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.