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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

'Rough Weather Ahead'

The Asian recession mutes the Lion City's roar

By Andrea Hamilton/Singapore


IT WAS PERHAPS THE closest an ASEAN leader has come to suggesting that the head of a member-state may have to step down. Visiting New Zealand recently, Singapore Defense Minister Tony Tan said Suharto needed to clear up the succession issue, or else the markets would "continue to be volatile and this will hamper any recovery in the Asian economies."

Senior Minister Lee Kuan Yew is also concerned about leadership. He told the Thai National Defense College that reckless private borrowing, cronyism and market panic created Asia's debacle. But he added: "The root of many an economic crisis is political. The depth of the crisis and the speed with which a country emerges from it depend upon whether the government has the political will and popular support to implement tough measures." Many of his listeners would undoubtedly have thought of Jakarta's aging ruler.

Judging from such views, Singaporeans are losing more and more sleep over the regional slump's impact on their economy. "We have to be prepared for rough weather," declared Deputy Prime Minister Lee Hsien Loong on nationwide TV on Jan. 25. "Barring shocks, we don't expect to go into recession." He cited strong fundamentals. Singapore is a net creditor with $77 billion in currency reserves, No. 5 in the world. But no blanket assurances. "A sudden shock, some instability, some loss of confidence or some riot, then tomorrow you are in a new situation," said Lee, who is also chairman of the Monetary Authority of Singapore, the central bank.

Days before his interview on state TV's Money Mind show, Lee assured Parliament that Singapore banks were in no serious danger from the regional turmoil. Their total exposure to the five devaluation-hit economies -- Indonesia, South Korea, Malaysia, the Philippines and Thailand -- was 18% of their total assets, two-thirds in Malaysia. But only 3% of loans to the five countries are "classified" or doubtful, as of November. That figure may now be larger, due to the rupiah's plunge this year; still, loans to Indonesia account for only 2.4% of total Singapore bank assets. And the Lion City's banks have capital adequacy ratios in excess of 12%, well above the 8% recommended for international banks. In addition, many fixed assets of Singapore banks are worth several times more than the values recorded on the books. For his part, Lee wanted to improve disclosure standards to further reassure the public.

All that, however, won't bring much cheer to the 1,800 Seagate workers -- one-tenth of the U.S. disk-drive maker's Singapore staff -- laid off in late January. Disk drives are the republic's single largest export; its growth in October-December dipped to 4% over a year ago, compared with 9.4% in the previous quarter. Deputy PM Lee was quick to note that the Seagate retrenchment was due not to the Asian slump, but the ups and downs of the global computer industry. Other electronics multinationals are holding tough and promising no layoffs -- for now. Hewlett-Packard's regional chief Richard Warmington says the weaker Singapore dollar has helped sales. But he frets that if export prices keep falling, "we will have to be price-aggressive, which will negate some positive effects of devaluation."

Property is another sector seeing values sink -- by some 20% since June, eroded by the government's anti-speculation measures. "Everyone is getting very cautious," says Ong Choon Fah of agents Edmund Tie & Co. "Demand was down last year and has come off quite a bit this year too." End-users are still looking to buy, but investors are limited. Prices seem to be still on a downtrend, with interest rates up and regional confidence down. There are also reports of Indonesian tycoons selling Singapore real estate to raise cash for liquidity-short businesses back home. Values aren't helped by the slump in tourism, which contributes 5% of GDP, and in retail.

Non-oil exports last year were up a sluggish 5.3%, though they rose 13% in December. Economic growth projections for 1998 range from the official 5% and the 3% average among private forecasts, to Merrill Lynch's 0.7% and Morgan Stanley's zero. "At the macro level, Singapore is completely dependent on Indonesia and Malaysia," says Sanjoy Chowdhury, managing director at Fraser-AMMB Research in the city. Deputy PM Lee argues that Singapore is in much better shape than when it weathered a regional recession in 1985. But then, Asia's downturn is also far more virulent this time.


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