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To: sangkancil@malaysia.net
Date: Wed, 05 Nov 1997 05:40:13
Subject: [sangkancil] SG DAILY: PERC: Singapore Report (fwd)
From: pillai@mgg.pc.my (M.G.G. Pillai)
Reply-to: pillai@mgg.pc.my (M.G.G. Pillai)
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From: forum@sintercom.org (Wynthia Goh)
Date: 05 Nov 97
Originally To: sgdaily@list.sintercom.org
Political and Economic Risk Consultancy, Ltd. <asiarisk.com>
Country Risk Report: Singapore
November 4 1997
Executive Summary: Singapore=20
Watch out for any deterioration in relations between Malaysia and
Singapore in the near future. Not only have the two countries taken almost
diametrically opposite approaches to the current regional financial turmoil,
they are also engaged in a quiet game of tit for tat involving the causeway
linking Singapore to the southern Malaysian state of Johore. Since late
September, stringent customs checks at the Malaysian side, probably to
encourage local exporters to use Malaysian ports, have also threatened to
damage Singapore=92s electronics output at factories using imported
Malaysian components. Singapore=92s response =96 stepped up goods
and services tax checks on weekend Singaporean shoppers in the
southern Malaysian state of Johore has so far been low key. However,
a careless remark by either side could spark off yet another
diplomatic spat.
By contrast, Singapore is having much more success in its relations
with Indonesia. Faced with statements by President Suharto that appeared to
suggest that Singapore was prepared to provide Indonesia with up to US$10
billion in aid outside of an IMF rescue package being negotiated by that
country, Prime Minister Goh managed to put the record straight without
offending Indonesian sensibilities. However, candid remarks by former Prime
Minister Lee Kuan Yew a few days earlier regarding Thailand=92s internal
political problems have unnecessarily ruffled feathers in Bangkok.=20
The government may have a more difficult time maintaining the momentum
of its current drive to attract more foreigners to live and work in the
country in the coming months. With almost daily reports about the regional
financial crisis hogging the headlines and local labor unions already
warning their members not to expect significant wage rises next year, many
citizens are beginning to worry that an open door policy towards foreigners
may ultimately cost Singaporean jobs.=20
The decision of Prime Minister Goh to lodge an appeal against the terms
of a High Court judgment in his favor over a libel suit he bought against
opposition politician Jeyaretnam has ensured that human rights issues will
continue to influence foreign perceptions of the country over the short and
medium term.=20
Near-Term Outlook: Singapore
Testing times
The events of the past quarter have revealed Singapore to be more vulnerable
to regional developments than has been generally appreciated. Significantly,
the stock market fall and recent speculative attacks on the Singapore
currency were largely out of the control of the Singapore authorities, and
there could be more worrying developments ahead in the coming months. The
situation in Thailand could become even worse, for example, encouraging
foreign fund managers to worry anew about the political stability of the
whole region, or another government leader could make a mistake like
Malaysian Prime Minister Dr. Mahathir did recently when he said things which
upset his country's own as well as other stock markets in the region.
Domestically, Singapore is in a good position to ride out the current
turmoil, but to the extent that the currency and stock market turbulence
force an economic slowdown in neighboring countries, Singapore's
trade (and by implication its GDP growth) will also be affected.=20
Meanwhile, the financial troubles facing Singapore's neighbors have
forced the country to take a far more active role in regional
developments. Singapore contributed to the bailout package cobbled
together for Thailand, for example, and can probably be expected to
take much more interest in political and economic developments in
other neighboring countries in the future in order to help prevent
similar financial meltdowns in other countries. Inevitably, this
will involve some very delicate diplomacy =96 something that has
not always been Singapore's forte =96 and could become a source of
tension in the future as Singapore attempts to influence other
Southeast Asian governments to pursue responsible macroeconomic policies.=20
However, the regional financial crises has also produced at least one very
positive outcome for Singapore in the eyes of foreign banks and fund
managers. Unlike the authorities in some neighboring countries (which
effectively shot themselves in the foot as far as their aspirations to
becoming regional financial centers are concerned), Singapore reacted to the
crises in a very responsible manner. No threats were made against foreign
speculators, the stock market remained relatively liquid, and political
leaders declared boldly that they would allow the market to determine the
value of the local currency. These are the things that fund managers will
remember long after the dust settles on the current crisis. In other words,
Singapore=92s behavior has considerably enhanced its position as a major
regional financial center. It is easy to talk like a financial center during
booming times, but it can be hard to act like one during troubled times.
Singapore has once again succeeded in doing so.=20
Singapore was unlucky in that the regional financial crisis took place at a
time when the country was experiencing a robust debate within the leadership
about the continued usefulness of a range of long-established policies. The
uncertainty thus created helps to explain why Singapore was not able to play
its traditional role of safe haven in times of crisis.=20
In Singapore=92s tightly controlled political environment, it is often
difficult to be certain about just who is supporting what policy changes.
The pressure, however, is for institutional change and possibly economic
liberalization, although even among those most clearly favoring a
re-evaluation of fundamental policies the old instinct for control has not
completely disappeared. The main focus at the moment is the financial
system, although it is also worth pointing out that a far more wide-ranging
review of Singapore=92s competitiveness chaired by Trade and
Industry Minister Lee Yock Suan is in the pipeline. Important
changes are also being introduced into the education system, and the
government has announced a more liberal approach to the use of
foreign labor. Deputy Prime Minister Lee Hsien Loong, together with other
members of the Lee family, are most closely associated with the drive
towards economic liberalization and institutional restructuring, while the
widely respected Deputy Managing Director of the Monetary Authority of
Singapore, Koh Beng Seng, appears to be in the conservative camp. Beyond
that, however, the closed nature of the Singapore political landscape makes
it difficult to be sure just how senior officials are lining up in the=
debate.=20
A robust debate is taking place, however. In early August, Mr. Koh submitted
his resignation to the MAS. Such was the concern of the government at the
potential loss of such a highly regarded figure that Prime Minister Goh felt
it necessary to intervene to persuade him to stay on. Soon afterwards, he
was named as a member of a high-level committee chaired by Lee Hsien Loong
charged with reviewing the financial sector.=20
Meanwhile, the nation has also been treated to a series of unusually public
exchanges between ministers regarding the character of the nation=92s
financial sector. In mid-August, former Prime Minister Lee Kuan Yew lamented
in a speech to his Tanjong Pagar constituents that Singapore=92s financial
sector lacked the 'buzz' of Hong Kong, where foreign and local forex dealers
and share brokers socialised much more than they did in Singapore,
exchanging information. The message appeared to be that Singapore should
encourage such a spread of information by word of mouth by people in the
know because it helped alert key players to important new financial
developments. In a subsequent interview with a local newspaper, Finance
Minister Richard Hu argued that such a 'buzz' was not really needed
in Singapore because it did not have a large syndicated loan
market. MNCs in the country funded their operations centrally from
within the group, while government-linked companies, being largely
cash-rich, did not need to resort to raising bonds or bank
borrowings. "You don't expect us to go down to Clarke Quay and Boat
Quay to drink to create the buzz", he added somewhat scornfully.=20
Just how Singapore leaders hope to encourage local players to exchange
information more freely has yet to be explained. According to Trade and
Industry Minister Lee Yock Suan, Singapore's draconian Official
Secrets Act (OSA) is still necessary, and in any case should not
have any bearing on the fact that the financial sector has no 'buzz'.
However, it will be a long time before stockbrokers, bankers and
journalists working in the island forget the events of 1992, when
several people (including stockbrokers and a newspaper editor) were
prosecuted under the OSA after an economic growth figure was leaked
to the press. The fear of official retribution also extends to other
areas. Few businessmen like to be quoted by name in the press when it
comes to the possible negative effects of government policy on their
business operations, for example.=20
In terms of concrete policy shifts, the internal debate has so far produced
few real changes, partly because there are still powerful forces within the
government resisting change. The issue getting the most attention at present
is whether or not the nine-year-old policy of distinguishing between foreign
and locally-held shares in banks and other large companies regarded as
strategically important should be abolished. Speculation among stockbrokers
and other analysts intensified after August 8, when the government-owned
Singapore Technologies Group announced an end to its foreign-local share
split. Because the company is headed by Ho Ching, wife of Lee Hsien Loong,
the move was initially taken as an indication of a change in government
policy. However, repeated statements by the MAS that it did not intend to
allow local banks to change their foreign shareholding limits revealed that
at least some senior leaders were leery of opening up the financial sector
too quickly. Since then, the reformers have backed off. Abolishing
the dual share system in other large companies now would inevitably
deal a double blow to the portfolios of foreign fund managers
(which hold the higher-valued foreign shares) at a time when both
the Singapore and regional stock markets are already suffering from
a crisis of confidence as a result of turmoil in the foreign
exchange market.=20
Market talk has it that other structural changes are also being discussed at
senior levels. These include splitting up the functions of regulation and
development of the financial sector and transferring some functions to the
Economic Development Board. Reformers also argue that a separate agency
should be set up to regulate the securities industry, leaving the
promotional role with the stock exchange, an idea akin to the current
practice in the US and Hong Kong, where the Securities Exchange Commission
and the Securities and Futures Commission respectively act as regulators
while the exchanges function as promoters. Gerald Corrigan, the US expert
hired recently to advise Finance Minister Richard Hu on how to develop the
finance sector, appears to agree. In a recent interview, he questioned the
wisdom of housing the supervising authority for all financial institutions
in one body, arguing that it could develop into a huge lumbering bureaucracy
which lacked the ability to act quickly.=20
Just how many of these changes will result in a less-regimented financial
sector is more difficult to say. Bankers often complain privately about the
pervasive climate of control, noting =96 for example =96 that even
the location of automatic teller machines in the island is
regulated. For their part, brokers complain about the extent to which
the MAS micromanages their operations, and the restrictions which
make it difficult for them to get into fund management or launch new
products such as stock index futures. Significantly, there are no
suggestions that the authorities are considering easing up in any of
these areas. Finance Minister Richard Hu has also poured cold water
on suggestions that Singapore boldly remove some of the restrictions
that currently prevent foreign banks from gaining a larger share of
the retail banking business. Officials still see the primary role of
foreign banks in the country in terms of their ability to do offshore,
not domestic business.=20
Even when a major policy change is announced, the government tends to move
cautiously =96 at least in the financial sector. Expectations were high in
1994, for example, when the government announced that government-linked
corporations (GLCs) would henceforth be permitted to release more funds to
fund managers. However, these GLCs have since proven remarkably slow in
awarding such mandates to fund managers in the private sector. Most have
continued to park their excess funds in fixed deposits and government bonds.=
=20
What is clear, however, is that the government's attitude to the
employment of foreign labor has undergone an important
transformation. In 1991, Prime Minister Goh warned the nation about
the undesirability of an over-dependence on foreign labor. At his
national day rally speech in August this year, however, Mr. Goh
argued strongly for a far more accommodating approach. The official
view now is that foreign talent will be needed across the board =96
not just at the top =96 if Singapore is to remain competitive. From
now on, it appears that large numbers of foreign blue-collar
laborers, including technicians and even bus drivers, may actually
be welcomed instead of grudgingly accepted as necessary to meet
local shortages. Singapore's already liberal immigration rules are
to be further relaxed, more rental housing made available to
foreigners, and more places created in government schools for their
children. The move echoes a similar policy shift regarding
Singaporeans who choose to emigrate. Once labelled as failures or
deserters, senior leaders now encourage former citizens to maintain
their links with Singapore in order to help the nation expand
regionally.=20
The education system appears to be going through a similar transition. There
has always been some form of lip service in Singapore to the need to prevent
students focusing too narrowly on one discipline at the expense of wider
general knowledge. As far back as 1980 then Prime Minister Lee Kuan Yew also
argued that the objective of local universities should be to produce an
'educated man', which he defined as someone schooled to the point where he
could probe, learn and solve problems for himself. However, the resulting
public discussion on the need to broaden the knowledge base of students
resulted in few significant changes, and the private sector continued to
quietly lament the lack of independent thought among locally trained
university graduates.=20
In 1993, however, things began to change when the authorities announced that
they had begun a pilot foundation skills course designed to expose first
year Arts and Social Sciences students to critical and analytical thinking,
creative writing and time and stress management. Since then, the drive to
re-orientate the education system has been stepped up, with creative
thinking programs being implemented in selected secondary schools. After the
elections in January, these changes were pursued with renewed vigor by
political heavyweight Tony Tan and newly appointed Education Minister Rear
Admiral Teo Chee Hean, a rising star in the Cabinet. The move parallels
earlier structural changes under which the government has established a
system of 'independent' schools where students pay higher fees and
principals have greater say over such matters as staffing and class
sizes.=20
However, as with many changes now being considered in other areas, at least
some officials seem reluctant to depart very far from the old system of
controls. Legislation passed by parliament in August this year ostensibly to
help 'thinking schools' enhance their management systems, also appears to
have introduced new checks into the system to prevent schools departing too
far from national norms. In any case, it is not altogether clear how the
government intends to overcome the reluctance of students to express their
own ideas in the classroom without at the same time encouraging them to
challenge aspects of the nation=92s authoritarian political system which the
government regards as essential.=20
Return to Country Index=20
Economic Indicators: Singapore=20
1992 1993 1994 1995 1996
1997f
=20
Real GDP Growth (%) 6.04 10.10 10.10 8.90 7.00
6.50
Total Exports=20
(fob, US$ bil) 63.40 74.01 96.83 118.27 123.40
126.70
Total Imports=20
(cif US$ bil) 77.10 85.23 102.67 124.51 124.00
133.30
Current Account Balance=20
(US$ bil) 6.10 5.17 11.95 15.10 14.20
12.60
Foreign Exchange Reserves=20
(US$ bil) 39.66 48.07 57.89 68.35 76.50
82.00
Total External Debt=20
(US$ bil) Neg Neg Neg Neg Neg
Neg
Debt Servicing =20
(US$ bil) Neg Neg Neg Neg Neg
Neg
Exchange Rate vs US$=20
(year-end) 1.64 1.61 1.46 1.41 1.40
1.52
Inflation=20
(CPI %) 2.30 2.30 3.10 1.70 1.40
2.20
=20
f PERC forecast
Neg negligible
=20
Copyright 1997 Political and Economic Risk Consultancy, Ltd.=20
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