Economic storm clouds gather on Singapore's horizon
Economic storm clouds gather on Singapore's horizon
The Straits Times, Asia News Network, Singapore
The numbers were expected, of course, but when they were released on Wednesday, the third-quarter flash estimates still packed a shocking clarity: Singapore's gross domestic product declined by 5.6 percent compared with the same period last year, or 9.9 percent on an annualized quarter-to-quarter basis, after declining by 10.4 percent in the first and second quarters.
The manufacturing sector fell by a whopping 15 percent, chiefly because of a global slump in electronics; non-oil exports contracted drastically, falling by 30 percent in August alone; and the unemployment rate among residents rose from 3 percent in June to 4 percent in September.
Not since 1968, when the British government announced the withdrawal of its forces, has Singapore faced so severe an economic test. Unlike then, however, it is today not without resources to ride out the storm. Its population is educated, its infrastructure world-class, its financial reserves are healthy, the elected leaders and institutions tried and tested. The story of this island has barely got past the preface; there are still many chapters, filled with wonder and surprise, waiting to be written.
But to begin writing those chapters, Singaporeans must understand the nature of the current crisis, and what can and must be done to overcome it. To begin with, the crisis has two sources, one immediate, the other long-term. Immediately, what Singapore faces is a global cyclical downturn.
The United States, European and Japanese economies were already slowing down before Sept 11, but at different rates. After Sept 11, they are all contracting simultaneously, which means the last quarter of 2001 may well be brutal.
The U.S. government has responded aggressively to the crisis, with the Federal Reserve slashing short-term rates and Congress considering a fiscal stimulus package. Europe, however, because of the limitations of the European Central Bank and the strictures placed on fiscal policy by the Maastricht Treaty, has not been able to act aggressively. And Japan, of course, is in no position to do much but stave off, as best as possible, a financial collapse.
But sooner or later, global demand will recover -- led, perhaps, by the U.S. by the second half of next year. When that occurs, Singapore, too, will recover, but the long-term economic challenges posed by China and India still remain. To remain competitive in this new environment, Singapore will have to restructure and diversify its economy.
Its dependence on manufacturing will perhaps be lessened, some old industries will disappear, new ones will have to be attracted, the service sector will have to be expanded. Radical approaches, including further liberalizing sectors like education, health and the media, will have to be considered. People will have to be retrained for new jobs, and a risk-taking culture nurtured.
The Prime Minister, in his National Day Rally speech, spoke of the seven-hour flying radius around Singapore as its hinterland. Singaporeans will have to learn to plug themselves into this hinterland, which contains more than half the world's population.
The degree to which they succeed will depend to some extent, of course, on factors beyond their control.
Singapore can make a contribution to regional stability by playing its part to strengthen the Association of Southeast Asian Nations and promoting free trade, both regionally and globally, but it cannot single-handedly refigure the regional environment.
What it can do is keep its own house united and strong -- and that, as in the past, will see it through whatever storms that may rage.