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.
(Inter Press Service)
http://www.atimes.com/atimes/Southeast_Asia/KC27Ae01.html
SG has been growing faster than G8 in the past 2 decades.
The huge net natinal reserve can help a lot.
So,SG is in a much better shape than others.