Late last year, Malaysia unveiled an ambitious two-decade blueprint to harness mostly private capital to turn 2,200 square km (850 square miles) of the state into an industrial and tourism zone, and state capital Johor Baru into a new Asian boom town.

"Singapore has made an assessment and decided it is fundamentally good for us if this project takes off," Singapore Prime Minister Lee Hsien Loong said after meeting his Malaysian counterpart on the Malaysian resort island of Langkawi.

"It will complement Singapore," he said, adding that the project would help Singapore's manufacturing, services and tourism sectors.

The Johor plan implies heavy investment from neighbouring Singapore, which lies about a kilometre (less than a mile) away from Johor Baru, but Lee said in December there were "mixed signals" from Malaysia about the extent to which Singapore investors were welcome.

Many Malaysians, particularly in run-down Johor, are deeply suspicious of Singapore and some resent the economic success of their smaller but richer neighbour. Singapore quit the Malaysian federation in 1965 and relations since then have been frequently problematic.

However, Lee said after a two-hour breakfast meeting with Malaysian Prime Minister Abdullah Ahmad Badawi that the pair had agreed to form a joint ministerial panel to ensure cooperation in the so-called Iskandar Development Region (IDR).

DURIAN DIPLOMACY

Lee referred to the elder Abdullah by an affectionate nickname, Pak Lah or "Uncle Lah", at a joint news conference.

"I have suggested to Pak Lah, who agreed, that we should set up a ministerial committee from both sides to oversee the joint cooperation in the IDR," Lee said, adding the panel could look into issues like joint tourism promotion and access to the zone.

"I see the position of the IDR vis-a-vis to Singapore is like that of Hong Kong and Shenzhen," Abdullah said, referring to the one-time British colony and a neighbouring Chinese city.

Abdullah, who later hosted lunch for Lee and his entourage aboard a Star Cruises ship and then ate Thai durian at their hotel, added that the plan could be a catalyst for greater Southeast Asian growth.

The Iskandar blueprint, unveiled by Abdullah in November, calls for a high-tech park, logistics and industrial precincts, educational park, regional hospitals, marina, waterside villas, theme parks and exclusive, gated residential communities.

It also envisages passport-free access to parts of the zone for Singaporeans.

Khoo Kay Peng, a political analyst, said the deal could open a new chapter in the neighbours' testy ties.

"The IDR will be the icing on the cake. Singapore can use the IDR as a test bed for a lot of Singapore's manufacturing operations," Khoo said.

Lee and Abdullah were holding bilateral talks for the first time in three years. Despite an initial thaw in relations in 2004, when both leaders were new in their jobs, and a surge in cross-border mergers, old disputes continued to strain ties.

The two nations have quarrelled for decades over the price Singapore pays for its Malaysian water supplies, over railway land, air space, and Malaysia's desire to replace the causeway that links Singapore to Johor with a road-and-rail bridge.

Tuesday's meetings aim to recapture some of that initial warmth in relations after Malaysia called off its bridge project last year, saying Singapore's conditions for agreement were unacceptable.

Lee hinted on Tuesday that both countries might turn to international arbitration to end the outstanding disputes, the same route both had taken in trying to settle an overlapping claim to a tiny island off their shores.

But Malaysian diplomats said arbitration was just an option. "Some of the issues cannot be resolved by third parties because of legal complexities," one diplomat told Reuters.

                                                      Home