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S E C R E T SECTION 01 OF 05 KUALA LUMPUR 001259 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 07/07/2016 
TAGS: PREL PGOV MARR ECON PTER MY
SUBJECT: SCENESETTER FOR THE VISIT OF CNO ADMIRAL MULLEN 
 
 
Classified By: DCM David Shear for reasons 1.4 b and d. 
 
¶1. (S) SUMMARY:  Malaysian-American relations are good and 
improving; we are currently conducting negotiations for a 
Free Trade Agreement with Malaysia.  This moderate, 
Muslim-majority state is our tenth-largest trading partner 
worldwide.  Our robust and growing military-military 
cooperation is receiving greater public attention, along with 
some criticism from retrograde quarters.  While moving slowly 
away from the anti-Western rhetoric of former Prime Minister 
Mahathir Mohamad, Malaysia continues to oppose us on some key 
international issues.  Counterterrorism cooperation is 
largely good, but we remain concerned about the release of 
certain suspects and the level of surveillance of those 
suspects.  Malaysia and its neighbors increasingly realize 
the importance of maritime security, but enforcement efforts 
are hampered by sovereignty concerns and a lack of resources. 
 A new Malaysian coast guard is slowly getting its sea legs. 
Malaysia supports the Mindanao peace talks but has differed 
sharply with Thailand over separatist violence.  The 
Malaysian government is making progress in implementing a 
non-proliferation regime, and we continue to press hard for 
endorsement of the Proliferation Security Initiative (PSI). 
End Summary. 
 
Political Landscape 
------------------- 
 
¶2. (C) While Malaysia has plenty of warts, it remains a rare 
example of an Islamic-majority country that is stable, 
civilian-led and prosperous.  Malaysia has also maintained a 
largely tolerant social system and a tightly managed 
democracy, with the same multi-racial coalition in power 
since independence in 1957.  While we continue to urge the 
government of Malaysia to improve its own governance, we also 
recognize the constructive role Malaysia can play in the 
Islamic world. 
 
¶3. (C) Prime Minister Abdullah Badawi is a breath of fresh 
air after the long-serving and vituperative Mahathir Mohamad, 
who retired in late 2003.  Abdullah promotes a tolerant, 
progressive approach to religion that he calls "Islam 
Hadhari" (civilizational Islam).  He is publicly committed to 
fighting corruption and reining in costly mega-projects, 
though his government's follow-through has been 
disappointing.  Corruption in government procurement, 
including defense contracts, remains a problem.  Abdullah's 
mild-mannered and cautious approach has also led critics to 
question his leadership and effectiveness, but his ruling 
coalition remains secure.  Abdullah's chief potential rival, 
Deputy Prime Minister (and Defense Minister) Najib Razak, 
plays the role of a loyal bulwark.  After two years in power, 
Abdullah has appealed to the public for patience in 
delivering reform.  As long as the economy continues to grow 
healthily, the public will grant him that.  Recent bitter 
criticism of Abdullah by Mahathir does reflect some nostalgia 
within the ruling party for more lavish spending and more 
decisive leadership, but does not directly threaten 
Abdullah,s hold on power. 
 
¶4. (C) One of many subjects on which Mahathir has criticized 
Abdullah is the growing mil-mil cooperation between the 
United States and Malaysia, particularly with regard to the 
greater frequency of high-visibility ship visits.  We have 
been pleased by the overwhelmingly positive media coverage 
our ship visits have received, in contrast to the quiet 
arrivals of past years.  The flip side to this is that our 
visits are getting increased attention from ideological foes 
on the Islamic right, and from Mahahtir,s opportunistic 
criticism. Deputy Prime Minister Najib has stoutly defended 
our cooperation before Parliament, and we do not see that our 
engagement is under threat.  However, we do need to be 
cognizant of our increased military visibility and sensitive 
to GOM concerns, particularly with rising tensions in the 
Middle East, where Malaysians strongly sympathize with the 
Palestinians. 
 
Economic Situation 
------------------ 
 
¶5. (C) In his early days, PM Abdullah made rural development 
and control of government spending, partly as a means to 
encourage private sector led growth, his top economic 
priorities.  So far, only his reduction of the government's 
deficit -- now down to 3.8 percent of GDP -- can be chalked 
 
KUALA LUMP 00001259  002 OF 005 
 
 
up as a clear success.  Abdullah's partisans say that the 
Ninth Malaysia Plan (9MP; a five year plan for economic 
policy and development spending) will be the vehicle for 
advancing his other economic goals, but the 9MP, unveiled on 
March 31, seemed more like "business as usual."  35% of the 
funding in 9MP is earmarked for completing projects started 
in 8MP.  Abdullah has emphasized the need for fast 
implementation of 9MP (a tacit acknowledgment of the 
perceptions weak follow through by his government) and 
created a new government agency to focus on the problem. 
 
¶6. (C) Meanwhile cuts in government subsidies for gasoline 
and diesel fuel -- one of the tools used to rein in the 
deficit -- have proved highly unpopular, and raised concerns 
about inflation.  Increases in prices of other 
government-managed commodities, such as electricity, are in 
the works.  For now, the economy is in reasonably good shape, 
with projected growth of around 5.0 percent in 2005 and 
official inflation of around 4.8 percent (although private 
analysts believe the real rate of price increases is much 
higher).  However, the government may be facing a tough 
choice in the coming year between stimulating the economy to 
get back on a higher growth track, or raising interest rates 
to control inflation. 
 
Malaysia's International Posture 
-------------------------------- 
 
¶7. (C) Malaysia currently is the chair of the Non-Aligned 
Movement (NAM), the Organization of the Islamic Conference 
(OIC) and of ASEAN.  Malaysia hosted the ASEAN Summit and the 
East Asia Summit last December, and will host the ASEAN 
Regional Forum (ARF) ministerial this summer.  Secretary of 
State Rice is plans to attend the ARF meetings in July. 
Malaysia backed the six-party DPRK nuclear talks and has 
supported Iraqi reconstruction efforts, but has been 
overeager to embrace Hamas and defend the Iranian nuclear 
program.  The foreign ministry seems to be moving slowly away 
from some of Mahathir's anti-Western rhetoric and policies, 
but retains friendships with troublesome states like Cuba, 
Zimbabwe, Sudan, Syria and Uzbekistan. 
 
¶8. (C) The Malaysian government publicly supports China's 
"peaceful rise" and signed a defense cooperation MOU with 
China, despite lingering suspicions among senior Malaysian 
military officials of China's long-term intentions.  An April 
visit by China's defense minister received very little 
coverage in the local press.  While Malaysia and Singapore 
quarrel frequently over issues like water pricing, land 
reclamation, and transportation links, the two retain a loose 
defense relationship under the aegis of the Five Power 
Defense Arrangement (FPDA), along with the United Kingdom, 
Australia and New Zealand.  Malaysia has actively supported 
peace efforts in the southern Philippines and Aceh in 
Indonesia.  While a maritime boundary dispute with Indonesia 
in the Sulawesi Sea remains unresolved, Malaysia maintains 
generally good relations with all its ASEAN neighbors. 
Malaysia also enjoys good relations with India, and held 
their first navy-to-navy staff talks with India earlier this 
year.  Deputy Prime Minister Najib visited India in June in a 
visit that many read as a careful attempt to build bridges 
with a long-term counterweight to China. 
 
Counterterrorism 
---------------- 
 
¶9. (S) Malaysia has generally been a reliable and 
constructive partner on counterterrorism.  In 2003, Malaysia 
established the Southeast Asia Regional Center for 
Counterterrorism (SEARCCT), which now runs a full schedule of 
multilateral training courses, many conducted with U.S. 
support.  Early round-ups in 2001 and 2002 of scores of 
Jemaah Islamiyah (JI) suspects crippled that organization's 
activities in Malaysia.  Over 70 suspected terrorists remain 
in custody under the Internal Security Act (ISA), a 
"preventive" measure that has also been used to jail 
political opponents of the government in the past.  To our 
knowledge, prosecutions and trials of the terrorist suspects 
are not planned.  Drawing on their experience in defeating a 
communist insurgency, the Malaysians take a "rehabilitative" 
approach for some terrorists, keeping them under police 
supervision in "restricted residence."  Several leading 
figures (such as JI financier Wan Min) have been released 
from ISA detention without warning.  We remain concerned that 
surveillance of released terrorist suspects may be inadequate 
 
KUALA LUMP 00001259  003 OF 005 
 
 
and their "rehabilitation" may be incomplete or insincere. 
JI, while weakened, still has the capability to strike here, 
and the Malaysians need to remain vigilant. 
 
¶10. (C) While the Malaysian leadership firmly opposes 
terrorist organizations at home, it is deeply uncomfortable 
with any association of Islam with terrorism, and frequently 
lectures us on the need to eschew terms such as "Islamic 
terrorists" or "jihadists."  Reflecting the broad support for 
the Palestinian cause among the majority here, the Malaysian 
government has no relations with Israel and often argues for 
the need to address the "root causes" of terrorism in the 
Middle East.  In February, negotiators from the United States 
succeeded in reaching an agreement here on a text for a 
bilateral Mutual Legal Assistance Treaty (MLAT). We are 
hoping the treaty will be ready for signature in time for the 
Secretary of State's July visit.  The treaty will be a good 
 
SIPDIS 
tool in fighting terrorism and other forms of transnational 
crime. 
 
Maritime Security 
----------------- 
 
¶11. (C) In July 2005, the insurer Lloyd's of London 
designated the Strait of Malacca (SOM) as a "war-risk zone," 
raising premiums for shippers transiting these waters.  This 
prompted a flurry of public cooperation among the littoral 
states -- Malaysia, Singapore and Indonesia, plus neighboring 
Thailand -- including conferences of foreign ministers and 
military chiefs.  On September 13, 2005, the three littoral 
countries launched an "Eyes in the Sky" (EiS) program to 
conduct international aerial surveillance of the Strait.  EiS 
originally comprised separate but coordinated flights by 
Malaysia and Singapore with observers from each of the three 
countries onboard each flight.  Resource-strapped Indonesia 
did not contribute flights until the three countries signed 
an Agreement on 21 April 2006 that firmly set terms of 
reference and standard operating procedures.  This Agreement 
states that "hot pursuit", which is a sensitive issue with 
the neighboring littorals, must be guided by bilateral 
agreements.  Malaysia does not have a working bilateral hot 
pursuit agreement with either Singapore or Indonesia. Crews 
use binoculars to survey shipping traffic and make non-secure 
radio transmissions to shore and ship facilities of the three 
littoral states.  Malaysia has also committed a single 
Beechcraft B-200 with infrared capability, to enable some 
night-time surveillance.  Thailand continues to participate 
in discussions but the government has not given the military 
approval to join EiS. 
 
¶12. (C) EiS represents an important symbolic step forward for 
the littoral states' cooperation on SOM security, but could 
be difficult to sustain without international support.  DPM 
Najib has told the media on several occasions that Malaysia 
would welcome international involvement in Eyes in the Sky. 
Our working-level contacts remain vague, however, on what 
sort of American assistance might be accepted in this 
sovereignty-conscious region.  Malaysia will host a meeting 
this September sponsored by the International Maritime 
Organization (IMO) in which the littoral states are to 
identify and prioritize their needs for assistance in 
enhancing SOM security.  On February 15-17, the USG hosted a 
meeting of key SOM user states at Coast Guard Island, 
Alameda, California, to discuss the possible range and scope 
of such assistance. 
 
¶13. (C) Meanwhile, the Sulu Sea remains an under-monitored 
passageway for terrorist elements in transit between 
Indonesia and Mindanao.  Terror groups have also carried out 
a number of kidnappings for ransom in the area.  While the 
region has little value for international shipping compared 
to the Malacca Strait, it is tremendously important to the 
travel and fundraising operations of groups like JI and Abu 
Sayyaf.  Together with Embassies Jakarta and Manila, we have 
focused on this region as a specific theater for building 
capacity and cooperation between the governments of Malaysia, 
Indonesia and the Philippines.  Significant new resources, 
which we are in the process of identifying and prioritizing, 
will be required to make these efforts successful. 
 
New Coast Guard 
--------------- 
 
¶14. (C) Malaysia's new coast guard began limited operations 
on November 30, 2005.  The government's goal is to reduce 
 
KUALA LUMP 00001259  004 OF 005 
 
 
overlap and turf battles among the 11 Malaysian agencies 
tasked with patrolling the country's seas and waterways.  The 
coast guard, officially named the Malaysian Maritime 
Enforcement Agency (MMEA), will possess 72 vessels 
transferred from the navy, marine police, marine department, 
and fisheries department.  MMEA has recruited about 1,300 
personnel from these agencies, although the vast majority 
came from the Royal Malaysian Navy (RMN).  The impact of the 
large, mid-grade officer exodus from the RMN to MMEA, in 
fact, has caused the RMN to halt any further transfers.  RMN 
vessels transfer with their crews intact.  MMEA hopes to fill 
its 4,000 approved positions within a year. 
 
Mindanao Peace Talks, JI Presence 
--------------------------------- 
 
¶15. (S) Malaysia has facilitated peace talks between the 
Philippine government and the Moro Islamic Liberation Front 
(MILF), and the negotiations have had some success with the 
sticky issue of "ancestral domain."  The talks are hosted by 
the Malaysian External Intelligence Organization, which in 
the past covertly supported separatist activities in 
Mindanao.  JI presence at MILF training camps remains a 
concern, though the MILF has publicly disavowed any 
connection to JI.  We continue to press the Malaysians to 
make clear to the MILF that it must sever its connections to 
JI and Abu Sayyaf. 
 
Southern Thailand Strains Relations 
----------------------------------- 
 
¶16. (C) Separatist violence in southern Thailand has killed 
over 1,000 people since January 2004, and attacks continue 
almost daily.  The Malaysian government has repeatedly denied 
Thai accusations that it supports the separatist groups, 
though the people on both sides of the porous border share 
Malay ethnicity and the Muslim religion.  Families and 
business interests straddle the border as well.  In August 
2005 Malaysia offered temporary refuge to 131 Thai citizens 
who said they were fleeing their government's crackdown in 
the south.  The issue, which has also involved the UN refugee 
agency, rubbed raw nerves in Kuala Lumpur and Bangkok, as 
government officials abandoned the usual neighborly ASEAN 
rhetoric for sharp verbal attacks on each other.  The 
rhetoric toned down somewhat after the Malaysians returned 
one of the 131 asylum seekers, who was wanted on criminal 
charges in Thailand, but picked up again in June when the 
Thai Interior Minister claimed explosive devices set off in 
Thailand had been manufactured in Malaysia.  The Thai MFA 
quietly retracted the charge, and the rhetorical cycle was 
reset to a cooling phase. 
 
Slow Progress on Non-proliferation and PSI ... 
--------------------------------------------- - 
 
¶17. (S) In 2003, a private Malaysian company (partly owned by 
PM Abdullah's son) was found to have manufactured and shipped 
nuclear centrifuge parts to Libya.  The company pleaded 
ignorance, but the case underscored the need for Malaysia to 
adopt effective export controls.  The government is moving 
ahead with plans to adopt such controls, including the 
conclusion of an Additional Protocol (AP) with the 
International Atomic Energy Agency (IAEA) on November 22, 
¶2005.  The AP provides a sound policy framework for the 
implementation of nuclear-related export controls. 
 
¶18. (C) We continue to urge Malaysia to participate in 
Proliferation Security Initiative (PSI) meetings and 
exercises.  Malaysia sent two observers in August 2005 to a 
PSI exercise in Singapore, and three observers in April 2006 
to a PSI exercise in Australia.   The government has said it 
supports PSI "in principle," and that it would take part in 
PSI operations on a case-by-case basis.  We have been told 
that the government is considering an endorsement of the PSI 
Statement of Interdiction Principles, which would allow full 
participation in PSI events.  However, elements within the 
foreign ministry remain adamantly opposed, perceiving that 
the PSI is targeted against "friends" of Malaysia, like Iran, 
Pakistan and China. 
 
¶19. (S) As the chair of the Non-Aligned Movement (NAM), 
Malaysia has been too supportive of Iranian claims that its 
nuclear program is a peaceful one.  More recently, the GOM 
has moved somewhat away from behavior that bordered on 
"coaching" the Iranians.  The EU-3 made considerable efforts 
 
KUALA LUMP 00001259  005 OF 005 
 
 
to get Malaysia to exert a restraining influence on Iran. 
While it appears the Malaysians have privately counseled Iran 
to exercise restraint, it does not seem these words had much 
influence on the Iranians.  Malaysia failed to condemn 
Ahmadinejad's threat to "wipe Israel off the map" and gave 
President Ahmedinejad a red carpet welcome in Kuala Lumpur as 
the IAEA was referring his repeated violations to the United 
Nations Security Council. 
LAFLEUR