Five political risks to watch in Singapore

December 15, 2009
Singapore Democrats

This post is at least a year old. Some of the links in this post may no longer work correctly.

Andrew Marshall & Nopporn Wong-Anan
Reuters

Singapore is widely seen as one of Asia’s least risky investment destinations, a key ingredient in its success as a regional trade and investment hub. Following is a summary of key Singapore risks to watch:

1. Security

Militants have long had Singapore in their sights — a Jemaah Islamiyah plot for multiple attacks was uncovered in December 2001. Internal security and policing are far ahead of neighbouring states, but the escape of al Qaeda-linked militant Mas Selamat Kastari from prison was a lapse that showed security is not infallible. The port remains a key potential target, and an attack on it could cause global disruption.

There is also the risk Singapore will see the emergence of more home-grown militants who would be better able to evade internal security.

[Key issues to watch]:
Assessments of strength and tactics of Jemaah Islamiyah and its offshoots. Most analysts believe the main JI movement has abandoned attacks on civilian targets, while a violent splinter group was badly weakened after the death of its leader Noordin Mohammad Top. If this changes, the threat could rise.

2. Transparecncy

Singapore is regularly rated as one of the least corrupt ountries in the world, but has sometimes been criticised for a lack of transparency in some areas, such as freedom of the press and secrecy in the financial industry. Following pressure from the G20, the country amended its tax law in October to help fight cross-border tax evasion, and last month was taken off the OECD’s “grey list” of countries not implementing international disclosure standards.

[Key issues to watch]:
Impact of changes to banking secrecy laws. Analysts say Singapore’s move towards greater transparency in the financial industry is unlikely to impact its status as a key banking hub — other countries with strict secrecy laws such as Switzerland have been moving in the same direction. However, rich businessmen from the country’s neighbours, particularly Indonesia, have long parked funds in Singapore, and might seek to remove them if they see a risk that they will be affected by new disclosure rules. If Singapore strikes deals with countries like Indonesia, Malaysia, Thailand or Taiwan, that would worry banks and clients, but the prospects of this are small in the near term. Overall, the impact on fund flows from greater transparency is expected to be positive for Singapore for the moment.

3. Political change

As Singapore evolves, calls for a more open political system with greater diversity of views are likely to intensify. Singapore’s restrictions on opposition activity and freedom of speech will also come under increasing scrutiny. Markets will be watching whether the ruling People’s Action Party can manage the transition to greater openness smoothly, and find the appropriate balance between greater openness and continued stability.

[Key issues to watch]:
Any sign of growing social pressure for political change, and the government’s response. The government says it will amend the constitution ahead of the next general elections, due by early 2012, to allow more opposition representation. But the change is not expected to have a significant impact.

4. Relations with neighbours

Singapore-bashing is a sure-fire way to win political capital in many regional countries. Relations with Indonesia, Malaysia and Thailand in particular are often thorny, and are further complicated by Singapore’s heavy investment in regional economies and its reliance on neighbours for some key resources. As the debacle over the purchase of Thailand’s Shin Corp showed, careful management of relations with neighbours is necessary not just for Singapore’s security but also for its economic prosperity.

[Key issues to watch]:
Any signs of a fresh flare-up in tension with Singapore’s unruly neighbours.

5. Demographics and race relations

Singapore saw deadly race riots in the 1950s and 1960s, and while considerable progress has been made in achieving racial harmony, some tensions remain. The issue is complicated by demographic issues — the majority Chinese population is growing at a lower rate than minority Malays and Indians due to different birth rates, and the government has made repeated efforts to encourage citizens to have more children. Labour shortages mean the country has to rely on immigrant workers for many jobs.

[Key issues to watch]:
Any sharp rise of racial tensions or unrest. This is considered extremely unlikely.

http://www.reuters.com/article/idUSSGE5BE00P20091215?type=usDollarRpt