 The state and federal governments also had conflicts on the economic front . UMNO leaders feared that the economic dominance of Singapore would inevitably shift political power away from Kuala Lumpur . Despite earlier agreement to establish a common market , Singapore continued to face restrictions when trading with the rest of Malaysia . In retaliation , Singapore refused to provide Sabah and Sarawak the full extent of the loans previously agreed to for the economic development of the two eastern states . The Bank of China branch of Singapore was closed by the Central Government in Kuala Lumpur as it was suspected of funding communists . The situation escalated to such an extent that talks between UMNO and the PAP broke down , and abusive speeches and writings became rife on both sides . UMNO extremists called for the arrest of Lee Kuan Yew . 
