Is Singapore immune to RI contagion?

Is Singapore immune to RI contagion?

By Mantik Kusjanto

SINGAPORE (Reuters): What a difference a year and a half makes.

In May and June of 1998, when Indonesia sneezed, Singapore's markets caught a cold.

But a recent spate of violence in the city state's next-door neighbor has been at most a minor factor for the Singapore dollar and share market, and fund managers, currency traders and strategists say there is little risk to investors that will change anytime soon.

"It hasn't been so serious (as) to cause any major contagion. Investors seem to be more nervous about Indonesia per se than the region or Singapore as a whole," Merrill Lynch's fixed-income strategist Vincent Low told Reuters.

In recent weeks more than a thousand have died in clashes between Muslims and Christians in Indonesia's eastern spice islands, or Maluku, while closer to Singapore's shores, the Indonesian resort island of Bintan experienced a series of sometimes violent protests over land rights.

But the violence has been a minor factor at most in Singapore, where currencies have looked more at technical charts and commercial flows, and shares at U.S. market trends and a news of much earlier than expected domestic telecommunications sector liberalization.

Singapore companies, which had suffered in the past when Indonesia's fortunes and people were battered, would not be too badly affected by fresh troubles as most had substantially written off their investments in 1997 and 1998, fund managers said.

When the Bintan protests broke out, Singapore conglomerate SembCorp Industries Ltd, which runs the Bintan Industrial Estate, said its total investment of S$111.6 million at the estate had already been written down to S$33.2 million, only about 0.5 percent of the group's gross assets.

Currency traders and stock brokers said the riots in the tourist island of Lombok did rattle the rupiah and the Jakarta stock market last week on fears the unrest would spread to the Indonesian capital of Jakarta, but even then the impact on the rest of the region was minimal.

The mood contrasts strongly with the prevalent atmosphere in May 1998 when long-time Indonesian President Soeharto stepped down and the country saw widespread protests and race riots, leading to a large exodus of people, mostly Chinese Indonesians, to Singapore, and causing its financial markets to drop.

Much of that unrest was in or near Indonesia's economic and political center.

Thus far the latest unrest has remained mainly in Indonesia's outlying areas, and has not seen a similar exodus to Singapore, favored by ethnic Chinese partly because that group predominates in the city state.

Another difference lies in Asia's and Singapore's recoveries, finance sector analysts said. The internal dynamics of strengthening Asian economies in general and Singapore in particular had made them better able to withstand possible spillover from the still troubled Indonesia.

In 1998 several Asian countries had been badly hit by the economic crisis that began in 1997 and Singapore was starting to feel the pinch.

But now economists see it growing at or beyond the high end of the official forecast of 4.5 to 6.5 percent in 2000, after healthy gains in 1999.

Analysts said the contagion effect would be less pronounced now as Asian markets continued to decouple from one another.

"Within the region, we can see some decoupling ... to some extent it's being accelerated," said Eddie Lee, economist of Vickers Ballas, adding that countries which could not put their act together would continue to lose out to others in the region.

Jason See, vice president at OUB Asset Management, said Indonesia would only be a major factor in his investment decisions for the region if the now scattered trouble became more widespread.

"At this moment ... we are not so concerned because it's a natural process of democracy," See said.

"As long as it's not spreading across the country, we are comfortable. We are not considering it as a major factor for our investment decisions," he added.

But when it came to putting money into Indonesia itself, investors remained wary.

"There are risks in Indonesia and you can't ignore it. We still advise clients to underweight Indonesian bonds and avoid exposures to the rupiah for the time being," Low of Merrill said.