Dispute over rock could add pressure to Malaysia PM

By Jalil Hamid and Neil Chatterjee

KUALA LUMPUR/SINGAPORE, May 22 (Reuters) - A dispute between neighbours Singapore and Malaysia over a rocky outcrop near a major shipping lane will be decided by an international court on Friday, with experts pointing to risks for Malaysia's faltering government if it loses the case.

Both are confident the ruling will be in their favour for an outcrop Malaysia calls Pulau Batu Puteh and Singapore names Pedra Branca -- no larger than half a football field -- and located on the Singapore Strait, which is just off the key Malacca Strait, which carries 40 percent of the world's trade.

Analysts said a finding against Malaysia by the International Court of Justice in the Hague could put more pressure on Prime Minister Abdullah Ahmad Badawi and reopen old wounds in the often testy diplomatic ties between the two states.

"It could strain their ties if the ruling goes against Malaysia," said political analyst Yahya Ismail. "Singapore's victory means that the country will redraw its maritime boundaries and this could be at the expense of Malaysia."

Singapore briefly merged with Malaysia in the 1960s and the two have since often bickered over issues ranging from land reclamation to airspace and railway land.

Relations have improved since Abdullah came to power in late 2003, with growing trade and investment ties and a planned special economic zone in Malaysia's Johor state that borders Singapore -- and is closest to the contested island.

Johor officials said privately that the Johor state government could be forced to turn its back on Singapore if Kuala Lumpur loses the case, with the Southern state's hereditary ruler losing face.

"The Sultan may freak out and make it difficult for Johor state officials to have direct dealings with the Singapore government," said one. "There's also the possibility of ruling party politicians staging anti-Singapore demonstrations."