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Thailand during the 1997-98 regional economic crisis.[120]

As Southeast Asia, stripped of much of its economic lustre by the crisis, tried to regain its vitality, it went without some of the US$25.6 billion in gains that the task force estimated would have accrued to the ASEAN side from a free-trade area over ten years. Australian and New Zealand traders, investors and business executives had alternatives, especially the huge markets of Northeast Asia and South Asia, and "They prospered as ASEAN struggled to recover."[121]

Unfazed by such self-inflicted damage, Dr. Mahathir maintained his ban on Australia's further participation in ASEAN-led regionalism until he retired, justifying it on racial and cultural grounds, a position adopted by no other Asian government. He described Australia, whose 20 million population included six million migrants from about 200 countries, as "some sort of transplant from another region". It was "basically European", he asserted, and could be part of Asia only after 70 per cent of its population was Asian. On another occasion he said, "Australia and New Zealand are not East Asian countries. Geographically maybe they are, but in terms of culture they are not...".[122] "Some of the Asian culture", he said, "should be accepted if not adopted" by the Australians.[123]

President Suharto felt the same way about Dr. Mahathir, that he should acknowledge the culture of the "Malay world" and be more respectful to a neighbour, namely Indonesia. Historically, Indonesia and Malaysia have a special relationship rooted in serumpun, similar stock, and the idea of blood brotherhood. After Confrontation, in which Indonesia tried to crush the new-born Malaysia militarily, reconciliation was effected gradually in the 1970s through Jakarta's pragmatic policies and Kuala Lumpur's willingness to concede primacy to the Indonesians and their new leader, Suharto, who had replaced the bellicose Sukarno.[124] Malaysia was prepared to play adik, little brother, to abang, big brother, Indonesia.

Dr. Mahathir, the nationalist, put a swift end to that. His initiatives on South-South cooperation, Islamic policies, peacekeeping, resuscitating the Non-Aligned Movement and active politicking at the U.N. clashed with Indonesia's own ambitions to return to international affairs after a period of dormant diplomacy.[125] Fluent in English, articulate and familiar with global institutions, Dr. Mahathir pressed his advantage at Indonesia's expense. His performance at the Non-Aligned Summit in Jakarta in 1992 in upstaging Suharto, the taciturn host, incensed the Indonesians. They began calling Dr. Mahathir a "little Sukarno", and not just for the fun of it. His Malaysia posed a challenge to Indonesia's regional leadership "on the back of the same anti-Western crusade that is identifiable with Sukarnoism".[126]

The depth of the antipathy between the two men imposed serious strains on ASEAN, since the two countries were often acknowledged as the cornerstone of the organization. "We could contain it below the leaders' level," said a senior Southeast Asian official, who was deeply involved in ASEAN affairs. "A casual observer would hardly notice it."[127] Looking back on his relationship with Suharto, Dr. Mahathir was unrepentant. "I wasn't rude to him or anything, but I went my own way," he said. "I am not going to be treated like...a little brother."[128]

Singapore's elder statesman Lee Kuan Yew levelled precisely the same accusation at Dr. Mahathir's Malaysia: seeking an abang-adik relationship with the city-state that was once part of the federation. In truth, their relationship was characterized by interdependence, since they remained connected by historical, familial, cultural, political, economic and strategic ties, not to mention the pipeline that carried vital supplies of Malaysian water to the republic.[129] "When non-vital interests were at stake, we were prepared to humour abang, but not when adik had legitimate interests to defend...," Lee wrote in his memoirs.[130]

Having clashed directly with Dr. Mahathir in Parliament in the old days, Prime Minister Lee initiated a dialogue with him when Dr. Mahathir became deputy prime minister "to clear away the debris of the past". It seemed to work. As prime minister, Dr. Mahathir exchanged visits with Lee and they quickly resolved a number of issues. Although spats occurred fairly often, Lee noted that on his retirement in 1990 he had made more progress solving bilateral problems in nine years with Dr. Mahathir than in 12 years with his two predecessors.[131]

Yet relations were souring even as Lee stepped down. An agreement he signed the day before leaving office, covering the joint development with Malaysia of portions of the Malayan Railway land that stretched some 20 kilometres into downtown Singapore, would unravel. Lee had negotiated with Malaysian Finance Minister Daim Zainuddin, who had been designated by Dr. Mahathir to settle the terms. While the Singaporeans regarded it as a legally binding agreement, Dr. Mahathir repudiated it later on the grounds that it was unfair.

After Goh Chok Tong succeeded Lee, discussions about several important matters went nowhere β€” the long-term supply of water, the relocation of a Malaysian railway immigration checkpoint in Singapore, the timing of pension payments to peninsular Malaysians who had completed employment contracts in Singapore, and Malaysia's request for a new bridge to replace the causeway linking the two countries. Citing environmental concerns, Malaysia in 1997 banned the sale of sand to Singapore, which needed vast quantities over the coming decades to meet its reclamation plans. The following year Kuala Lumpur, without explanation, banished Singapore air force planes from Malaysian airspace, an inconvenience for training and search and rescue operations. Friction increased against the background of a massive Malaysian armed forces modernization and buildup that went some way to reducing Singapore's overwhelming military superiority.

After two particular incidents, Dr. Mahathir had basically given up on Singapore. He was upset when his security services uncovered a Singaporean spy ring in 1989, arresting five Malaysian military officers and their two Singaporean handlers.[132] Dr. Mahathir's first official meeting with Goh in Singapore in 1990, soon after he assumed the Singapore leadership, also went badly, though it was not apparent at the time. Dr. Mahathir subsequently complained that the new prime minister kept him waiting. The Singaporeans denied it, and said Dr. Mahathir's real beef was that Goh did not go downstairs

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