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This speck on the map leapt from poverty to First World riches in a generation. Now its halcyon years of breakneck growth may be over.
Ask none other than Lee Kuan Yew, the authoritarian statesman who oversaw Singapore’s transformation from a malarial outpost of the British Empire to a modern city-state churning out hard-drives, medicines and deepwater oil rigs for export.
Premier from 1959 to 1990, he squashed dissent and steered the tropical island into embracing globalization. It reaped the economic benefits, becoming the world’s fourth-richest country as Western consumers sent global trade soaring.
Now Singapore’s top customers — the U.S., Japan and Europe — are mired in the biggest global slump since World War II and may take years to recover their normal growth.
Lee, currently an adviser to his son, prime minister Lee Hsien Loong, acknowledges it’s improbable that China along with other Asian nations can pick up the slack. It will take “decades” for Asians to shake off their traditional caution and tendency to save rather than spend, he says.
“The Chinese always believe there may be an earthquake. So do the Japanese,” Lee said last month in Japan.
“We’ll have to wait for the American economy,” he said.
Fellow Asian “tigers” Taiwan, Hong Kong and South Korea have also been hammered by the global crisis. But Singapore is the most dependent on trade, with exports equal to a whopping 185 percent of gross domestic product.
As a result, the Southeast Asian city-state is reeling from its deepest recession since splitting from a short-lived federation with neighboring Malaysia in 1965. The International Monetary Fund forecasts GDP to shrink 10 percent in 2009, the most of any major Asian economy.
So far, there are few signs the downturn is threatening the ruling party’s five-decade hold on power. Singapore — known for its ban on chewing gum sales and canings for crimes some countries would rule as minor — strictly controls public speech and assembly though has become socially more liberal and allowed greater artistic freedom in recent years.
The People’s Action Party, which engineered yearly growth averaging 7.7 percent since 1961, is also doing what it can to soften the blows.
Officials are aiming to boost tourism with two casinos and promoting the island as a private banking haven for wealthy foreigners but concede no amount of tinkering can eliminate the tiny nation’s weaknesses.
Singapore’s 4.8 million population, 683 square kilometers of land — a fourth the size of Luxembourg — and lack of natural resources leave it with little choice but to sway with the global winds of trade and finance.
A speech by the prime minister this week welcomed the creation of a high-level committee to plot fresh directions for the economy. Yet it offered nothing new by touting Singapore as a base for corporate head offices and center for biotechnology research and drugs production.
Considerable hopes are also pinned on financial services as a bilingual Chinese-English work force and political stability have spawned a busy wealth management sector. But after years of promoting its finance industry, Singapore does not yet rival Hong Kong as a regional financial center.
“The road ahead will be difficult. First we have to see through this global economic storm. Beyond that, we face a new world,” Lee Hsien Loong said.
Many economists expect the U.S. to emerge from recession later this year, but say the strength of the recovery is uncertain. U.S. consumer spending may take several years to return to pre-crisis levels as Americans pay down debt and build savings.
“U.S. consumers seem to be undergoing a change in mind-set for the first time in a generation or two,” said Quentin Fitzsimmons, a fund manager for London-based Threadneedle. “You shouldn’t look to the U.S. consumer to lead us out of this recession.”
The collapse in demand for Singapore’s exports is already putting pressure on wages. Growth in real household incomes slowed to 5.7 percent in 2008 from 7.5 percent the previous year while incomes of the bottom 10 percent of households stagnated even with increased government aid for the poor.
GDP per person this year is expected to slide to about $32,000 from nearly $37,700 last year.
Analysts at Credit Suisse predict an exodus of 200,000 foreign professionals and other workers from the island, adding to a collapse in house prices.
Singaporeans still flock to the swanky malls that line Orchard Road, a shopping strip famous in the region. But they mostly eyeball the luxury goods rather than buy.
“Right now, I don’t feel like I can afford Fendi,” said Yolanda Wong, a 27-year-old accountant, as she window shopped at the Italian designer fashion store. “I still have my job, but when I see other people losing their jobs or taking pay cuts, it makes me afraid and want to save,” she said.
Freddie Lim, manager of a boutique selling watches with prices as high as $1 million Singapore dollars ($692,000), said sales are down 20 to 30 percent.
“Our regular customers, who may buy several watches a year when the economy is good, are telling us they are worried about the future and putting off big purchases. People say this downturn could last three years,” he said.
The government has sought to stem layoffs and keep living standards from slipping by dipping into its $174 billion pot of international reserves for the first time to help finance a $13 billion fiscal stimulus package. It is subsidizing the wages of the lowest paid workers.
Officials, meanwhile, have pledged to remain faithful to low-tax policies that have successfully attracted foreign investment.
Even so, the return of Singapore’s once booming growth hinges on the big developed economies bouncing back strongly in the next two years, said Selena Ling, an economist with OCBC, a leading bank in Singapore.
“The golden age of growth may be past,” she said.