THE FEDERATION OF MALAYA NIE 64-58

Created: 1/14/1958

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48

NATIONAL INTELLIGENCE ESTIMATE

(Supersedes)

THE FEDERATION OF

Submitted tjy the in;:i. VOH OP CPNXWAL lWTBIAIGKNCG

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ononcurring uwre the Director of inteta-otnee end Racaich, Dec<"tol State; tht Asastaat Chief of Stag, intelligence, Vcpvtmtnt ot the Armv; the Dl'ttor of tfawl tr.Mt'gciux; the Assistant Chief ol Sfoff. IntcUU eence, VSAF; and the Depntv Director for iLttUiaence. TJic Joint Stofl. The Atomic Knnov cotnaivlon iteprtsmtattm to tht IAC end the Assistant Director, Federal Bureau of hi:icbitaiied. tht subitet Veiny outride ol their jurisdiction.

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CONTENTS

THE

SUMMARY AND

THE

8TABILITY AND

ANNEX A: THE POLITICAL

Communal

D PohUcal

ANNEX B: THE SECURITY

A Communist

Federation Sorority

Anglo-Malayan Defense

ANNEX C: THE ECONOMIC

ANNEX D: THE SITUATION IN SINGAPORE

7 FTBFT

THE FEDERATION OF MALAYA

THE PROBLEM

To estimate the prospects for the politicai stability, economic viability, andsecurity of the Federation of Malaya, and its probable internationalover the next few years, and to estimate probable trends in Federation-Singapore relations.

SUMMARY AND CONCLUSIONS

Federation of Malaya, unlike most other former colonial states in Southeast Asia, began independence with little ill-feeling for its former ruler andenerally capable government. Theof the new notion arc faced, however, with the task of welding the indigenous Malays and the alien and un assimilated Chinese and Indiansnifiedcommunity. Meanwhile,and rivalries between the Malay and Chinese groups, almost equal in size, will be increasingly difficult to hold in check.

Despite growing difficulties, the1 parties will probably continue their coalition through the national elections, now scheduled fornder the guidance of Prime Minister Rahman,lliance will probably be returned to

The Allianceoalition of tbe three main racial parties, the United Malay Nationaltbe Malayan Chinese Association, and Ihe Malayan Indian Ooncres*.

office butonsiderably reduced majority. Over the longer run,communal tensions axe likely to lead to the disintegration of tho present racial coalition and to political turmoil.

The Federation will probably continue Its policy of curtailing Its ties withdespite certain consequent economic sacrifices, and there is little prospectederation-Singapore merger in the foreseeable future.

ajor break in therubber and tin markets upon which the Federation's economic well-beingthe outlook is for general econornic stability and for some progress under the government's financial reform anddevelopment programs. However, the high rate of population growth and popular expectations of higher living standards under an independentwill place heavy demands on the economy and aggravate any economic setback.

he Communist guerrillas are noerious military threat tosecurity. Although we do notthe government will accept terras which would permit tlie Communists to operateegal party, some basis may be found to negotiate an end to thearmed resistance before9 elections. Tho Malayan Communist Party will probably continue to shiftaway from armed insurrection and towardnited front, and will probably be able to capitalize on Malay-Chinese tensions and to operate witheffectiveness among youth groups and organized labor.

he Federation's still evolving foreign policy is at present oriented toward the FreeWorkL Itember of theCommonwealth and the sterling area and retains close economic and security ties with the UK. This orientation will probably continue over the next few years, but the presently discernibletrend will probably increase. It is unlikely that the Federation will join SEATO or recognize either Communist China or Nationalist China. However, an end to tho Communist armedwould probably increase domestic pressures for neutralism andloser relationship with Communist China.

THE OUTLOOK

The Fcdeiatlon of Malaya' began indc-rx-ndenceoderately conservative, pro-Western governmentelatively sound economy, fkneath the appearance of internal stability, however. Malays'* populationillion is sharply divided Intojnd Indian (II percent) racial communities, separated byin culture, religion, and language. Tbe size and economic power of the unassimi-lated Ciuneae community accentuates the long-standing conflict of political andinterests between the Chinese and the Indigenous Malaya and complicates the new nation's task of attempting to weld the racial groupsnified national community.

'The PrdnoUon of Malayah* Malayof Juhore, KMah, Krlantan.- Perak,eot. and Tienaaana. and lOc former Siralu SettlroienU of Pcnanc, and Malacca Singapore, etdcha Crowntteoued In Annce D.

'The word llatey refer* thioacftowt UUa paper to elhnk creep. Tbe weedn-cluON ill permanent mtdent* of Malnyn.

Chinese.or Slalay.

Seeoller disc union of UwpoliUcnl situation.

A. POLITICAL STABILITY *

Stimulatedommon desire forthe three main racial partiee, the United Malay National Organisation, theChinese Association, and tho Malayan Indian Congress,1oalition known as the Alliance. Under the astute leadership of Tengku Abdul Rahman, the present Prime Minister, the leaders of these partiesorapr anise regarding the Federation's constitution, which providesprivilegesavored political position tor the Malays, but which, at the same time, protects the Chinese and Indians fromdiscrimination. The three Alliance parties have continued to work togetherndependEnce, but with increasing difficulties.

Tho United Malay National Organization, led by Rahman, is the largest and bestpolitical party In tbe Alliance andthe government. It has supported Rahman's approach e* moderation and of compromise toward the Chinese and Indian communities becaese it realized that British willingness to grant independence depended Inemonstration that the racial groups could work together. Party members

have been willing to acquiesce in concessions to other racial groups so long as the dominant political position ot the Malays in thelion was preserved. Since independence, however, some groups have emerged,among the youth, whichore extreme "Malaya for the Malays" point of view and oppose concessions to the Chinese and Indian communitiesetrayal of the national heritage and birthright of theThese ultra-national 1st trends place an increasing pressure upon the party leaders tor strong support of Malay privileges and may lead to some splintering and to anin the strength of the now small Malay opposition parties.

The Malayan Chinese Association is ledroup of Chinese businessmen whoarge economic stake In the country and have an interest in the developmentalayan nation. They have been willing to cooperate with the United Malay National Organization largely because they hoped to preserve their economic position and prevent excessive discrimination against the Chinese. As the major source of Alliance funds, they have been able to exercise considerableover Alliance decisions. The willingness of the Association's leaders to cooperate with the Malays could not be effectively challenged because there has been no other organized national Chinese political group (except the outlawed Malayan Communist Party,to beercent Chinese).because of the Association's closewith the United Malay Nationaland its acquiescence in apolitical role for the Chinese, It does notroad base of support within thecommunity. In particular, Chinese youth have not been attracted to theYoung Chinese, lute most of theirare opposed to assimilation and to any effort to break down their cultural integrity or feeling of kinship with mainland China. These circvinstances are conducive tohinese political opposition.

The Malayan Indian Congress lias little Influence over political developments In the Federation It will probably remainweak and unimportant because of the relatively small number of Indians In Malaya and its lack ol financial resources.

The trends toward political disunity in Malaya have not yet gained sufficientto endanger the Alliance. In the first national elections scheduled forost of the Malays, who represent amajority of the electorate, will probably conUnut to support the United MalayOrganization. Under Rahman's lead-crsiUp, it will almost certainly retain aposition In the Alliance anderious economic crisis, wc believe the Alliance will winlthough Its present overwhelmingmajority will almost certainly be reduced. Tho more important opposition forces will probably be generally leftist In orientation and adopt extremist Malay and Chinese positions on communal issues.

Despite the success of the Alliance In reaching an accommodation between thoand Chinese, the underlying tensions will continue toasic source of politicalThese tensions, arising out of tho suspicious which have developed among racial groups through years of community andexcJuslvcneas, now center on theof which group will ultimately dominate the Federation. In an effort to reduce these tensions, the government hasritlsh-inlUatcd program intended tothe re-direction of Chinese loyalties towards Malaya andommon sense of national loyalty. This program includes Increased Chinese participation in politicaland in the civil service.of this program has run up against strong Chinese resistance to assboilaUon and requires continual adjustments among the racial communities In such matters as land use, commercial privileges, and civil rights. Tlie most sensitive aspect of the program is toe governments effort to bring tlie separate Chinese schools undor Federation supervision. This effort has already caused Alliance losses in local government elections in urban areas ond hasew riots and

the longer run, presentpointuture of politicalin the Federation. The mutualand conflicts of interest betweenand Chinese communities willforce tho United Malay Nationaland the Malayan Chineseadopt increasingly extreme positions inuf the interests of their ownA strong left-wing Chineseparty will probably develop, andwith their political position willthe susceptibility of the Chineseto Communist activity. TheNational Organization willstrength to ullranationalist Malayin lime, this organization may splitcompeting parties. Thii could leadend of the Alliance as an effectiveandhinese partyto wield tbe balance of powerweak coalition government.

B. INTERNAL SECURITY'

Primarily as the resultajor. British effort over the past five years, the Communist guerrillas have been reduced tond are now mostly located In remote Jungle areas. Although theyapability for raids and terrorism they do noterious military threat in view of the combined strength of the Federation security forces and of the Commonwealth troops available under the terms of the Anglo-Malayan Defense Agreement

We estinate that the Illegal Malayan Communist Party numbers. Party leaders have been unwilling to accept thegovernment's terms ol surrender and arc endeavoring to conserve their armed strength in hopes that they can negotiate terms hi the future which will permit them to engage in united front activities andsubversion. There are pressures on both sides loettlement From thepoint of view, Ihe morals of theforces la deteriorating, und continuation of tlie jungle war offcis little hope of gaining its objective and prolongs, the presence Of Commonwealth troops in Malaya. On the other hand, the Federation government ispressure to end the restrictive regulations Imposed to further tltc war effort and toon communal problems anddevelopment. The Federationwin probably progressively reduce these restrictive regulations. Although we do not believe the .government will accept terms which would permit the Communistsegal party, some basis may be found for negotiating an end to the Communist armed resistance before9 elections.

or not there is anthe Malayan Communist Party tojungle war, the Federationhave to cope with increasingparticularly In the laborand in tlie Chinese middle schools.the Communists will be able tocontinuing racial tension In thoand the growing prestige ofamong many Malayan Ciilncse.of Communist strength infurther increase the Federation'swith subversion. These factors.rowth hi Malaysentiments and in Chinesewith the Malayan Chineselead to tbe formation of newgroups with strongerHowever, we believe thesupported by the British, willable over the next few years to preventfrom endangering the positiongovernment

C FEDERATION-SINGAPORE RELATIONS*

leaders are opposed towith Singapore and are in factto reduce ties with the Colony.erger because the additionChinese population to that olv ould moke the Chinese amajority. Moreover, they believe thatfor internal security and for substan-

Seeuller discussion ot thesecurity situation and of Ute Anglo-Ma-tayan nufenso Agreement-

n Slncapui*.

Discussion of ihe Situation

%

reducing Communist activity andin Singapore Is poor, and therefore believe that merger would greatly increase their own problems. Given these conditions, it is almost certain that merger will not take place so longalay-dominatedis in power in the Federation.

D. ECONOMIC STABILITY AND PROGRESS1

The Federation began its Independence under favorable economic conditions.its prosperity depends almost entirely upon prevailing world prices of its two basic resources, rubber and tin. At present. Its economy is healthy and growing; its trade position is favorable, and its currency is sound. The Federation will probably remain within the sterling area and continue toajor contributor to tlie area's dollar pool. The economy can probably withstand short term declines in rubber and tin prices,ajor and prolonged decline of these prices would create severe economic problems.

Consistent with their attitude toward the proposed merger with Singapore, Federation leaders haveolicy of curtailing economic ties with the Colony. This ravolves the establishment; by the Federation of acurrency and central bank, and theof its own commercial, financial, and port facilities. While designed to developmore responsive toeeds of theeconomy, the government's policy also wfll entail some financial risks, reduce tho efficiency of commercial transactions, andthe expenditure of private and public funds to build new faculties. It will place heavy demands on the Federation's limited number of trainedroblem whichbe reduced to the extent theIs will'ng to enlist expert assistance from Western countries.

The high rate of population growth, now slightly over three percent per year, places severe demands on the economy forexpansion. In addition, thewill probably face the problem, common

In most newly independent nations, ofpublic expectations for Improved living conditions. To meet these problems, as well as to cushion the Federation's dependence on tin and rubber, the government hasomprehensive and realistic plan fordevelopment and diversification. The plan calls for the expenditure of6heeconomy will probably make someover tlie next few years, but will be hard put to keep economic expansion ahead ofgrowth.

E. INTERNATIONAt ORIENTATION

The Federation has retained close links with the UK by remaining within theand the sterling area, by the Anglo-Malayan Defense Agreementy trade, and by financial agreements which provide for substantial amounts of British economic aid. British nationals occupy about one-third of the principal governmental posts, and most ot the Federation's future foreign service officers arc now being trained by theand the British. The government'spolicy, although stUl in process ofIs oriented generally toward the Free World. This orientation will probablyat least until9 parliamentary elections. However, opposition to continuing close ties with the Weal is represented both by Malay groupsloser relationship with the Afro-Asian countries and by Chinese groups supporting closer ties with tho Slnc-Soviet Bloc. These groups will exercisepressure upon the government'spolicy.

The Federation, admitted to the UNafter independence, has extended recognition to practically all UN members with the major exception of Nationalist China. It has withheld recognition of Communist states not in the UN, Including Communist China. The Federation government probably will not recognize Nationalist China orChina within the next few yearssuch recognition would create additlon-

uller dtecusdon of the*haatlon.

paragraphfor deUlU of

ankwassainaV

o) difficulties lot the Federation government among the Malayan Chinese. However,that the largo Chinese community looks to the mainland as its cultural home, the Federation leaders will becomeconcerned over growing internalfor the recognition ol Communist China. In addition, the Federation's heavyon rubber exports oiTeis an opportunity for Sine-Soviet Bloc economic penetration.

he Federation's policies towardcountries arc not yet fully defined. The Malays and tho Indonesians arc of the same racial, linguistic, cultural, and religious background. Therereat deal ofrapport between the Malays and Uie peoples of Sumatra. Although Malaya and Indonesia have remained on generally friendly terms. Federation leaders have displayedconcern over the poll Ileal situation in Indonesia because they fear that continued Communist advances could result in serious political and economic repercussions InWith Thailand, the problem of closing the Thai border to the Malayan Communist

Party guerrillas has caused some difficulty, but relations have remained generallyThere are important economic liesthe two countries, and Thailandaboutercent of the Federation'slice requirements.

here is among some elements of thea tendency toolicy ofsuch as espoused by India and Burma. These elements believe that the Federation should rely on the UN rather tlian the Anglo-Malayan Defense Agreement for protection, should ally Itself with the Afro-Asianand thereby avoid being drawn into the cold war. In particular, there is considerable opposition in the local press and amongof ail parties to joining SEATO. The Federation leaders probably feel that they have secured all the practical advantages of SEATO membership by means of the Anglo-Malayan Defense Agreement and willtake no action on SEATO membership in the foreseeable future. Tendencies toward neutralism are not yet prevalent, but they will probably increase in the future.

HE POUTICAl SITUATION

The Communal Problem

The Federation of Malayaopulation olillion, divided approximatelyillionillion Chinese,housand Indians. These three ethnic groups maintain their separate cultural,and linguistic identities, and theand Indian communities have strongly resisted assimilation. The existence of these three racial groups, each with its ownand economic interests built upthe colonial administration, tends tothe political life of tho Federation. This communal problemasic factor in the Federation's constitution, its government, its economy, and its political party system.

The Malays generally lack the skills and ambitions of the other racial groups. Most of them are Moslems, living In rural areas and occupied with farming and fishing. Many have small rubber holdings. Under British rule, the Malays were protected against the more energetic Chinese. They werereferred status in government service, In civil and political rights, ond in land ownership. Their schools were supported by theand,Stiacns, they had certain rights denied to others. Educated and ambitious Malays have generally entered government service or politics rather than attempt towith the Chinese and British in thesphere.

The Chinese In the Federation have tended to avoid political activity and have beento concentrate on commercial activities. As In other Southeast Asian countries, the Malayan Chinese have gravitated to the urban centers and have come to dominate important segments of the Federation economy,commerce, foreign trade, tin irunfng, and rubber processing. With the less numerous Indians, the Chinese provide most of theskilled and semi-skilled labor.half the Malayan Chinese were born in China and most of the others attendedschools in Malaya. They are generally oriented toward the Chinese mainland and have maintained separatencss by clinging to their Chinese culture and their closed society. Prior to independence,mall number of Chinese eligible for citizenship took ad-vantage of that right. Most were satisfied to forego political rights so long as the British were present to protect them against economic discrimination.

The Indian community, like the Chinese, was attracted to Malaya by economicafforded by the British development of the country and by the protection of the British colonial administration. Most of them are low-caste Tamils. They makearge portion of the manual labor force of theand have been especially active In trade union activities,ew individual Indians have achieved some politicalHowever, because of their fewerthe Indiansommunity have notajor economic or political force and exercise little Influence over developments in the Federation.

There have been few serious race riots In Malaya, and, generally speaking, theof the three communities get on wellas Individuals In their day-to-dayThe frictions and tensions exist primarilyroup level and grow out ofcompetition and envy, and the desire of each group to maintain its prerogatives. Since independence ended the British role as buffer and arbiter among tho racial groups.

ll

ANNEX A

mutual suspicion and sense of Insecurity nave increased. The leaders of the Chinese community realize they must increase their political strength tn order to protect their economic position and their separate culture from the Malay-controlled government. The Malays, on the other hand, are determined to maintain their dominant political position and toarger rote In the nation's

C. During the last years before independence, the Britishrogram designed to encourage the re-direction ol Chinesetowards Malaya andommon sense of national loyalty. This program Isajor aspect of the Federationdomestic policy. It includes efforts to bring the Chinese community schools under government control, to establish Malay as the national language in schools and theand to encourage the Chinese toto some extent, in governmentTo date, the program has made little headway. However, present indications are that an increasing number of Chinese may take advantage of the relaxed citizenship re-quiiements under the new constitution.

B. The Constitution

Alliance leaders,ighof statesmanship and ability toworked effectivelypecialcommission organized toonstitution for the Federation, and their ideas were generally Incorporated into the final document. The constitution is designed to preserve the basic Malay character of the country, but it also provides protection for the interests of the non-Malay communities. It callsarliamentary democracytrong central government, and incorporates roost of the featuies of the British system. Ittandard bill of rights, including the right to vote for all citizens overears of age.

Executive power Is centeredesponsible cabinet headedrime Minister. Topolitical stability during the Immediate post-independence period, the constitution specifics that the picsent Legislative Council, electedill remain in officehen the first general elections will be heldwo-house parliament formed. The upper house will consist of two electedfrom each state andppointed from professional and cultural groups. Tlie lower bouseembers will be elected from the countryhole. The Prime Minister mustember of the lower house.

Sultans, hereditary rulers of thestates, retain their positions.theyonference of Rulersfrom Its membership the Head ofRuler) who servesiveTlie Paramount Ruler hasonstitutional monarchspecial responsibility to protect certainprivileges pertaining to landservice, and business licenses.of the Conference of Rulers, he canaffecting religious matters and theof the Sultans themselves. In turn,calls for the adoption of ademocracy in each of the nineand the two former Straitsand Malacca, with anesponsible headonstitutional ruler (thein the nine Malay states andby the Paramount Rulerhe state governmentsin matters of Moslem law,agriculture and forestry, and localservices.

constitution establishes Malay aslanguage but provides for the useas an official languages designated as the state religion,freedom is guaranteed. Theprovides that all Malays arecitizens, that all citizens prior toretain that status, and thatborn in the Federation afterbecome citizens, Non-Malaysthe Federation can qualify forthey are of good character, have anknowledge of Malay, and meetresidence requirements. During theof independence, the languageis waived for ad applicants bom in the

Federation and ol! those overears of age. The constitution can be amended legally onlyote of Parliament, thereby insuring, at least for the foreseeable future, theposition of tlie Malaya

c. TheEGISLATIVE COUNCIL

he present OS-scat Legislative Council took office inorty-six of Its members were appointed by the Highandere elected. Fifty-one of the elective seats weie won by the three communal parties which make up the governing Alliancehe Alliance party members elected Includoalays.hinese,ndians. Of theppointed members, five wereafter consultation with tlie United Malay National Organization as the major party, five were designated British officials, andere selected from commercial, labor, racial and local interests. This Legislative Council,ew changes due to vacancies, willthe Federation until the first general elcc-t'ons scheduled for9 andegular parliament.

HE CABINET

be dominant political figure in tbeand undisputed national leader, Is Prime Minister Tcngfcu Abdul Rahman. He isears ol age, Cambridge educated, and the son of the Sul'an of Kedahhai princess. Despite fits royal background,has the cowmen touch which enables him to associate easily and effectively with the Malayan people. As Chief Minister, he directed the independence negotiations with the BrltLsh and now enjoys nationwideas the "father or Malayanahman is anti-Communist, generally pro-West, and represents the moderate, rational approach to the Federation's racial pioblcms. His political astuteness and ability to com-

Oic Ipoh by-election oteyloneie defeated tlie Allianceredominant Chinese dltlrkL lower-hi? to SO the mimf-ji of scats held by trie

promise have enabled him to hold together the racially diverse Alliance without losing the support of the Malay community. His ability, moderation, and relativelyhe national leader of the Federation were important factors in the Britishrant independence when they did.

rime Minister Rahman, who also holds the fovci-pi affairs portfolio, has been careful to retain the appearance of multi-racialIn forming his cabinet. However, tbe Malays clearly exercise the strongest influence. Second to Rahman in importance is Abdul Ra/.ak bin Da to Hussein, Deputy Primeand Minister of Defense. Although more reserved in his dealings with the Chinese than Rahman. Rasax has followed Rahman'stowards reconciling communaland as former Minister of Education hoey role inompromise Alliance plan for bringing Chinese schools wlmlnmenatioMleducaUonalsystem. Other Important Malay leaders hold tbe Ministries of Justice, Agriculture, Education, andin the cabinet. Loaders of the Chinese community head the Ministries of Labor, Commerce and Industry, and Finance. The principal leader of the Indian community Is Minister of Health. Although Rahman was guided largely by political considerations In forming his cabinet, lie has assembled acompetent group ol men who, with the aid of experienced British advisors, provide an efficient administration.

D. Politico) Parties

he Alliance, an association of the three major communal parties, the United Malay National Organisation, the Malayan Chinese Association, and 'die Malayan Indianwas formed1nited front lo work for national elections and MalayonToe United Malayreponderant hold on Ihe Malay commi-nlly nnd Is the strongest of the Alliance pai"ics. Under Rahman, who has been party presidentt has builttrong and fairly wcll-drviplinedorgoniu.tlonarge and active youth section. Much of the Organise lion's strength

is derived from its leadership in themovement. This position in turnthe party toold upon Malay nationalistic sentiment and to reconcileits organisation diverse elements In the Malay community, ranging from conservative, orthodox Moslems to radical, nationalistic youth groups.

The Malayan Chinese Association, thelargest ol the Alliance parties, has been controlledmall group of wealthy and conservative Chinese and has never succeeded inide base ol support among the Chinese. It has been hampered by theapathy of the Chinese prior toand by tho opposition of many Chinese to the dominant role of the Malays In the Alliance. Furthermore, tbe party has notChinese youth, particularly in thomiddle schools. Despite Its defects and the factional struggles among Its leaders and brandies, the Malayan Chinese Association Is important to the Allianceajor source of fund3 and as the only source ot Chinese support and partlclpallou in the government.

The Malayan Indian Congress has little or no influence on Alliance decisions. The party's impotence reflects both the numerical and economic weakness of Ihe Indianand its lack of leadership and party discipline. Its importance to the Alliance is primarily the justification for claimingfrom all three racial communities, rather than Its electoral strength.

Political opposition to the Alliance is weak and poorly organised. Da to Onn, formerly one of the leading Malay politicians and. the founder of tho United Malayas lost most of his following and Influence. Ine founded the Parly Negara (National Party) and has led it to an increasingly extremist Malay position,Ihe constitution, the United MalayOrganisation, and the Alliance asof the Malay position. The Pan-Malayan Islamic Association,ervatlve religious party dedicated to creation of an Islamic state, Is led by Dr. Durhanuddin Al-Hclmy, one of the most extreme MalayIt was the only non-Alliance party tocat5 Legislative CouncilNeither of these parties has as yet achieved national strength, and their future will depend upon the growth ot ultranauou-allstlc sentiment among the Malays. TheProgressive Party, which holds thenon-Alliance seat In the Legislativeat presentocal organisation. It Is led by D. R. Seenlvasagam, an aggressive left-wing Ceyloncsc who may bo able to build itational opposition party.

The Labor Parly of Malaya, made up of Indian and Chinese workers, is led primarily by Indians. It has Joined, with the Partyeftist Malay group, loational Socialist Fronteft-wing, non-Communist opposition. The weakness of this coalition results from the lack of appeal of socialistamong the Malays and the presentImpotency of labor. Most of the Indians and Chinese, who make up the majority of the labor force, either did not meet citizenship qualifications or were uninterested Incitizens before Independence. Moreover, existing law prohibits trade unions from en* gaging In political activity.

There Is no legal political party outside of the Alliance for the expression ot purely Chinese communal interests. However, recent successes of the Labor Party In localIndicate that it may be able to attract increasing support from Chinese and Indian groups who will makearger share of the electorate than previously with theof the new constitution. TheCommunist Party, tho membership of which Is aboutercent Chinese, has been outlawed8 when It began Its armed uprising. During debate of tho constitution, the Chinese Federation of Guilds andand the Chinese Chambers of Commerce were spokesmen for the Chinese opposition view.

ANNEX B

THE SECURITY SITUATION

Communist Activities

1 Communist guerrilladropped lo tho lowtat point since theof the armed uprlalnghe Emergency regulations, promulgated by the British early In the Communist uprising for furthering the war effort,orce. Commonwealth forces continue to assist In anti-guerrilla operations and the Federation government hopes to be able to lift thetry

2 Commvnlit Strength and Capabilities: Tlie Malayan Communiststimated totrength of,f whom are Chinese. IU armed element, the Malayan Races Liberation Army, I* esH-mated to number, now In small groups scatlrml through remote Jungle areas The largest concent ration* arc in Iho Blatrs of Johorc, Peiak, and Kcdah, the taller twothe most difficult problem because they are adjacent lo lhe Thai border. Reportedly, aboutercent of the Communists' armed forces, and their headquarters, aie near or in Thai territory. Comparatively Utile is known about the of in Yuen (People'supplies the Communist guerrillas with food, medicine, and Intelligence, but it islarger than the MalayanParty. Though weakened and isolated, the Communist armed forces retain afor terrorism and raids So long as the partyo maintain armed units, it can pin down substantial numbeil ofand Malayan troops andurden on the Federation's budget

ommunist Poltey: Accordingew ManifestoeptemberheCommunist Parly is endeavoring loa "united front' In labor urKaoimtlous.

political parties, and schools, and to exert pressure on the Federation government to end the Snicrgcncy on terms favorable to theThese terms include acceptance of the Malayan Communist Partyegal political party, and tho restoration of the privileges of full citizenship to the outlaw leaders. As earlyhe MalayanParty acknowledged Its inability to overthrow the government by force and began efforts tonited frontHowever. It lias been unable toan agreement with the /government which would enable it to retain the herd core of its leadership. Inarty secretary general, Chen ling,am the Jungleerkw of talks withgovernment leaders, The latter refused at that time and again In7 to grant legal recognition to the party or tofor the talc of tlie guerrillas as the price for ending the Communists'istance. With their numbers reduced, their area of operationsrowing moralewithin their ranks, and little hope ofihrir position In the Jungle war, the Communist leaders are clearly anxious to reach an agreement to end the war and to shift to political competition and subversion.

ommunist Sabrrmr* Tortfes:he Malayan Oonrmunist* have devoted the major part of their energies to aimed insur* rectton. leaving their subvention and political infiltration effortsinimum ofand support. The eetttrnl theme of its propaganda is the buildingnited front against tliehilehas reduced the effectiveness of this theme considerably. Malayan Communist propaganda continues to charge tliewith "Milling out to the British." At

ttic same time, the Communists claim full credit for obtaining Independence for theon the basks that its activities forced the British to relinquish control. They arc also seeking to increase pressures forof Commonwealth armed forces and strategic bomber bases in the Federation.

tudents of the Chinese mklilla schoolsajor target of Communist propaganda and subversion. These students arc subject to Ibc full play of lhe communal proNcmj their oppoitunltics to secure higher education or to obtain work commensurate with their training are limited; they are susceptible to the appeal of Communist China'stheir teachers arc subject toInfluence; their schools have beennd school facilities oftenA number of Chinese students go to the mainland for higher education.ere0 percent drop36 in tho number of school age Chinese going from Malaya and Singapore to mainland China. This may result. In part, from Pet-ping's increasingly selective policy Inig overseas students, and In part fromCommunist policy of encouraging its most promising prospects to stay andthe struggle In Malaya. However, local authorities In Malaya cite disenchantment Willi conditions and opportunities on 'the mainland as tho major factor In the decline.

resent Communist subversion of labor in the Federation is limited by it* loss of contact during the eight-year aimed struggle and by the lackarge, well-organized, laborInederation statistics listedeparate unions, eltlieror awaiting registration,laimed membership of0 there was some increase in laborwhich, however, lias noterious problem for the Federation7 when the Communists, wlio had at tltattrong grip on the labor movement, weretoscuc the country. Although most of this increased agitation was probably caused by union oigaidalng efforts, part of it can be ascribed lo some Increase inactivity in the labor movement

subversive efforts inalso received limited support fromChina. Tho Qilnese CommunistChina with branches at Singapore,and Penang, has apparentlysuccess In winning the favor ofby its willingness to makeunsecured loans. Radio Petptngthe great bulkormation forpropaganda In Malays. Chinesetrade overtures toward thebeen initiated although not on theas elsewhere In Southeast Asia.

B. The Federation Security Forces

The Federation army consistsfficers and meu. ll Isinto two operational brigadeand includes eight Infantry battalions, two armored car squadrons, an artillery cadre, and the nucleus for technical and logisticalajor problem is the acuteof indigenous officer pereonncl. Atmore than half the onicer corps aio British detailed to the Federation They hold all but one of the major staff positions and command all but two ofobot andservice units. Troop movale andis high. The army is trained,and efficient In small unit, anl'-guer-rilla, jungle warfare. In addition there are0 regular0n the Home Guard.

Present plans are to Increase thearmyen over the next two years and.o reduce0 the site of the Home Ouard. By means oftraining of regular' troops and theof an indigenous officery periodic exercises for the local volunteer units, and by unproved pay, equipment, andfor the Home Ouard, current plansa Malayan defenseich will be capable, within the next few years, of dealing with Internal security problems and able to handle small-scale border violations. Plans for containing the Communistare based on the continuing availability of UK troops to supplement and aid Ihodefense organisation. As tho Malayan

forces arc strengthened and trained, thoforces will phase out of the Internalpicture over the next five years.

Under the financial arrangements made at the time of Independence, the British agreed toubstantial portion of the cost of fighting the Jungle war and of the expansion ol the Federation aimed forces. For thehostilities, the British will provide annual grants of about usillion for three years and, subject to review, upillion over the two subsequent years. In addition, the UK wilt provide approximatelyillion for expanding and equippingarmed forces.

The Royal Malayan Navy at presentoffficers and men and nine small patrol craft. An officer on loan from the Royal Navy is in command. The navy was raised by Singapore togidauon and, until Federation independence, was wholly financed and administered by the Singapore government However, It is now in process of bring transferred to theto fonn the nucleus of Its new navy and plans arc being made toederation navy base on the west coast, probably at Lumut, near Port Swcttcnham.

Therealayan auxiliary air force, formedade up of volunteerand ten small aircraft. There are plans for developing an effective indigenous air force, butorce is not foreseen in the near future.

C. The Anolo-Molayon Defense Agreement

special relationship between theand .the UK in matters ofand external defense is embodiedAnglo-Malayan External DefenseAgreement concluded at theindependence. The ajrreement provides:

that the UK will assist ihe Federation in maintaining internal security as long as the latter considers such assistance necessary;

the UK will assist in the training and equipping of the Malayan defense forcestvo year period; and (c> the British willesponsibility for the Federation'sdefense. In exchange for thesethe British arc granted the right to maintain armed forces, Including aStrategic Reserve. In theThe agreement provides army, navy, and air base rights,trategic bomber base near Pvnong, necessary for the UK to fulfill its obligations for the defense of Melnya as well as for Commonwenllli andsecurity. The agreement alto provides that Ihe two governments will cooperate in taking action in ease of an armed attack upon Malaya or upon British Far East possessions, and that they win consult on necessary'in the eventhreat lo the peace in the Far East. There is no time limit on the agreement and either party may proposeat any time.

he following Commonwealth forces are available ii tho Federation and Singapore lo assist in maintaining internal security and to fulfill local and regional commitments under tho Anglo-Malayan Defense Agreement:

a,0 groundnfanhy battalionsustralian,owrmored carirborne regiment;rtillery regiment, organizedrigade hcadqua iters.

fa.ir forcencludingilotsombardier navigators. There arcets, based inncludingets, are based in theThe Federation Itself4 of which arc limitedT* or smaller aircraft. The other five arc capable of supporting Jet fighter or Jet light bomber operations.

c.aval personnel,ightnti-aircraftestroyers,scort vessels ore based in Singapore and ihe Federation. In anof course, the enitre Commonwealth naval strength in the Far East could be made available.

HE ECONOMIC SITUATION

Federation had acapita ONP of approximately0ell In excess of other independent countries In Southeast Asia. It hasiles of maintainediles oflowatts ofelectric generating capacity. Wthough the Federation began Independenceenerally favorable eoonc-iulc situation, there are basic economic problems which winand pnsstbly become more acute in the future. Its rrtource base Is narrow tmdand the state of Its economy depends on the woild prices of rucher and tin.esult of the hxu of many experienced ririlUh professlonala, the Federationhortage of technical and adnunlstraUve personnel. This situation will challenge tlieand compctcnco of Iho newlygovernment,ime when the demands of ecoiHwnlc development and financial reform are increasing. The Federation alsoigh rale of populutlon gmwth, estimated at slightly over three percent annually, which will lequlre at least crjrrcspondlngly rapidIn investment, production and social services lo maintain Uvlng sUmdards.

Rubber and tin are the essential bases of

the Pcdcratkui's ccom-my. accounting for approximately twothloU of the value of all exports, rubber alone comprising over one-bclf. Over one-quarter of all gainfullyperrons ace directly engaged in these two indusiric*arge part of thedepends on them directly or Indirectly. The Fcd> ration produces about one-third of the world's natural nibtwr. and slightly over one-third of tin Fim World's supply of tin. Itajor supplier ol tlie US tnBecause of its heavy export of rubber and tin to the US, the Federation is the major net contributor to the sterling area dollar pool.

The Federation's economy is oriented toward International markets. Per capita foreign trade amounted6in the Far East only by Singapore and Hong Kong and much higher thaner capita. Along with the predominance of the rubber and tin industries, thereeriousood production, and manufacturing Is not well developed. The Federation, consequently, relies heavily on Imports for essential consumptionThe concentration ot economicon production for export and thereliance on rubber and tin earnings for imports places the Federation's economy virtually at the mercy of international market conditions. Despite this high degree ofi-nd resulting vulnerability toinfluences, conservative, adrnintstration has. In the post, enabled the Federationtoavorable traderanging0 million at the height of the Korean War rubber boom,illionne of the lean years.

Malayan rubber and tin face seriousand measures are being taken totheir position in International markets. The tin industry claims that proven tinarc declining; there tuts been little explorationowever, theof more modern mining methods has tended to coimtcrbatancc this threat over the short run and to maintain production volume. Added incentive for state rulers to make land more readily available for prospecting and mining may developrovision In the new constitution which provides that ten pcr-

"C

of the export tax revenue on tlu will be turned over to the state In which the mineral was mined. In Uic absence of morealternatives and in anticipationong-term increase in the uae of rubber, thehas embarkedigorousprogram aimed at cutting rubbercosts and iirercasing output. Under this program the annual rate of new planting and replanting has reached four percent of total rubber acreage. The Federation hopes that such measures, reinforced with intensive reseaich, will help its nalurai rubber tosuccessfully with synU^ctics.

nder the British, the Federation and Singaporeingle economic unit. The Federation's primary production andoutstanding facilitiesrade and financial center were developed in concert andasis ot mutualercent ol the Federations trade passed through Singapore, constituting aportion of the latters critical entrepot trade. Much of lhe Federations direct trade and its domestic transactions were handled through the banking, insurance, shipping and hading facilities of Singapore. The separateolution of the Federation into an Independent nation weakened tho closeties between the two areas. Moreover, the Federation government, largely forrcr-sons. haseliberate policy of severing as many economic tics withas possible, lo lhe economic detriment of both.

he communal problemariety of economic implications. Because of theeconomic initiative of tlie foreign elements, mainly British and Chinese, the government has provided special protection to (he less enterprising Malays. Communal problems may Increase as conflicts of interest develop between the large foreign-owned estates and lhe Malay small holders and between Chinese businessmen and the Malay peasants. The unequal distribution of income,arger part accruing lo alien interests, may cause serious friction in (he lutuic. The rton-lulfui-ment of the exaggerated benefits canceled from independence may ocive lo concentrate criticism on the control held by non-Maiays over much ol the country's productive plant and on the outflow of profits.

Basic factors In tlie economic outlook are tho Federations planned financial reforms and its economic development plan. The financial reforms are designed to bring lhe currency under national authority and toa domestic money market to serve the Federations capital needs. The government plans to withdraw from the Brltlsh-coalrolled currency board, which at present odmlnisteisombined operation the currencies of llic Fodcrntion, Singapore, and British Borneo, and to establish Its own central bank. Tills will enable the government lo reduceercent sterling cover of lhecurrency and to Invest part of It in Malayan securities. Complementary plans are to encourage the development of financial institutions and to enlarge official creditfor rural and industrialural bank and an iudustrial development bank have already been established, mthe government has assured existinginterests of continued equitableand proposes lo encourage furtherforeign capital Investment Federation leaders emphasise that their financial reforms do not imply wiUidrawal from the alerting area and that the Federation's dollar willto be pegged lo the pound; however,managed with high competence, these measures may weaken confidence in the

The Federation of Malaya liasomprehensive economic development plan calling for capital outlays totalling USmillion0he United Kingdom has agreed toillion for projects under the plan. Tho Federation's Intention to raiso the remainder by drawing on surplus and by borrowing appears feasible without risking undue deterioration in fincn-cial stability, provided the rate of progress Is adjusted, as proposed, to the level of export earnings and lo Uic availability of technical and administrative personnel.

Under tho plan, the government has limited lis sphere of action to the expansion of public

c

and lo the provision ol financialto producers. Actual prtductton. except in such fields as electric power and similar public services,t to private enterprise.proposed cxpeitdiiurcs in severalare designed to assist localand to promote the production ofa major2 million) of the proposed investment is to beo the strengthening of Utc rubber industry,by replanting with better yieldingElectric power development isillion, and the remainder In thesector,illion, is to bealmost entirely to transportation andcations.

ANNEX D

the SITUATION IN SINGAPORE

internal security and general politicalIn Sln&uiMHO have Improved under Chief Mlmalcr Um Yew Hock. Llm, who succeeded lhe Impetuous David Marshallas taken an increasingly strong anU-Commu nisi position, making liberal use of his powers and the lull backing of the British authorities to arrest Communist and pro-Communist leader- olopIe's Action Parly andactivists in U* Chinese and the trade

nist movement has been kept off balance by the governments

program, the basic melon contributing to Communist strength fluencc, especially In tlie Chinese schools and the labortill strong; political problems susceptible lo Coeamunistpciiiit, and ocoi*mlc problems are

innaporo's rapidly increasing population olaboutercent Chinese, Sixty percent ol these Chinese are underears of age and many arc susceptible to Chinese Communist propaganda and pressures. Most Singapore Chinese an impressed by the rise or Communist China and continue theirattachment to the mainland. Tho younger Chinese tend to feel theirfor higher education and for economic advancement in Singapore are limited. These feelings ore intensified by the fact thatentrepot trade Is declining and byuncertain economic outlook, resulting In pari horn Federation Independence and the lessening of economic tics between the two

ingapore has not -entered the degree of internal political stability of the Fcdetation. The British had originally hoped that both parts ot tltc peninsula would progress toward self-government and Independence together, but have had to postpone Independence for Singapore for the forcsocublo future. Iningapore government delegation headed by Chief Minister Llm Yow Dock signed an agreement with the UK which provides for the establishment of Internal cdf-government during the latter part

the British will re-lor external defense andSingapore government except for inter-^tofln Internal Secu-

thrte from the UK. and one from the rcd;-ra-tion. The Federation autb&.iUes agreed to this arrangement with considerable reluctance because of their desire to avoid anyin Singapore's- security problems. The British retained the right to withdraw the Singapore constitution If the Internalshould deteriorate sufficiently to threaten the ability of lhe council to carry out its obligations.

Tho Singapore government, led by the moderate socialist Ubor Prontaslective and seven appointive seats in lhe Legislative Assembly. Six of its nine eabbiel posts arc appointed on the recom-mcridaudn of lhe majority leader ot tlioSingaporerown Colony with ultimate authority In lhe handsritish-appointed governor. Heeto power over legislation and the right tothe ministers who hold the cabinet posts for defense and Internal security, finance, and justice.

During the put year, the People's Action Party, the major opposition, fell under pro-Ci-moiunut control. Although

D

has managed lo create some contusion In the parly* ranks by political manipulation and by his arrvat olf Its top leftistthe People's Action Party still remains the strongest and best organised political or-cani-atkin in Singapore. Inx-Chief Minister David Marshall inaugurated an opposition Worker's Party. The party pledges parliamentary democracy, socialism, and lndoi>cndencc for Singapore, and it has adopted an "antt-cokwtlal" line. In hiscampaign, Marshall, who visited Communist China shortly alter his ouster as Chief MhiLotir, made special efforts to attract Chinese suppmlttacked the govern-mcnt's security program.

am Yew Hock's anti-Communist leadership has provided an opportunity to salvage the deteriorating political situation in ftnKanore, However, Urn has not succeeded Introng,prjllucal ocgaiuza-lion, and bis govenimcnt Natleak coalitionower only because of the seven appointed members of llwCouncil. The weak foundation of his government and tlie widespread Communist activity among Singapore's Chinese,In the scltooU and later unions, empiiasize tbe cUfkrcnc* between the political situation in Singapore and in the Federation.

InlocalelccuorisVkiouJlhe People's- Action Parlylurality of Singapore'scat City Council. The party carriedut ofistricts which ItMm Yew Hock's lAbef Front won only tour out ofeals sought. Although the two parties did not run candidates In directUw outcomeevere loss of pirslige for the Labor Frontettwnrd trend was disclosed by the success ol former Chief Minister Davidnew Worker's Party in winning fourive seal* it contcsied, whereas theLiberal Socialists gained only seven out ofeats. 'Ihe election results pointed up the failure of Urn Yew Hock's efforts toiion-Communist political forces ex lolelt-wing forces.

Tlie chances appear somewhat less than even Ihnl Urn Yew nock will bo able lo maintain his anll-Communlst government in power alter8 general elections. If the economic situation deteriorates toeft-wing governmentby the People's Action Party willcome Into power. Over the long run, the prospects arc that IcIUsl and Cornmnnist strength will increase.

for the preservation ofin Singapore, in addition to Dieareolice,reserves, and the Special Constabularyactiveolunteer reserveThe Malays outnumber thefour to one In the police, but thepredominate In the higher ranks.of replacing lop British officers isbecause indigenous officers arc notSlngajiore's government Inbegun toolunteer battalionmen wllh tho intent of enlisting aboutChinese. The local internalprobably could not maintain lawIn the event of large-scale riots ortn Singapore without theof the regular British troop unitsin Singapore.

Singapore continues lo be Die mainmilitary basehe Far East, withfunctions in British Commonwealth and regional defense. In addition, it Is still an important commercial center, For these reasons, and because of the basic politicalof the colony, the British are ur.li-.eiy to couxldeT in&pcrtdence for Srngn]iore Inuture. Furthermore, the British, who wc believe haw adequate forces hi the aiea lo maintain Internal security, will piobablythe Slngiiporc constitution and assume direct rule in the event ofhreatened loss of control ol the situation by tho elected governmentommunist take-over.

Merger of Sligaporx with the Federation is the ultimate goal of Singapore authorities and of many British officials. These latter feel that merger might reduce Ino threat to British strategic interests posed by polities) Instability and Communist subversion in

Annex b. poiasjraph m, for tho stroiipih ot tbrso units.

Singapore. Urn Vcw Kock and other Singa-port loaders are nwaro ol the emerging ceo-nomlc and political problems which result from the dwindling economic tics with the Federation. Commercial shipping and bank' ing In Singapore generally favor merger in order to perpetuate Singapore's present ixxtl-tlon as Die princljiat entrepot for the Malay peninsula.

he Communists beilevc that merger would Increase their ability to subvert the Federation. For this same reason, theopposes merger. To Rahman and tlie Alliance government, Singaporeotbed of Communism which must bo isolated from the Federation. Further more, tlieleadership know that merger would give theumerical majority.

19

Original document.

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