Singapore: Confronting The Crisis

1998

Professor James Cotton

So far Singapore has managed to adjust to the regional financial crisis. Growth targets, however, have been drastically revised downwards -- in the 2.5% to 4.5% range, according to the Ministry of Trade and Industry, down from the 7.6% for 1997 -- and the government is contemplating reforms to the financial sector to maintain the city-state's competitiveness. Bank mergers are also being contemplated, perhaps even the formation of a consolidated financial giant through the amalgamation of financial institutions DBS, OUB, Tat Lee, Keppel and POSB. This is not to say that policy changes are not still needed in Singapore. The IMF, in its annual review published in February, while complimentary on Singapore's fundamentals, recommended further financial transparency, especially regarding the nation's foreign reserves. This month's government budget did not include reductions in company or income taxes, though these measures are perhaps being held in reserve. Singapore's major difficulties have been political rather than economic. The government's US$10 billion package for Indonesia - pledged despite claims by the Parliamentary opposition that it was unconstitutional - some suspect contains more than pure currency support. Some of this could be lost if the Soeharto regime collapses. Singapore has already benefited from capital flight from Indonesia, but if larger numbers of ethnic Chinese seek refuge there, Singapore will need to decide whether ethnic (and even family) solidarity is more important than ASEAN solidarity. In some remarks broadcast on television in late February, however, former Prime Minister Lee Kuan Yew was critical of the choice of Habibie as Vice-President, saying that this was unlikely to convince the international markets that Indonesia was implementing the IMF reform package. To add to Singapore's difficulties with Indonesia, the pollution problem has reappeared, with fires in plantations and logging areas in East Kalimantan spreading smoke to Singapore and beyond. Participants at an officials' conference on the problem convened in Sarawak heard estimates that the cost to the region (in health problems, lost production and tourism) was already over $1.2 billion, but all the cooperation programs so assiduously cultivated by ASEAN have proved ineffectual. The appointment to the Soeharto Cabinet of Bob Hasan, Indonesia's largest holder of timber concessions to the Soeharto cabinet, may well be taken by some in Singapore as a sign that in Jakarta the problems of the region take second place. Lee and his associates may yet abandon Soeharto to his fate.

WATCHPOINT: Singapore's strategy of pursuing linkages through ASEAN to the region, and its longstanding support for the regime in Jakarta, are now under challenge.

 

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