Southeast Asian neighbours create economic triangle

SINGAPORE, Jan 24 (Reuters) Neighbours Singapore, Malaysia and Indonesia have a history of squabbling. Land, boundaries, workers and water have been among the points of contention.

But singed by the competitive heat of fast-growing China and India and frustrated by the glacial pace of Southeast Asia's economic integration, the three are trying to put old grudges aside for the sake of their own prosperity.

Indonesia has created a special economic zone on its Riau islands between Singapore and Indonesia, while Malaysia has a multi-billion-dollar plan to develop industry in its southern Johor state bordering Singapore.

One aim is to attract foreign investment and stop it heading off to China or India. Another is to encourage firms already in Malaysia, Singapore and Indonesia to expand in the neighbourhood rather than elsewhere.

For tiny Singapore, strapped for land and labour after years of rapid economic expansion, the plans would mean access to cheap workers and land right on its doorstep.

The Malaysian and Indonesian developments are in areas seven times bigger than Singapore with a combined population of more than 2 million.

''It's about how to be competitive with China and India,'' said K Kesavapany, director of the Institute of Southeast Asian Studies.

''You need to have a cheaper alternative. Why not take advantage of this when it's just next door?'' Indonesia and Malaysia -- neglected until recently by investors because of a history of policy flipflops and corruption -- hope the plans will bring major investment, partly lured by the proximity of Singapore's efficient infrastructure and financial services.

NEW RELATIONS? Similar projects on Indonesia's Riau islands faltered previously because foreign investors complained about legal uncertainties, red tape and corruption.

The Asian financial crisis in 1997/1998 also put a brake on the developments.

But with new leaders appointed in Singapore, Malaysia and Indonesia in the past three years, relations between the trio have improved and added to hopes the plans can be successful this time.

Singapore and Indonesia plan to jointly develop manufacturing zones on the Riau islands. Singapore will bring some of the economic efficiency on which its economy is built to help attract foreign investors.

Tiong Woon, a transport engineering company that has outgrown its home base of Singapore, has already bought a 64-hectare plot on one of the islands, Bintan, a short ferry hop from Singapore.

''Proximity to Singapore was a major factor,'' said Daniel Ong, Tiong Woon's corporate development manager. ''We could stay near to the major oil rig builders, nearer to our clientele.'' After previous false starts, hopes are high that the countries may get it right this time.

''We may see a renewed burst of growth,'' said Manu Bhaskaran, an economist at Centennial Group in Singapore.

SOME DOUBTS Malaysia is seeking 5 billion in investment over 20 years in manufacturing and services, such as health care and eduction, for Johor Bahru, a city on the Malaysian side of a narrow sea divide with Singapore.

Thousands of Malaysians already trek across a causeway between the two countries every day to work in Singapore, where foreign workers make up 27 percent of the workforce.

Malaysia hopes its plan will generate more of a two-way flow of workers.

Singapore has welcomed the move, although Prime Minister Lee Hsien Loong said it had received ''mixed signals'' from Malaysia on investment opportunities.

Sceptics warn progress could be slow given the prickly relations of the past.

To many Singaporeans, Johor Bahru has a reputation for corrupt police and violent crime. Recent heavy rains and flooding have highlighted weak infrastructure.

''You've got to have the infrastructure,'' said Joseph Tan, an economist at Standard Chartered, adding that Singapore is already a transport and finance centre.

''I can't see a compelling enough reason for multinational companies to make the cross to Johor.'' Political bickering in Malaysia could also derail the plans.

Former long-term Prime Minister Mahathir Mohamad blasted the government for trying to turn the southern tip of Malaysia into ''foreign land.'' But some other politicians see it differently.

''It will give more breathing space to the foreign investors and businesses located in Singapore,'' Shahrir Samad, a leader of the ruling United Malays National Organisation and a Johor Bahru Member of Parliament, told Reuters.

Reuters PB DB0920