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SCMP Reporter

The government is ready to provide support for businesses and workers should the economy slow faster than expected, according to Prime Minister Goh Chok Tong.

In a May Day message to citizens Mr Goh said, however, that because of the gloomy outlook, Singaporeans should not expect a full restoration of mandatory cuts to their state savings until next year at the earliest.

'A full-bloom recession is unlikely. But if the slowdown becomes more severe than we expect, the government will implement measures to help companies and workers cope, as we have done before,' Mr Goh said.

The tone of his address was extremely sober as he warned of the simultaneous pressures of the slowdown in the United States, the downturn in the global economics cycle and tougher conditions across Southeast Asia.

Last year, Singapore's gross domestic product grew by 9.9 per cent. This year the government expects an expansion of between 3.5 per cent and 5.5 per cent, down from an earlier estimate which put growth as high as 7 per cent.

The lengthy delay to making good the cuts to the Central Provident Fund (CPF) savings scheme could disappoint many.

Hopes had risen that the cut - implemented by the government during the regional financial crisis in 1998 to help businesses trim costs - may be fully reversed this year. That move is now off the cards. 'The government will proceed cautiously on CPF restoration. A premature and excessive restoration would only cause job losses through higher labour costs,' Mr Goh said.

'The Government will review the economic situation in October. It will assess the prospects for growth before deciding on any CPF restoration in 2002.'

Under the CPF, workers and their employers must both contribute 20 per cent of a worker's wage to a state savings fund to cover retirement costs.

In 1998, Singapore cut the employers' contribution by 10 percentage points - in effect a state-mandated pay cut. Since then, the employers' contribution has been partially restored to 16 per cent, but remains four percentage points shy of the full payment.

Mr Goh said in a move to prevent the need for future adjustments to the CPF rate, businesses should adopt a more flexible pay structure, enabling managers to slash pay packets by the month should orders or the economy falter.

The policy - one of few specific initiatives in Mr Goh's May Day speech - has long been endorsed by the authorities but take-up across the private sector has been slow.

'Cutting the CPF every time there is an economic slowdown is not an ideal solution. The CPF is meant to be a nest egg for workers in their old age. It should be cut only when absolutely necessary,' he said.

'Our economy will be more resilient if wage adjustments can be made in a more timely manner. A monthly variable component in the wage structure will allow companies to respond more quickly to any sudden downturn.'

Mr Goh issued a fresh warning about the potential costs for Singapore of a deterioration of regional stability and concomitant slide in international investors' affection for Southeast Asia.

'The Asean [Association of Southeast Asian Nations] economies are under severe stress. Like Singapore, they are hit by the slowdown in the US economy. They have not fully recovered from the Asian financial crisis. In addition, several of them face domestic political problems. Our neighbours' difficulties affect us because we are interdependent,' he said.

Singapore's trade with fellow Asean members constitutes 26 per cent of the total, while trade with the US forms 16 per cent.

One industry, electronics, accounts for 55 per cent of Singapore's domestic exports.

Mr Goh said: 'This slowdown of the US and Asean economies and the electronics industry will drag down our economic growth. Fewer jobs will be created this year.

'Some workers will be retrenched, particularly those in the electronics industry. Our unemployment rate is likely to edge upwards.'



Workers, business must brace for tougher conditions as government delays reversing pension plan cuts