Current relations between Singapore and Malaysia were significantly shaped by the legacy of merger and separation. A review of this period indicates not only the importance of political leadership, but also, more fundamentally, the importance of communalism. These twin factors infused tensions into political and economic issues.

The creation of the Federation of Malaysia was precipitated by Singapore's shift from colonial status to internal self-government (June 1959) and eventual independence. The People's Action Party (PAP) won the general elections in May 1959 and its leader, Lee Kuan Yew, became prime minister. In May 1961, Tunku Abdul Rahman mooted the idea of an eventual merger between Malaya, Singapore, and the British Borneo territories. Lee Kuan Yew favoured independence through merger with Malaya and rejected the idea of an independent Singapore because it would become “South-East Asia's Israel with every hand turned against it.”

The PAP successfully won a referendum on the future of Singapore conducted in September 1962. Seventy-one per cent of the voters supported merger. But domestic opposition by communists, with support in the Chinese community, kept Lee under constant pressure to demonstrate in merger negotiations that he was standing up for the island republic's interests. Lee sought and gained special terms including greater autonomy and diminished financial obligations for Singapore. Singapore became independent on 1 September 1963, and then joined the Federation of Malaysia a fortnight later.

The political leaders in Singapore and Malaysia shared the objective of defeating the challenge posed by ethnic Chinese communism. And they both favoured creating a Federation of Malaysia. But they also had differing political motivations. Malaya's leaders sought to incorporate Singapore into a larger federation in which Malay dominance would be maintained. Lee Kuan Yew and the People's Action Party (PAP) sought independence through merger with Malaya, but on terms of equality for all communal (read ethnic Chinese) groups. Lee strongly argued in favour of meritocracy and this was perceived by the Malay leadership as a veiled attack on the political entitlements of indigenous Malays.

Once Singapore joined the Federation, a major fault line quickly developed between the incumbent federal Alliance government led by Prime Minister Tunku Abdul Rahman, and the PAP under the leadership of Lee Kuan Yew. At issue were personal ambitions, economic questions, communalism, political ideology, and the question of federal power and state autonomy.