Govt Has Arsenal To Counter US-Driven Slowdown: PM Lee

Source : The Business Times, May 7, 2008

In a crunch, it can pump-prime the economy and give targeted assistance

Singapore is prepared to face any economic scenario that emerges from the current uncertain climate, including a prolonged downturn in the United States, said Prime Minister Lee Hsien Loong yesterday.

PM Lee: Singapore is prepared to face any economic scenario that emerges from today's uncertain climate

One option to fall back on would be to boost economic growth through government spending, including resuming construction projects that were earlier put on hold, he said.

'If things do get bad, which cannot be ruled out - although it does not appear to be on the cards - we are not without recourse,' he told a group of some 100 guests including chief executives, senior bankers and economists at a discussion hosted by Thomson Reuters.

'If we need to move on fiscal policy to stimulate the economy, we can do that. If we have to have directed assistance to help the lower-income because unemployment has gone up - right now it's at a very low level, but if that happens - we can do that.

'And if I have to stimulate the economy or some sector of the economy, I can do that too.' In the construction sector, for example, the government could restart projects that it had put on hold, he said.He also said that he wished that the government had 'moved earlier' to ease the office space crunch in the financial sector, which has grown so rapidly that prime office space rents have soared, prompting banks to move some of their staff and operations to out-of-town locations.

'I wish we had moved our banking and financial centre six months earlier than we actually did. But at that time, the market looked cold and nobody was interested and we were unable to generate the interest for it to take off.'

But the government has since taken steps to build more office space, housing and schools to ease some of the capacity constraints, he said.

HSBC economist Robert Prior-Wandesforde asked Mr Lee if he thought that Singapore could be in danger of losing its lead over other countries in export competitiveness, especially given the recent disappointing growth figures for electronics exports.

Singapore's non-oil domestic exports fell by 5.9 per cent in March, the steepest decline since February last year. Electronic exports shrank for the 14th month in a row.

Mr Lee said that the falling dollar value of electronics exports was likely to be an 'inevitable trend' - partly because 'prices have been crashing' even though the volume had risen - but that other sectors of manufacturing such as pharmaceuticals would provide support. 'Our overall export numbers are not bad - could be better, but they're not bad. I don't think it is a sign of our losing export competitiveness.'

David Conner, chief executive of OCBC Bank, asked Mr Lee what he thought the reaction of other governments in the region to rising food prices and overall inflation was likely to be.

Mr Lee said that 'it would be a pity' if countries closed up their markets 'because it's really the markets that are going to make sure that the food goes where it's needed and there's enough for everybody to eat'.

He said that cooperation among the Asean countries was necessary 'to make sure that we coordinate among ourselves and do not work against one another'.

Long-term problems affecting food supply such as under-investment in research and development would take time to solve, he said. 'We must be prepared to see food prices up for some time.'

Separately, he told Reuters in an interview before the discussion that the Government of Singapore Investment Corp (GIC) would not disclose as much detail about its investment portfolio as Singapore's other state-owned fund, Temasek Holdings, despite pressure from foreign governments.

'GIC and Temasek are different,' he said. 'We do not want to tell people exactly how much we have so it's easier for them to make a run on the Singapore dollar.'

GIC, which invests Singapore's foreign reserves overseas, is believed to be the world's third largest sovereign wealth fund, with an estimated US$330 billion in assets under management, according to Morgan Stanley in February. Unlike Temasek, which began publishing an annual review of its portfolio in 2004 containing consolidated financial statements and its investment returns, GIC reveals only that it manages funds 'in excess of US$100 billion' on behalf of the government and the Monetary Authority of Singapore.