Singapore dependent on Malaysia, RI: Goh

Singapore dependent on Malaysia, RI: Goh

SINGAPORE (Bloomberg): Singapore's Prime Minister Goh Chok Tong started his National Day Rally speech last night by focusing on the economic problems of the island-state's neighbors, which determines Singapore's future, he said.

"Our country is facing a big test -- the economic situation in Asia will get worse before it gets better. The problems spill over to us. We are in the same boat," Goh said in what is considered an annual state-of-the-nation address to mark independence.

Speaking first on Indonesia, whose currency is now worth one- fifth of its value a year ago against the U.S. dollar, Goh said, "If Indonesia prospers, we prosper too. If the Indonesian economy falters, we lose an important hinterland and a valuable economic partner."

Singapore has been facing bilateral problems with both Malaysia and Indonesia, her closest neighbors, key trading partners and tourism markets. The Southeast Asian countries have been suffering from a 13-month-long currency crisis that has damaged their economies and exacerbated political strains.

Goh said Singapore has about S$4 billion (US$2.3 billion) investments in Indonesia, and Singaporean banks have about S$4 billion in loans to Indonesia.

"An Indonesian collapse will hurt us," he said, adding the country has a "vested interest" in helping revitalize the Indonesian economy.

Goh noted that about 60 percent of Indonesians lived below the poverty line when former president Soeharto took over in 1965 and "eradicated" the problem by turning "a backward country to one of steadily improving standards of living."

Now, "Indonesia has to start all over again. President Habibie has the toughest job in the world," he said.

"Indonesia is in political transition -- he has to forge national consensus on political reform and at the same time solve the country's economic problems" and manage social unrest.

"The policies he pursues will determine the future of Indonesia. Indonesia has to achieve political stability."

Indonesian President B.J. Habibie has criticized Singapore for being a `fair-weather friend', and expressed unhappiness about the speed with which Singapore's offer to extend trade financing aid has proceeded.

Singapore extended a US$3 billion trade financing offer to help economically troubled Indonesia several months ago, in addition to undisclosed aid to support the Indonesian currency.

Indonesia may accept the Singapore initiative at a later date, the Singapore Straits Times said yesterday, citing Indonesia Trade and Industry Minister Rahardi Ramelan. Bambang Subianto, Indonesia's finance minister, has yet to approve Singapore's plan and the conditions set by the Singapore government.

Likewise, Malaysia's ties with Singapore has deteriorated in recent months over a variety of issues, among them a national call for Malaysian exporters to use local ports rather than Singapore's port. Goh emphasized Singapore and Malaysia's inter- dependence in his speech.

He urged Singaporeans to brace for worse times ahead. "Fortunately, we have financial resources, a hardworking, talented population and national unity. We should use this opportunity to lower our cost structure."