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Tuesday, September 1, 2015
- This tiny island republic sits on trillions of dollars in foreign reserves. Yet, Prime Minister Lee Hsien Loong said in a BBC interview this month that his country cannot spend its way out of the economic downturn, until the global economy heals.
Singapore, which has no natural resources and a population of only four million has been badly bruised by the global economic turmoil and the latest figures by the Development Bank of Singapore says 99,000 people will be laid off this year.
For the first time since its founding in 1965, Singapore has had to dip into its foreign reserves to help fund a 13.7 billion US dollar ‘Resilience Package’ announced in the budget in January.
“(These measures will) help companies to remain viable but we must understand that what we can do is to buffer the impact,” Lee said, in an interview on BBC’s Asian Business Report. “You must wait for the storm to pass,” he added.
During good times Singapore benefited greatly, but when the economies of its trading partners in the West collapsed, this South-east Asian tiger was among the first to be hit. The government believes that it will take at least 2 to 3 years for the economy to recover.
The Asian Wall Street Journal, commenting on the emergency budget, said that the global economic crisis was a wake-up call for Singapore which has depended heavily on export income that has resulted in the growth rate declining by 16.9 percent in the fourth quarter last year. “Singapore’s economy would be more resilient if it were better balanced,” the Journal argued pointing out that consumption was only 40 percent of GDP.
“It is diversified across manufacturing and services, but both are heavily exposed to global markets,” he said, arguing that “as a city-state with a population of four million, businesses have far greater incentive to serve global markets than domestic consumption”.
But, the impact of the global financial turmoil on such a strategy has been such that Lee raised the unthinkable here when he said in an interview with the CNBC network, earlier this month, that Singapore might have to rethink its export-led growth strategy.
“There will have to be a global rebalancing because we cannot expect the Americans to be consumers of things made all over the world. And the rest of the world as savers, lending money to the US to buy things from you” he argued.
He acknowledged that this would mean a shift away from Asia’s export-driven economic development model.
A few months ago this would have been blasphemous for a Singaporean leader to say, as the city-state’s economic success with a per capita income of over 24,000 dollars is attributed to its open economy with about three-quarters of its income coming from external trade and investments.
The government’s investment arm Temasek has invested heavily overseas and government- owned enterprises such as the telecom giant SingTel, Singapore Airlines, DBS Bank Keppel Corporation and Semb-Corp derive a large chunk of their incomes from overseas operations or trade. Their share prices and overseas income have plummeted in the current global economic downturn.
“We are part of the world economy. We make chips, we make pharmaceuticals, we make petrochemicals. We consume may be one percent of what we make of these things. Probably less,” said Lee in the CNBC interview. “We are making for the world. We buy from the world, for the world… that’s how we prosper.”
To override this downturn, Singapore Airlines, for example, has grounded 17 planes and is planning to lay off about 9,000 of its workers spread worldwide. The government in its stimulus package has allocated large sums of money for retraining laid off workers for possible future jobs which could be in areas different to what they have worked in before.
There seem to be a shift away from traditional manufacturing jobs to more knowledge- based industries such as multimedia.
At the recent ASEAN Summit in Thailand, Singapore was at the forefront of calls to resist the temptation for protectionism. That led the calls for more open markets in the region and for accelerating the setting up of the ASEAN economic community by 2015.
The ten countries that make up ASEAN (Association of South East Asian Nations) have a combined market of 560 million people, but, their purchasing power varies widely with some members like Laos, Myanmar and Cambodia being among the least developed countries in the world.
One silver lining is that the financial systems of these countries have been relatively unscathed by the global financial crisis.
Other ASEAN countries such as Malaysia, Thailand, Indonesia, Brunei and the Philippines have been hit varying degrees.
Former secretary-general of ASEAN, Rodolfo Severino, writing in Singapore’s Straits Times newspaper recently argued that many countries in the grouping benefited by the bubble generated by the “heavily debt-dependent spending binge of American companies and consumers, and clung to the profit-making and job-creating model of export-led growth”.
He argues that ASEAN should do more as a group to develop their economies and be less dependent on such bubble economies and that they should stimulate domestic demand with investments in the health, education and rural sectors.