S'pore 'vulnerable' to Indonesian unrest<\/p>\n
SINGAPORE (Dow Jones): A repeat of Indonesia's May 1998 social
\nand political upheaval could deliver a significant blow to
\nSingapore's economy, according to a new study examining the
\nrelationship between the two countries.<\/p>\n
Such a flare-up in Indonesia, which saw widespread rioting and
\natrocities committed against the wealthy Chinese minority, could
\ncause a sharp drop in the Singapore dollar, local stocks,
\nexports, bank loans and property prices, while jacking up
\ninterest rates, DBS Bank economists Friedrich Wu and Lee Wee Liat
\nwrote in a paper published in the Journal of Asian Business.<\/p>\n
While financial markets cheered the election of President
\nAbdurrahman Wahid and Vice President Megawati Sukarnoputri in
\nOctober 1999, the political situation in Indonesia has become
\nmuch more tenuous in recent months.<\/p>\n
The Indonesian government faces a \"myriad of formidable
\nchallenges, including a bankrupt economy, rampant corruption,
\nsocio-religious conflicts, regional separatist movements,
\nwidespread poverty and unemployment, as well as a discredited but
\nstill influential military,\" according to the report.<\/p>\n
Failure of the government to swiftly remedy the problems
\n\"would sow the seeds for further violence and social
\nfragmentation\" that would spill over to Singapore economy, the
\nreport continued.<\/p>\n
Given Singapore's open economy and close proximity to
\nIndonesia, the city-state to a large certain extent is at the
\nmercy of developments in the neighboring country, according to
\nthe report.<\/p>\n
Using econometric models, Wu and Lee attempted to quantify the
\nnegative contagion effects on Singapore stemming from the
\nheightened political tension in Indonesia. The study found a high
\ncorrelation between a number of economic variables between the
\ntwo countries.<\/p>\n
With zero indicating no relationship between the variables and
\n1 indicating a perfect relationship, Wu and Lee found that there
\nwas a 0.85 correlation between movements in the Singapore dollar
\nand Indonesian rupiah.<\/p>\n
The correlation between the Straits Times Index and the
\nJakarta Composite Index was estimated at 0.82, while the
\ncorrelation between interest rate movements in the two countries
\nwas placed at 0.61.<\/p>\n
The Singapore dollar would be the first to bear the brunt of
\nIndonesian turmoil amid a capital withdrawal from Southeast Asia,
\nthe report said.<\/p>\n
The direct impact would be a 5.4 percent drop in the value of
\nthe Singapore dollar, according to the model. The Straits Times
\nIndex would plunge 18.4 percent, while the three-month interbank
\nrate would shoot up by 323 percent.<\/p>\n
The indirect impact would include declines of 17.0 percent in
\nproperty prices, 6.2 percent in exports, 4.8 percent in bank
\nloans, 4.5 percent in private consumption and 0.7 percent in the
\ninflation rate.<\/p>\n
While much of what happens in Indonesia is beyond the control
\nof authorities in Singapore, steps should be taken to minimize
\nthe impact of the Indonesian contagion, Wu and Lee wrote.<\/p>\n
\"In view of the potential adverse direct and indirect impacts
\nfrom its close neighbor, Singapore would need to manage bilateral
\nrelations with Indonesia carefully and creatively.<\/p>\n
\"It is also imperative for the Singapore government to devise
\npolicies and contingency plans to soften the impact of such
\nexternal political shocks from Indonesia on the Singapore economy
\nand financial markets.\"<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/spore-vulnerable-to-indonesian-unrest-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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