HISTORY OF SINGAPORE IN RECESSIONS

zulkifli mahmood SG

SM GOH RECOUNTS HOW GOVT HANDLED PAST ECONOMIC CRISES

Sun, Feb 01, 2009
AsiaOne

Singapore has taken the unprecedented step of using a small portion of the past reserves to tackle the recession, but this is in no way ‘breaking the piggy bank’, said Senior Minister Goh Chok Tong on Sunday.

In his speech at Marine Parade’s Chinese New Year celebration lunch, SM Goh said “to break the piggy bank is to allow all the notes and coins to spill out, with no controls over how much is spent.”

“We are not doing that. Our reserves must continue to be protected,” he said.

“We must continue to exercise great discipline and not dip into our reserves at the first sign of difficulties. We should tap it only as a last resort and when there are compelling reasons,” he added.

SM Goh said he is in favour of putting up three “No” signs when drawing the reserves.

“First, no use of the reserves to support social assistance programmes. As a general principle, the Government must continue to fund such programmes out of revenues raised in the current term of government, not past reserves.

“Second, no draw for permanent programmes. Permanent programmes like Workfare and ComCare, no matter how meritorious, should be funded by current revenues and reserves.

“Third, no draw except under dire circumstances when one-off extraordinary measures are required to ward off catastrophe or prevent irreparable damage to the economy.”

During his speech at Roland club, SM Goh also recounted how Singapore dealt with recessions in the past, and the lessons learnt from it.

“The first one was in 1964, soon after we joined Malaysia. I remember this well because I had just started work in the Economic Planning Unit. It was a severe recession and there was high unemployment. The older amongst you here may remember that Singapore was banking on the common market with Malaysia to grow our economy. That, however, did not materialise. To make matters worse, we had to deal with domestic political turbulence, communal tension and racial riots. Tense relations with the central government in Kuala Lumpur, and Konfrontasi by Soekarno compounded our problems. Singapore’s trade fell sharply, reaching the lowest level in a decade. After we left Malaysia in 1965, our Government decided that Singapore could not depend on the region as a hinterland. The solution was to leapfrog the region and make the world our market and hinterland. Against the conventional wisdom at the time, we attracted multi-national companies to set up factories here and we exported to the whole world. By implementing such an export-led industrialisation strategy, we grew strongly for the following two decades.”

“The next recession was in 1985. The seeds were sowed a few years before, in 1979, when we instituted a high-wage policy to compel employers to use labour more efficiently. I had just assumed office as Minister for Trade and Industry. We decided that it made no sense for Singapore to grow on the backs of low-skilled, lowly paid workers. We wanted to upgrade the skills of workers and move up the value chain so that our people could earn more. With a favourable external climate and full domestic employment then, it was timely to restructure our economy from labour-intensive industries to higher value-added production. So the National Wages Council recommended high wage increases and we upped the CPF contribution rate to 50%. The economy began to transform itself. The high-wage policy was meant to last only 3 years but we could not put a brake to it as the demand for labour remained high. Soon, our wage increases outstripped productivity increases. Wage costs became too high and our exports became uncompetitive. Growth fell to -1.4% in 1985.”

“Since wage costs were the main cause of the recession, we cut the employer CPF contribution rate by 15%. Taxes and fees were also cut to further reduce costs. But more than cost cutting, we also invested in our future. We upgraded our workforce through higher education and skills training. We introduced fiscal incentives to attract higher value-added industries. The measures worked. We arrested the recession and growth quickly resumed.”

“After another decade of strong growth came a succession of economic crises, beginning with the Asian Financial Crisis in 1997 and followed by the dot-com bust in 2001 and the SARS attack in 2003. The collapse of the Thai Baht in 1997 triggered steep devaluations in the Rupiah and the Korean Won and led to a crisis of confidence in the region. The East Asian miracle unravelled. Foreign investors and fund managers pulled out their investments from Asia. The Singapore dollar fell by some 15% and our stock market plunged by half. Several countries resorted to IMF help. With IMF intervention and tough governmental measures, confidence was eventually restored in the affected countries. Singapore did not need IMF or other external help because of our strong reserves, prudent budgets and sound economy. Nevertheless, we seized the opportunity to adjust our costs, liberalise our financial sector and reform the economy. Within a year, our growth resumed.”

“Then the internet bubble burst. The dot-com bust in 2000/2001 exposed our dependence on the electronics sector. This sector contributed close to two-thirds of Singapore’s non-oil domestic exports then. We responded by diversifying our manufacturing base from electronics to other high value-added sectors like petrochemicals and pharmaceuticals. We signed free trade agreements with our major trading partners. We also promoted entrepreneurship and promising local enterprises. We grew rapidly. Other than for one quarter in 2003 when SARS scared the hell out of us, our growth was uninterrupted until this year.”

- SM Goh said three lessons could be learnt from the past crises, and he encouraged the upgrading of knowledge and skills during this difficult period.

“First, we must remain united and resilient in the face of crises. In past recessions, no matter how bitter the medicine, workers and employers swallowed them and worked hand-in-hand with the Government to tackle our common challenges. The whole population rallied together to pull the economy out of recession. Likewise, we must now confront our problems together, endure short-term pain, and plan for the long term. This year’s Budget has prescribed the right medicine but the pain will not go away immediately. The financial sector in the US and Europe is in deep trouble. The IMF has forecast zero growth for the world economy this year. The International Labour Organisation expects some 51 million jobs to be lost. Global demand for goods and services has shrunk. We can do very little to increase demand for our exports. But we can help companies cut costs and save jobs. Together, we can make the “Resilience Package” work. Companies should only retrench staff as a last resort and landlords should pass on the property tax rebates to their tenants. Banks, both local and foreign, should overcome their risk-aversion and continue to lend as in normal times. Otherwise the credit crunch will choke many sound businesses and stifle new enterprises.”

“Second, we will help you cope with the bad times. We will extend a special helping hand to those amongst us who are most affected by the slump, and cushion the impact on the most vulnerable. This is not to be done by the Government alone but also by the family and the community. Family members who are better off should help out other members of the extended family who may need help. Similarly, each community, like our Marine Parade community, should reach out to the needy and those badly hit by the downturn. But we must do this in a way that does not entrench a crutch mentality or erode our ethos of hard work and sacrifice.

“Third, do not be demoralized by the current recession but look beyond it. The global recession will end and we will bounce back. So invest in our future. Upgrade our knowledge and skills and remake ourselves to ride the upswing which will surely come. You will notice that we are revamping our primary school education and pouring in billions of dollars into your education and training even though these do not directly help to solve our short-term economic problems. This is to build up our capabilities for the future.”

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zulkifli mahmood SG

RIDING THE GLOBAL ECONOMIC CRISIS IN SINGAPORE

January 5th, 2009
Author: Shandre Thangavelu, National University of Singapore and ANU

Despite an average growth rate of nearly 8 per cent from 2004 to 2007, Singapore was the first East Asian country to fall into a recession from the current global economic crisis after July 2008. This clearly reflects the greater vulnerability of the Singapore economy to global economic shocks.

The exposure of Singapore’s banks to sub-prime mortgage is limited, due to its well regulated market. The recession came mainly through the fall of the non-oil exports in manufactured goods, induced by the overall deterioration of economic conditions in the US and Europe.

Economic conditions in Singapore have been affected by the huge loss in wealth from the collapse of the stock market that came with global crisis. This depressed domestic demand, reducing consumption and investment in assets. The immediate concern in the ‘liquidity-crunch’ from the financial crisis has been to provide sufficient liquidity in the system. To assist companies to get access to credit facilities, the Singapore government announced a S$2.3 billion loan facility for local companies (including SMEs) through its business financing scheme on 21 November 2008.

Both Europe and United States are still Singapore’s key export destinations, accounting for nearly 33 per cent of the total non-oil exports over the last few years. The ASEAN countries – Indonesia, Malaysia, and Thailand – accounted for nearly 20 per cent and Northeast Asia accounts for around 24 per cent of Singapore’s non-oil exports.

A rapid export recovery in Singapore seems very unlikely given the IMF’s revised growth forecasts for the major industrial economies – the United States to -0.5 percent, the European Union to -0.7 percent, and Japan to -0.2 percent in 2009 – and the World Bank’s downgrade of growth for China from 9.2 percent to 7.5 percent in 2009. It is difficult to see Singapore exporting itself out of this recession in the short haul as it did in the 1997 Asian economic crisis (with a spectacular v-shaped recovery). This crisis is likely to be long and protracted.

The government’s fiscal stimulus is also unlikely to have little impact on the growth, given the small share of the domestic demand to total demand, although it should provide some relief for vulnerable households in the lower income group.

Singapore’s economic fundamentals might be strong, but a number of things can be done to cushion the downturn and to promote economic recovery.

http://www.eastasiaforum.org/2009/01/05/riding-...

zulkifli mahmood SG

So for Singaporeans and investors alike, keep in mind of these past unforeseen circumstances in Singapore vulnerabilities and uncertainties economy.

lce SG

he is saying - RECESSION IS HERE

so tighten yr belt

zulkifli mahmood SG

One must always be careful and prudence to avoid being trap in financial difficulties. We never know what will happen to you should you resign or lost your job like being terminated or retrenched, especially in Singapore, the economy is vulnerable and uncertain. The recession will come suddenly like a Tsunami. You can listen to whatever the economists say but you must always think for yourself financially because if you fall, its never easy to get up though eventually you will standup again and that may take weeks, months or years.

zulkifli mahmood SG

Will Singapore economy be downhill when war in Korea peninsula breakout?

charlize SG

Times are bad.

zulkifli mahmood SG

One hotel general manager in town told me its going to be worse….about night race in Singapore…he said the first two years were ok after that..nothing. He also said that for gamblers in casinos…they don’t need accomodations…the casino is their bedroom…lols.

Sgxcapitalvia SG

well with FOREX Market its safe now