Tougher times ahead…

From Asia Today International
Special Online Report
April/May 2003

SINGAPOREANS have been warned by none less than Deputy Prime Minister Lee Hsien Loong to get used to lower growth in coming years. Times are tough, and some observers are now whispering the unthinkable – a re-merger with Malaysia

We now live in a fundamentally changed world. Singapore is at a turning point, Deputy Prime Minister and Finance Minister Lee Hsien Loong told Parliament in his Budget address in February.

Lee warned Singaporeans to expect tougher times ahead. He told them to get used to lower growth in coming years as the tiny State seeks its place in a difficult global environment. Even after the present slowdown, he expects the Singapore economy to grow more slowly because the country is now at a higher level of development and external conditions are more difficult.

We grew by an average of 7.3 per cent annually over the last 15 years. For the next phase, the ERC (Economic Review Committee) estimates our medium-term growth potential to be three to five per cent, comprising labour force growth of one to two per cent and productivity growth of two to three per cent, Lee said. Growth of three to five per cent is lower than what we have become used to, but it is still an ambitious target.

Singapores economy contracted 2.4 per cent in 200, its worst recession since independence in 1965. Last year, growth was 2.2 per cent and deflation remains a problem. Last year, the CPI dropped by 0.4 per cent.

The nub of the Budget focuses on five strategies: external ties; competitiveness and flexibility; entrepreneurship and Singapore companies; manufacturing and services; and human capital. The Government is again going into deficit to fund a range of tax concessions and subsidies to achieve its objectives, costing a total of S$324 million. The budget deficit this year will rise to S$1.2 billion – up from last years S$900 million.

Singapore is pushing ahead with free trade agreements. It has signed five of these, and expects to ratify the US-Singapore FTA this year. It is currently negotiating FTAs with Canada and Mexico, and plans to begin talks with India and South Korea this year.

Lee spoke at length on the need to encourage entrepreneurship. And he said the Government must continue to promote manufacturing and services as “twin engines of growth”.

Manufacturing generates 80 per cent of exports, but he acknowledges that competition, especially from China, is fierce.

Employers will be offered higher tax concessions to import foreign talent. As well, the Government plans to tap into some 150,000 Singaporeans who now live overseas for their contacts and network.

Some analysts believe the Government has not gone far enough to restructure Singapores economy. They argue that it is still working on the economic model, established by Goh Keng Swee, Singapores first Finance Minister, who charted the course of the city-states economic development. The Government is merely tinkering around the edges, says the vice-president of a European bank.

One Western economist told ASIA TODAY INTERNATIONAL that the economy is basically dominated by Government-linked enterprises. The people involved in these organisations are privileged elites, and, while they offer stability, he argues that they offer zero solutions to economic issues and change. The competitiveness of these companies has been questioned. As critics see it, Singapore is wrong in trying to play catch up with the West, instead of capitalising on its geographic location and working more closely with its immediate neighbours. Indonesia, Malaysia and Thailand. The focus on forming free trade agreements with far-flung countries may also be misplaced.

Relations with Malaysia, for example, have been badly frayed in recent times. Cross-straits bickering continues as ministers and senior officials trade insults. The main issue is disagreement over a water treaty, which Malaysia is attempting to re-write. Relations with other ASEAN countries have been described as “practical” at best, but not close.

And as the world moves into what some believe will be a deflationary cycle, the combined forces of the regional giants China and India will become more integrated with the global economy. Pressure from their abundant labour has already been felt in Thailand, Indonesia and the Philippines.

So how does a tiny city-state like Singapore survive in such an environment? In a globalised world, is Singapore viable? They are tough questions that defy answers. Where to next for Singapore is a pressing question that some astute observers say is exercising the mind of the founder of modern Singapore, Senior Minister Lee Kuan Yew.

Whether scuttlebutt or otherwise, it is instructive to hear a small circle of observers now talk about the likelihood of Singapore re-joining Malaysia. Singapore was expelled from Malaysia in 1965 because of political rivalries. Those suggesting the re-merger scenario hark back to comments made by Lee Kuan Yew, who reportedly first mentioned re-merger in June 1996. But given the level of animosity and suspicion, it does seem unlikely that Singapore, an independent state, should seek to merge with another.

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