Singapore faces risk from RI woes

Singapore faces risk from RI woes

SINGAPORE (Reuters): Singapore faces more risks from the political and economic chaos sweeping Indonesia than many people think and the city-state's financial markets have still not fully taken this into account, economists say.

"Singapore has one of the highest exposures to Indonesia of any country in Southeast Asia in terms of capital and direct investment," said Kevin Scully, director of Kay Hian Research.

Economists and analysts are reassessing their assumptions for the city-state in light of the riots and demonstrations that have torn through Indonesian cities over the last week.

At least 500 people died in the unrest that followed Tuesday's shooting by Indonesian security forces of six student protesters demanding political reform.

Most published forecasts for Singapore's economic growth this year still hover around three percent, compared with a 7.8 percent expansion in 1997, and only a minority have tentatively suggested the economy may slip into recession.

The Singapore government still forecasts gross domestic product (GDP) growth of between 2.5 and 4.5 percent.

But economists say the deteriorating situation in Indonesia could help slow the island's growth significantly, possibly by as much as two percent.

Singapore is so sensitive about its relations with Indonesia that it does not even publish official figures on its trade with the republic. Analysts say this reflects a long-standing fear of Jakarta and a memory of brief open hostilities in the 1960s.

But economists estimate that between 10 and 13 percent of Singapore's total trade is with Indonesia. If they are right that would mean the business is worth around US$20 billion a year.

Singapore industry also has huge investments in Indonesia.

Some 10 to 15 percent of its bank total loan asset exposure is in Indonesia, equivalent to about $1.2 billion. Data on Singapore corporate investments in Indonesia are not available but they are likely to be much bigger than the banking exposure.

In addition to all this, Indonesians have investments and property in Singapore estimated at around Singapore $5 billion ($3.05 billion) and some 16 percent of tourist arrivals in the island are from Indonesia, worth about $950 million a year.

"I think the exposure of Singapore to Indonesia is not fully discounted by the markets," said Chia Woon Khien, head of Asian research at SE Banken.

"People don't know the full extent of the exposure. Around the region, Singapore is going to be worst affected if Indonesia completely collapses," she said.

Economists say part of the reason for the markets' optimism over Singapore is that it has a reputation for strong economic management and has so far remained relatively aloof from the Asian financial crisis that has battered currencies and stock markets.

The Singapore dollar has lost only 13 percent of its value against the U.S. dollar since July 1997, compared with more than 75 percent for the Indonesian rupiah and at least a third for the Malaysian ringgit, the Thai baht and the Philippine peso.

The stock market has also been more resilient, falling only 33 percent overall since last July, compared with at least 45 percent for the composite indexes in Kuala Lumpur and Jakarta.

But Singapore's stock market showed signs last week of catching up with its neighbors and analysts say it and the currency could fall further if Indonesia's turmoil continues.

"Investors are cashing out on Southeast Asia and Singapore is one of the most liquid markets," said Kaan Quon Hon, director of economic research at DBS Securities.