Neighbors' unrest threatens S'pore

Neighbors' unrest threatens S'pore

By Jerry Norton

SINGAPORE (Reuters): Singapore is experiencing short-term pain
but could see some long-term gain from economic and political
turmoil in nearby Malaysia, analysts say.

Regardless of the ultimate impact, however, the episode is a
reminder of the vulnerability of Singapore -- a tiny island 77
percent of whose citizens are ethnic Chinese -- to events in its
much larger Moslem neighbors, Malaysia and Indonesia.

"There is a lot of tension involved with the situation in
addition to the normal tensions. Going all the way back,
Singapore is predominantly Chinese in a region where Chinese are
not popular," said Bruce Gale, Singapore-based analyst for Hong
Kong's Political and Economic Risk Consultancy (PERC).

In the first half of the year, it was unrest in Indonesia that
shook Singapore and its markets, which until then seemed a rock
of stability as economic crisis rolled through the region.

In the last 10 days, it has been draconian moves by Malaysia
to batten down its economic hatches against outside interference
which have spooked markets and sown confusion in Singapore.

Hundreds queued at brokerages and banks as they sought to
close out or convert Malaysian securities and currency holdings.
Concern was compounded when Malaysia Prime Minister Mahathir
Mohamad dumped his deputy and one-time heir apparent Anwar
Ibrahim.

Many Singaporeans faced substantial losses on investments, or
the prospect of having to transfer them to Malaysia and, under
the new controls, wait until the end of 1999 before they are able
to take any profits they might then have.

One estimate put the number of investors in Malaysian shares
through Singapore's over-the-counter Central Limit Order Book
(CLOB) market at 200,000, and thousands more had ringgit
deposits, in a country of just 3 million citizens.

As a direct result of Malaysia's controls, CLOB trading of
Malaysian shares will end next week.

"The death of CLOB will...have an impact because it did
account for a big share of transactions on the stock market" in
Singapore, Paul Schymyck, chief regional economist for the
Canadian Imperial Bank of Commerce (CIBC), told Reuters.

SG Research said this week it had cut its growth forecast for
Singapore for 1998 and 1999 to one percent and 0.5 percent,
respectively, due partly to Malaysia's control measures.

"The commerce and financial services sectors could be most
severely hit as entreport activity and foreign exchange
transactions decline. And there is a real long-term danger of
Singapore's lifeline of a critical mass of skilled Malaysian
labor being cut," the SG report said.

"If your clients and those who are taking services from you
(are) no longer there, like Malaysia or Indonesia, then obviously
your growth takes a hit," SG economist Nilesh Jasani said.

Some analysts also worry about Singapore banks' exposure to
Malaysia, where their loans alone total Singapore $28 billion
(US$16 billion), according to research house I.D.E.A.

But a major long-run plus for Singapore from Malaysia's steps
back from global markets could be enhancement of the city state's
position as the main regional base for financial service
companies and multinational manufacturers.

"I think 12 months ago there was a big fear...of Singapore
losing some of its financial services to Malaysia given the
country's rapid development and the huge turnover on the
Malaysian stock market," said CIBC's Schymyck.

Now, he said, "I think there's no danger of that given what
Malaysia's done. They've basically handed it back to Singapore on
a silver platter."

A Western diplomat agreed, calling Malaysian plans to be an
international financial and technical hub "dead in the water".
But other consequences depended on how successful Malaysia's
policies were in reviving its moribund economy, how long capital
controls lasted, and whether there were more restrictions to
come, the diplomat and other analysts said.

SG's Jasani said the political battle between Mahathir and
Anwar was unlikely to help in that regard.

For controls to work, "you need all the bureaucratic and
administrative resources that you can manage...if at such time
you have political troubles, political turmoil, then bureaucratic
and administrative attention gets diverted."

Despite the direct effects of the Malaysian moves, Singapore
political leaders have thus far had little to say about them.
Malaysia does not take kindly to outside criticism, and with
relations already at a low ebb due to a series of recent spats,
Singapore comments on the economic measures would likely have
minimal impact or if anything aggravate tensions.

Singapore is in a quandary in that it is "less than
enthusiastic about financial policies enacted in both Jakarta and
Kuala Lumpur but is expected to help support those policies to be
a good ASEAN neighbor", said PERC's Gale.

He said the end of CLOB Malaysian share trading should help
relations as it was always seen as an irritant by Malaysia.

But that still leaves unresolved disputes over Malaysian
supply of water to Singapore, Malaysian efforts to make more
shippers use its ports instead of Singapore, and customs and
immigration facilities, among others.