Singapore in straitened times
By Kalinga Seneviratne
SINGAPORE - This tiny island republic sits on trillions of dollars in foreign
reserves. Yet, Prime Minister Lee Hsien Loong said in a BBC interview this
month that his country cannot spend its way out of the economic downturn until
the global economy heals.
Singapore, which has no natural resources and a population of only 4 million,
has been badly bruised by the global economic turmoil and the latest figures by
the Development Bank of Singapore say 99,000 people will be laid off this year.
For the first time since its founding in 1965, Singapore has had to dip into
its foreign reserves to help fund a US$13.7 billion
"Resilience Package" announced in the budget in January.
These measures will "help companies to remain viable but we must understand
that what we can do is to buffer the impact", Lee said in an interview on BBC's
Asian Business Report. "You must wait for the storm to pass."
During good times, Singapore benefited greatly, but when the economies of its
trading partners in the West collapsed, this Southeast Asian tiger was among
the first to be hit. The government believes that it will take at least two to
three years for the economy to recover.
The Asian Wall Street Journal, commenting on the emergency budget, said that
the global economic crisis was a wake-up call for Singapore, which has depended
heavily on export income, whose decline resulted in the growth rate declining
by 16.9% in the fourth quarter last year. "Singapore's economy would be more
resilient if it were better balanced," the Journal argued, pointing out that
consumption was only 40% of gross domestic product.
In response to the Journal's comments, Ministry of Finance spokesman Chin Sau
Ho argued that Singapore's economic model reflected the realities of a small
country striving to be a modern nation.
"It is diversified across manufacturing and services, but both are heavily
exposed to global markets," he said, arguing that "as a city-state with a
population of 4 million, businesses have far greater incentive to serve global
markets than domestic consumption".
But, the impact of the global financial turmoil on such a strategy has been
such that Lee raised the unthinkable here when he said in an interview with the
CNBC network, earlier this month, that Singapore might have to rethink its
export-led growth strategy.
"There will have to be a global rebalancing because we cannot expect the
Americans to be consumers of things made all over the world - and with the rest
of the world as savers, lending money to the US to buy things from you."
He acknowledged that this would mean a shift away from Asia's export-driven
economic development model.
A few months ago this would have been blasphemous for a Singaporean leader to
say, as the city-state's economic success with a per capita annual income of
over US$24,000 is attributed to its open economy, with about three-quarters of
its income coming from external trade and investments.
The government's investment arm, Temasek, has invested heavily overseas and
government-owned enterprises such as the telecom giant SingTel, Singapore
Airlines, DBS Bank Keppel Corporation and Semb-Corp derive a large chunk of
their incomes from overseas operations or trade. Their share prices and
overseas income have plummeted in the current global economic downturn.
"We are part of the world economy. We make chips, we make pharmaceuticals, we
make petrochemicals. We consume maybe 1% of what we make of these things.
Probably less," said Lee in the CNBC interview. "We are making for the world.
We buy from the world, for the world ... that's how we prosper."
To override this downturn, Singapore Airlines has grounded 17 planes and is
planning to lay off about 9,000 of its workers spread worldwide. The government
in its stimulus package has allocated large sums of money for retraining
laid-off workers for possible future jobs which could be in areas different to
what they have worked in before.
There seems to be a shift away from traditional manufacturing jobs to more
knowledge-based industries such as multimedia.
At the recent summit in Thailand of the Association of Southeast Asian Nations
(ASEAN), Singapore was at the forefront of calls to resist the temptation for
protectionism. That led calls for more open markets in the region and for
accelerating the setting up of the ASEAN economic community by 2015.
The 10 countries that make up ASEAN have a combined market of 560 million
people, but their purchasing powers vary widely, with some members like Laos,
Myanmar and Cambodia being among the least-developed countries in the world.
One silver lining is that the financial systems of these countries have been
relatively unscathed by the global financial crisis. Other ASEAN countries such
as Malaysia, Thailand, Indonesia, Brunei and the Philippines (the remaining
member is Vietnam) have been hit to varying degrees.
Former ASEAN secretary general Rodolfo Severino, writing in Singapore's Straits
Times newspaper, recently argued that many countries in the grouping benefited
by the bubble generated by the "heavily debt-dependent spending binge of
American companies and consumers, and clung to the profit-making and
job-creating model of export-led growth".
He argues that ASEAN should do more as a group to develop its economies and be
less dependent on such bubble economies and that it should stimulate domestic
demand with investments in the health, education and rural sectors.
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