Ever since Separation in 1965, both governments had made serious efforts to resolve a number of issues. In 1988, the then two Prime Ministers Mr Lee Kuan Yew and Dr Mahathir Mohamad agreed to have all the outstanding issues resolved as a package. A Memorandum of Understanding (MOU) was signed between the countries on four issues: water, gas, a ferry service and a new bridge on 28 June 1988. Subsequently, a water and gas pact was signed between Singapore and Malaysia on 24 November 1990. In 1990, a Points of Agreement (POA) on railway land and the Customs, Immigration and Quarantine (CIQ) was also concluded. Among these were the status of the railway land and the CIQ Office in Tanjong Pagar and the Central Provident Funds (CPF). Over time, other issues were also hoisted on to the list.

However, several attempts to clear the deck and put the bilateral relationship on an even keel came to naught. Difficulties over the negotiations of the package and the Malaysian government's inaction over the POA led to an impasse.

Against the background of the financial crisis which hit the region in 1997, a fresh attempt was made to work on the package of issues which saw financial assistance to Malaysia and the sale of water to Singapore on a very long-term basis being included as additional elements. The failure to agree on the terms for the financial assistance led to a discontinuation of the negotiations on the issue.

For water and other outstanding issues, several attempts were made to find a comprehensive solution, including two visits to Kuala Lumpur in 2000 and 2001 by then Senior Minister Lee Kuan Yew. In a letter to SM Lee dated 21 February 2001, the Prime Minister of Malaysia, Dr Mahathir Mohamad, offered to sell raw water to Singapore at a “fair Price” of 60 cents per mgd in return for concessions on other elements of the package. Responding to the offer, and in a letter dated 23 April 2001, SM Lee said that although there were some elements to beresolved on the water issue, if there was “give and take on both sides, an agreement is possible”. In this spirit, SM Lee undertook his second visit to Kuala Lumpur in September 2001.