In August 1965, the separation of Singapore from the Federation of Malaysia
posed three main challenges. Prior to the separation, Singapore had decided on
an import-substitution strategy to build its economy. The immediate challenge
caused by the separation resulted in the abortion of the import-substitution
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strategy because regional markets such as Malaysia were raising barriers against
imports. The second challenge was the confrontation with Indonesia that threatened
Singapore’s role as a major trading port for the region. In addition, the
planned withdrawal of British bases within five years added worries that
the high unemployment rate that was estimated at about 10 percent would
increase even more. British bases in Singapore then were employing around
40,000 workers.