Singapore: Exposure to Regional Crises on the Increase

1998

Dr Garry Rodan

After an impressive 7.6 per cent economic growth in Singapore during 1997, projections for 1998 range from the optimistic official 5 per cent to private estimates as low as 0.7 per cent. The impact of financial crises across the region is expected to increase significantly over the next six months, especially as the cushioning effect of US demand for manufacturing goods slows. Last year's resurgence in the electronics industry, which accounts for around 70 per cent of the island's non-oil domestic exports and 17 per cent of gross domestic product, appears short-lived. Demand in the US for computer disk drives, the Republic's single largest manufacturing export, has begun to moderate and prices for key electronic components are now contracting. Leading disk drive manufacturer, Seagate Technology, laid off 1,800 workers in Singapore in late January. To reduce structural dependence on the fluctuating fortunes of electronics, the government is expected to endorse most recommendations of a high-level report advocating a range of liberalisations. Target areas include the fund-management industry, the stock exchange, and the debt market. Singapore's banks will face new competitive pressures in a climate of significant but manageable exposure to regional crises. At the end of November, some US$23 billion or 18 per cent of total Singapore bank assets were located in Malaysia, Indonesia, South Korea, Thailand and the Philippines, of which 3.2 per cent comprised non-performing loans. More up-to-date data can be expected to show that the subsequent demise of the rupiah raised that exposure level. Where the city-state is especially susceptible to regional fallout in the months ahead is through entrepot activities. Around 27 per cent of Singapore's total trade is with Indonesia, Malaysia, the Philippines and Thailand. The diminished capacity of the region to trade with the rest of the world will slow port activity in Singapore, and the services associated with it. Falling property prices, which have dropped 20 per cent since June, will be difficult to arrest too. Cash-strapped Indonesian business tycoons who had invested heavily in the Singapore property market will be looking to sell properties. The tourist industry, which relies on visitors from Southeast Asia for a third of its business, and the already dampened retail sector, will be further hit by the dilution of Singaporean purchasing power as a result of devaluation against the US dollar.

WATCHPOINT: Can Singapore take the lead in reviving regional economies?

 

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