed to Confrontation than Sukarno and, at least temporarily, much more concerned with ensuring the internal political and economic health of Indonesia than with foreign adventures. Under these conditions, it is unlikely that Indonesia will raise the level of military activity beyond present small unit actions in Borneo and occasional subversive missions in Malaya itself. Such action would enable the Indonesian military to maintain its nationalistic, anti-imperialistic posture before the Indonesian public.
    The mere possibility of an end to Confrontation disturbs Lee and other PAP officials. They are concerned that, in the long run, the Malay fear of the Chinese in Malaysia and Singapore will draw Malaysia and Indonesia closer together. They believe that the Malay leaders of Kuala Lumpur are less apprehensive of eventual domination by Indonesia than of political submersion by the Chinese.
    The British Presence. The British consider that the separation of Singapore from Malaysia presented them with a variety of problems: a possible threat to the retention of their military facilities in the area; the possible political unreliability of a neutralist-leaning Singapore; and the economic and political weaknesses of Sarawak and Sabah. Separation also intensified Britain’s reexamination of its entire military position in Southeast Asia, an important element in the UK Defense Review already underway. Since Confrontation started, the UK has increased its forces in the area from about 42,000 to approximately 56,000. Britain’s military outlays in Malaysia and Singapore (including the Far East Fleet) are now running at an estimated $900 million a year and constitute by far the largest portion of the UK’s East-of-Suez defense budget.
    The British must be looking hopefully toward the possibility of a negotiated settlement of Confrontation as an opportunity to reduce their overseas commitments. London also feels that Australia and New Zealand could make a greater contribution to the defense of the area. We believe, however, that for many years to come, Australia and New Zealand will be unable to bear more than a fraction of the military burden in this area and that meanwhile, Malaysia and Singapore will remain almost completely dependent on British military support. The British will probably continue their military commitment in this area for at least the next two or three years.
    The armed forces of Malaysia are probably capable of maintaining internal security within Malaya but not in the Borneo states, and lack the strength necessary to counter significant external aggression. As long as the Commonwealth military presence remains, Malaysia is unlikely significantly to increase its forces much beyond the moderate expansion of the air force and navy already scheduled. It may, however, activate a fourth army brigade to replace the Singapore brigade presently attached to the Malaysian Army in Sarawak. The Singapore Government will probably bring this latter brigade home and make additional modest increases in its ground forces. Singapore may also develop a small naval force for policing its territorial waters.
    The Communist Powers. So far, neither Communist China nor the USSR has made any political capital out of Singapore’s separation from Malaysia. Neither country had established diplomatic relations with Malaysia; neither has yet recognized Singapore. Both will regard their relations with Indonesia as more important than their relations with either Malaysia or Singapore. Communist China probably does not as yet see much opportunity for a new approach to Malaysia and, accordingly, is likely to give more attention to Singapore. Peking might offer economic assistance and diplomatic recognition to Singapore, hoping to persuade Lee to adopt a more friendly attitude and to work toward the elimination of British bases. Publicly the Soviet Union interpreted Singapore’s secession as a death-blow to Malaysia and a triumph for Indonesia against British imperialism. Moscow may have doubts concerning Singapore’s viability as an independent state, but will probably seek to establish friendly relations with it in order to counteract Chinese influence in Southeast Asia.
    For their part, Malaysia and Singapore have taken the initiative of indicating to the Soviet Union and Yugoslavia that they would welcome trade missions and news agency representatives in their respective countries. Diplomatic relations are likely to be established in due course. Malaysia is determined to have no relations with Communist China at present; it has consular relations with the Republic of China and appears to be moving gradually towards a closer relationship. [Page 601]The present Singapore Government greatly fears the possibility of Chinese Communist influence on its large Chinese population, but is aware of the desires of its Chinese business community to expand exports to the Chinese mainland whenever possible. It will, therefore, move cautiously in the direction of some formal relationship with Communist China. It will welcome a Soviet presence, hoping that this would offset Communist China’s influence and split the loyalties of local Communists and leftwing groups.
    Implications for the US. Both Malaysia and Singapore have become increasingly sensitive in their relations with the US and publicly more critical of US foreign policy: Malaysia has criticized the US for its assistance to Indonesia; Singapore resents what it regards as a demonstrated US preference for Malaysia. Both feel that, because they are non-Communist states, they deserve greater US assistance than they have received. In general, both countries are headed in the same direction with regard to their foreign policies: toward closer relations with nonaligned and Communist countries. However, Malaysia will almost certainly continue to give diplomatic support to US military initiatives in Southeast Asia, if only to ensure US military assistance for itself in a time of real need.
    Singapore’s recent relations with the US have been affected to a very high degree by Lee’s personal and highly emotional antipathy to the US. Lee appears convinced that the US distrusts all Chinese and is hostile to nonaligned countries. He apparently believes that, in any showdown between Singapore and Kuala Lumpur, the US (unlike the UK) would side with the latter. Lee is determined that the British maintain their military presence in Singapore and is particularly concerned lest they be replaced by the US. In his view, this would provoke Communist China’s antagonism and make Singapore a pawn in the power struggle in the Far East. Because of Lee’s emotionalism and the desire of Singapore’s leaders to be accepted among nonaligned nations, we foresee a period of strained Singapore-US relations and expect periodic public outbursts of anti-Americanism from Lee.
    As a consequence of the increased fluidity of the political arrangements between Singapore, Malaysia, and the UK, the entire area is more unstable now than at any time in the past decade. Singapore is more exposed than before to the influence of Peking; Malaysia is less certain of the loyalty of its Borneo components; and the UK is less convinced of the value of retaining its military commitment in both Singapore and Malaysia. Internally, the communal rivalries which the Malaysian federation was designed to lessen continue unabated and offer encouragement to disruptive forces from both Communist China and Indonesia. Emotional factors, rather than considerations of national self-interest, are likely to play a crucial role in the decisions of leaders [Page 602]of both Malaysia and Singapore. In these circumstances, the Singapore-Malaysia area is likely to pose greater problems for the US than ever before.
  1. Source: Department of State, INR/EAP Files: Lot 90 D 165, NIE 54/59–65. Secret. This estimate was prepared by the Central Intelligence Agency and the intelligence organizations of the Departments of State and Defense, and the NSA. All members of the U.S. Intelligence Board concurred with its submission on December 16 with the exception of the representatives of the AEC and FBI who abstained on the grounds that the subject was outside their jurisdiction. A 2-page map of Malaysia and Singapore is not reproduced. In a December 15 memorandum to Hughes, Director of Research for the Far East Allen S. Whiting wrote that this NIE was requested by the White House and that, “we are not enthusiastic about this estimate, largely because the predominance of emotional factors in the decision making process in this area makes predictions difficult and uncertain.” Nevertheless, Whiting recommended that the estimate be approved. (Ibid.)
  2. Malaysia came into being on 16 September 1963 and consisted of the former Federation of Malaya, the semiautonomous state of Singapore, and two of the three former British dependencies of northern Borneo—the crown colonies of Sabah and Sarawak. The third of the northern Borneo dependencies, the protectorate of Brunei, chose not to join the new federation. [Footnote in the source text.]
  3. A conservative coalition of Malay, Chinese, and Indian parties. [Footnote in the source text.]
  4. Singapore’s GNP currently stands at approximately US $450 per capita, one of the highest in Asia. Entrepot trade and related activities account for 20–30 percent of GNP, industrial production for about 14 percent, and the British military establishment for 20–25 percent. [Footnote in the source text.]