KL's restrictions 'will seriously damage' S'pore

KL's restrictions 'will seriously damage' S'pore

SINGAPORE (AP): As Singaporeans line up at banks to save their Malaysian ringgit accounts, analysts Tuesday predicted Malaysia's controversial currency and market restrictions will cause Singapore's economy to shrink for the first time since 1985.

Singapore, the glittering financial hub of Southeast Asia, so far has escaped the worst of the regional crisis, mostly due to its sound economic fundamentals.

But last week's decisions by neighboring Malaysia to ban overseas trading of the ringgit and stocks threatens to deal a serious blow to Singapore's economy, which some analysts say will shrink in 1999.

"Singapore has been made very vulnerable" by Malaysia's economic problems, said Chia Yew Boon, head of investment at Santander Investment Securities.

Malaysia is Singapore's second-largest trading partner, accounting for up to 20 percent of Singapore's GDP.

Before last week's measures by Malaysia, Santander Investment forecast a minus 3.5 percent economic growth in Singapore for 1999.

"Now, we have to revise that forecast to minus 5 or even minus 6 percent," Chia said.

Chia said that Malaysia's measures "are going to affect all sectors of Singapore's economy, starting with banking and financial services, transport and communications, to export, import, retail and property market, and tourism."

Already for 1998, the government's official forecast is for the economy to grow only between 0.5 percent and 1.5 percent, down from 7.8 percent growth posted in 1997. Singapore's economy last shrank in 1985, the last time the island nation fell into recession.

And while Malaysia's moves may help its economy in the short- term, analysts said they don't deal with the underlying causes for the nation's economic ills - and that will come back to haunt Malaysia.

"In the short run, we don't deny that Malaysia's measures are going to boost their economy," Chia said. Already the measures have prompted a steady currency, lower interest rates and rising stocks. But he added: "With their very weak economic fundamentals, these measures are very dangerous."

"In the long run, the whole set of policies announced by Kuala Lumpur is suicidal," Chia said.

In Singapore, effects of Malaysia's new economic policy are going to be "extremely negative" for small businesses and investors, he said.

"If suddenly you see tens or hundreds of thousands of dollars lost or frozen, you will be very careful about investing your money."

Singapore banks are believed to be widely exposed to Malaysia in terms of loans, ringgit deposits and other securities.

Analysts estimate Singapore banks' total loan exposure to Malaysia at around S$18 billion (US$10.5 billion), which is about 10 percent of their total loan portfolio.

"Ringgit loans cannot be repaid," Chia said, adding that he is planning to cut his net profit forecasts for Singapore banks by as much as 10 percent.

Most Singapore banks advised their customers to settle their ringgit accounts by Sept. 8, either by converting them to another currency or sending them back to Malaysia. The rate agreed on by most banks was 4 ringgit to the U.S. dollar, which is less than the rate set by the Malaysian government.

On Tuesday morning, scores of Singaporeans were still lining up in front of special counters that banks across the island have set up for clients with ringgit accounts.

Late Monday, Singapore's stock exchange announced it will extend the trading of Malaysian shares in the over-the-counter market for another week, from 9 to 15 September, after suspending the trading last Friday. The move will give shareholders a chance to dispose of their shares before the market is turned off.

There are as many as 200,000 shareholders on Singapore's over- the-counter market known as Central Limit Order Book or Clob, with about 8 billion to 9 billion shares worth S$2 billion (US$1.1 billion).