Singapore's safe haven image shattered: Analysts

Singapore's safe haven image shattered: Analysts

SINGAPORE (Reuters): A 340-point stock market plunge and a seven-year low for its sagging currency this week has shattered Singapore's reputation as a safe haven from Asia's financial maelstrom, analysts said yesterday.

The stock and currency slide had been the most gradual in the region until this week, leading some to harbor hope that Singapore would remain an island of relative calm the storm.

But fears of exposure to debt-ravaged Indonesia and troubled Malaysia sent Singapore markets tumbling back to 1991 levels, shattering the illusion of their isolation from regional woes.

"You can't be an island of tranquility in the whole thing when crises of this nature come. There was a lot of complacency in Singapore when this thing hit, but Singapore is not an isolated island," Bruce Gale of the Political and Economic Risk Consultancy (Perc), told Reuters.

Fears of unrest in Indonesia, a poor response to Jakarta's budget and the rupiah's crash through the key psychological 10,000 to the U.S. dollar barrier this week combined to create a crisis of confidence in Singapore.

Yesterday, Singapore's key stock index closed down 94.35 points, or 7.43 percent, at 1,176.35. It started the week at 1,518.20. The Singapore dollar was trading at 1.7680 to the U.S. dollar, some 3 percent down from its Monday opening of 1.72.

"Singapore is not immune to the tribulations of its neighbors. Indonesia is going through a period of extreme difficulty and that has an effect in Singapore," said P.K. Basu, regional economist with UBS Securities.

The effect was worsened by the lack of transparency in Singapore's banking system, keeping markets guessing at exactly its true exposure to bad and doubtful loans to its neighbors.

"In matters of confidence, people look for weakness and they find it wherever they can. In Singapore the weakness is the banks' reluctance to tell anybody anything about their exposures," Gale said.

Singapore's support of Indonesia politically and economically meant it would suffer as long as Jakarta, said Daniel Lian, head of Asian markets research at ANZ Investment Bank.

"Singapore is being seen as the proxy to Indonesia," he said. But Singapore still had its strengths, Basu said.

"Over the past 10 years it has built up substantial reserves, a budget surplus and has prudent financial policies. That has not changed," he said.

With an annual current account surplus of some US$16 billion and official reserves of US$118.5 billion as of October, 1997, Singapore does not have the potential for the foreign debt and balance of payments problems at the heart of regional woes.

"The Singapore dollar is strong on a trade weighted basis and actually appreciated 3 percent in 1997. That has been forgotten in the panic that we've seen in the past week in Singapore and around the region throughout the crisis," Basu said.

He said only tourism, real estate and financial services were likely to feel any significant hit, while electronics -- the key sector -- business services and others would hold up well.

"I don't think Singapore is doomed to be mired in recession for three years or more. I think 4 to 6 percent GDP growth is achievable in 1998, and I think I'd be at the high end of that," Basu said.

Singapore is in a good position to capitalize on the region's economic restructuring, but fears of further falls left potential investors cold to the idea.

"For those looking beyond the short term, now is the time to buy, but in a crisis nobody looks any further than the present moment," said Kaan Quan Hon, economist with DBS Securities.

Gale said the opportunities for Singapore would be greater if it pushed on with touted financial sector reforms.

"Singapore's real challenge is how it is going to take advantage of Asia's changing business and economic structures and not worry in the short term that the Singapore dollar or the stock market fell a little bit on one day," he said.

"It has to look at the big picture and at the future. Singapore has a historic opportunity to be the leading power in Singapore's safe haven image shattered: Analyststhe region's finances."