Economy gets a shot in the arm

PUBLISHED : Friday, 05 October, 2001, 12:00am
UPDATED : Friday, 05 October, 2001, 12:00am

SINGAPORE'S TRADE-RELIANT economy - like many others in the region - is hurting. Undermined by the slowdown in the world's leading economies, bludgeoned by the extraordinary decline in demand for hi-tech products, and reeling from the impact of the September 11 terrorist attacks in the United States, workers and businesses are facing some of the toughest conditions in decades.

Many observers say the country slid into recession in the first half of the year as demand for its exports dried up. The slowdown has been shockingly swift, forcing policy-makers to downgrade their economic forecasts time and again. Last year, Singapore's gross domestic product - the value of the country's goods and services - grew by almost 10 per cent. This year it will shrink.

As the economic environment has worsened, senior government officials have opted for a two-track strategy to deal with the unfolding crisis. On the one hand, cabinet ministers have kept up a steady flow of commentary to their electorate - and to the financial markets - about what can be expected. On the other, they have fired off a series of ad hoc moves designed to ease the pain and complement longer-term policies.

Both initiatives are being executed in the knowledge that the Singapore Government must call a national election by next August. News of thousands of freshly laid-off employees could tarnish the appeal of the ruling group, even one as powerful as the People's Action Party, which has negligible opposition.

'All of a sudden, after having 30 years of uninterrupted growth, you are in a new situation now. We have to find our way forward . . .' Deputy Prime Minister Lee Hsien Loong said. 'In 1965, when we became independent, we had nothing, but we made it. Everybody said we'd fail. In 1985, we had a very sharp recession. That came as quite a shock for people, but we pulled through faster than we expected. Today, we have more resources, we're better prepared, more consolidated as a nation and stronger physically, and I hope psychologically too. We have the ability to make our plans.'

The coming days will witness two key sets of events as Mr Lee and his colleagues push further forward with those plans.

Next week, the Ministry for Trade and Industry will unveil its first guess about how the economy fared in the most recent quarter, July to September. Alongside that keenly awaited figure - which will be negative - the number-crunchers will also issue their fourth forecast since January of the economy's performance over the year as a whole. It is likely to suggest that Singapore is on course for its worst year since 1985, and possibly since the 1960s.

Shortly after the numbers are made public, the Government will take the wraps off a raft of so-called off-budget measures, intended to blunt the impact of the recession. There have been clear signals in recent days that the package could contain some dramatic moves, including substantial extra spending. 'If we need to spend our surpluses, we have surpluses,' Mr Lee said. 'We are not cash-constrained.'

The emergency measures will, in fact, be a second shot in the arm for the beleaguered economy this year after a S$2.2 billion (about HK$9.63 billion) package introduced by Trade and Industry Minister George Yeo Yong Boon in July. Mr Yeo's first salvo saw an accelerated programme of public works and a raft of charge rebates for businesses.

In July, he also opted to defer the planned restoration of employers' pension payments on behalf of their workers, a cut that was first implemented during the regional financial crisis of 1997 and 1998. Although there has been much speculation in recent weeks that Central Provident Fund (CPF) contributions will again be axed, the Government has been trying to play down the talk. Second Finance Minister Lim Hng Kiang said this week that such a controversial move was not top of officials' anti-recession agenda.

Economists note that there are some parallels between the Government's response to this year's difficulties and those of the late 1990s. As many regional currencies came under pressure and international investors deserted much of Asia in 1998, Singapore drafted two off-budget packages - the first in June followed by another in November - worth a combined S$12.5 billion.

They point out, however, that although the Government's freedom of action in economic policy-making is similarly unconstrained this time around, its thrust has been necessarily different. Singapore's reaction to the Asian financial crisis was focused on reducing costs and restoring competitiveness, but those issues are now less important than curbing job losses and aiding those least well-off, they say.

Understandably, in the run-up to the next swathe of economic aid, commercial groups have been lobbying hard to have their concerns addressed. Big business - in the form of the Singapore International Chamber of Commerce - warned of the threat of a depression and tabled a S$10 billion wish list, including reductions in personal- and corporate-tax rates. Representatives from smaller companies urged Mr Yeo to again roll back the CPF payments they must make on behalf of their employees.

There has also been much interest in a policy first mooted by Prime Minister Goh Chok Tong in August to distribute some of the country's formidable budget surpluses to ordinary citizens in the form of 'New Singapore Shares'. This is unlikely to constitute one of the planks of the emergency package, but commentators say it might be presented in Parliament at the same time.

Few details have yet been made available of the proposed scheme, although Mr Goh has said the shares would pay a dividend and could be retained, traded or cashed in.

He has also said a greater proportion of the new paper would be handed directly to lower-income groups - exactly those feeling the most pain in today's recession.

Jake Lloyd-Smith is the Post's Southeast Asia correspondent