Singapore 'can withstand most
shocks'
It has enough in financial arsenal should
global meltdown occur: HSBC
AARON LOW,
ECONOMICS CORRESPONDENT
SINGAPORE will have enough in its financial arsenal to ward off
all but the worst of external shocks if the euro zone crisis
triggers another global meltdown, said an HSBC report.
The bank noted that Asia would not be spared by the euro zone's
woes but economies such as Singapore, China, South Korea, the
Philippines, Indonesia and Hong Kong have enough in the bank to
help themselves through.
The debt crisis in Europe could intensify within days with
Greece heading to the polls tomorrow.
If the results are inconclusive, uncertainty and panic in the
markets could break out, said OCBC economist Selena Ling.
'Expect more confusion in financial markets as a repeat of
Greece going to the polls ad infinitum is unsustainable,' she
added.
However, Barclays Capital economist Leong Wai Ho believes the
risk of a big blow-up in Europe remains low.
'These events could be triggered by a sudden liquidity crunch or
a bank failure that is large enough to unhinge confidence
globally,' he said.
'Fortunately, with the liquidity buffers that central banks have
put in place, the probability of contagion is minimised.'
But should the crisis escalate, there is no doubt that Singapore
will be the hardest hit in Asia, said Credit Suisse economist
Robert Prior-Wandesforde.
He noted that Singapore's exports to the euro zone directly
account for more than 12 per cent of the economy while private
sector holdings of euro zone debt and equities are higher than
anywhere in Asia except Hong Kong.
Euro zone banks also make up a bigger proportion of domestic
bank lending in Singapore than in other Asian economies, he
said.
'It is obviously extremely hard to quantify how big the hit to
GDP (gross domestic product) would be from a Greek exit and
significant contagion to other euro zone countries, but we would
not be surprised if the initial effect was at least as large as
that experienced during the global financial crisis,' he added.
In the first quarter of 2009, Singapore's economy contracted 8.8
per cent, although it bounced back up after interest rates fell and
the Government acted to inject funds into the economy.
Mr Prior-Wandesforde noted: 'The good news is that Singapore
again has a huge amount of fiscal flexibility to tackle a major
growth shock, but unfortun-ately the same cannot be said of both
fiscal and monetary policy in most other countries in the
world.'
HSBC's Mr Frederic Neumann agreed, noting that Singapore is one
of several Asian nations with the capacity to use fiscal policy to
buffer the fallout.
Based on public information, Singapore has government debt of 60
per cent, but this is misleading due to accounting numbers. Gross
public debt leaves out the Government's assets from past surpluses,
which the Government has been accumulating over the years.
'In the case of Singapore, however, this is misleading given the
vast amounts of hidden fiscal reserves that the Government
possesses,' said Mr Neumann.
He also noted that countries such as Singapore, which did not
have a deficit of more than 3 per cent, are in a financially
healthier position to roll out stimulus if needed.
The Government has a mandate to balance the budget books over
the course of its term in office even though it does record budget
deficits on a year-to-year basis. Still, this means that economies
such as China, Hong Kong, South Korea and Singapore 'have plenty of
room to add a kick to growth', said Mr Neumann.
In 2008, the Government said it would set aside $150 billion of
past reserves to guarantee deposits in Singapore until the end of
2010. In 2009, it also drew down $4.9 billion from its reserves for
the first time to fund the Jobs Credit programme and a special risk
sharing initiative that helped keep credit lines open.
Money, The Straits Times, Saturday, June 16 2012, Pg C10
