S'pore Faces Years Of Slow Growth After Recession: PM

Source : The Business Times, November 29, 2008

Recovery will not depend on its own measures but state of US economy

SINGAPORE is likely to face several several years of slow growth after the current recession, Prime Minister Lee Hsien Loong said yesterday.

CRISIS CONTROL - PM Lee speaking to business leaders at the ENADE fair in Santiago, Chile; the current financial crisis involves the entire world and the magnitude is the worst in more than 60 years, he told reporters

Painting this glum picture amid the global financial crisis, he said that recovery for Singapore will not depend on its own measures but the state of the US economy.

Mr Lee explained how the current crisis differs from others that he has experienced - first in 1985, when Singapore's soaring costs required tough medicine; and then in 1997 when the Asian financial crisis hit.

This time around, the crisis involves the entire world and the magnitude is the worst in more than 60 years, he told Singapore reporters in the Chilean capital of Santiago as he wrapped up a week-long trip to South America.

'Imbalances have been built up over the past five to seven years - the balance of payments; deficits; the surpluses in Asia; the budget deficits in America; the borrowing and excessive consumption by US consumers,' he said.

'To get back to growth, we cannot go back to where we were before, which is - Asians lend money to Americans, Americans borrow money to spend. So how do we get back to the model where savings and consumption are in balance?'

Now that the American consumer is not spending as 'extravagantly and profligately' as before, those from other countries - be it China, India, or from Europe - will have to 'take the slack', said Mr Lee.

With many Singaporeans keenly awaiting the coming Budget, which has been brought forward a month to January, Mr Lee said that it is important to manage people's expectations realistically.

He made clear why the government is not keen to reduce the Goods and Services Tax. What will be more effective, he said, is to maintain the current 7 per cent rate and use the revenue in a targeted way, such as by helping businesses feeling the impact of the crisis.

'You cannot look at individual revenue items, but the overall package,' he said. 'Where is the government getting its money, where is it spending the money? The balance - are we putting assistance into the system, or are we running a big surplus during a time when the economy cannot afford to run a surplus?'

Mr Lee also ruled out any cuts to the CPF scheme 'in the immediate term' as there were more practical ways to reduce business costs. Slashing the CPF rate now would send too pessimistic a signal, he said. 'Then everybody takes fright and shrinks back. It would make things even gloomier.'

He recalled how, back in 1985, then-prime minister Lee Kuan Yew explained in his National Day Rally speech why Singaporeans had to 'take the medicine' to combat the downturn at that time. This included a hefty 15 percentage point cut in the employers' share of the CPF as a crucial way to bring down business operating costs.

Singapore's cost structure that year was way out of line with those of other Asian economies such as Korea, Hong Kong and Taiwan, said Mr Lee. 'That year in 1985, there were no goodies. Not one. People listened carefully, they understood the issues. The medicine worked.'

In the coming Budget, there will be 'a bit more sugar coating' on the pill, he said. There will be assistance for needy families, and the middle-income group - commonly known as the 'sandwich class' - will not be neglected.

Regardless of how the crisis pans out, the government will not lose sight of the over-riding priority - keeping people in jobs, reducing business costs and maintaining the country's competitiveness.

'That's what we have been doing this year and that will be the focus for the Budget,' said Mr Lee. 'At the end of the day, the situation will pass. Asia is dynamic with opportunities, and we must still be with Asia. During this downturn, we must do all we can to prepare ourselves and emerge in that position.'

Santiago was the final leg of Mr Lee's visit, during which he attended the Asia-Pacific Economic Cooperation summit in Lima, Peru, before heading to Sao Paulo and Brasilia in Brazil for bilateral talks. He returns home today.