S'pore less vulnerable to regional shocks

S'pore less vulnerable to regional shocks

SINGAPORE (Dow Jones): Although Singapore can't completely
isolate itself from the travails of its neighbors, it is less
vulnerable to regional shocks than two years ago, particularly to
renewed turbulence in Indonesia, Finance Minister Richard Hu said
Tuesday.

"Our exposure is much less now. If there should be an outbreak
of violence in Aceh, it will affect the investment climate of the
region as a whole, which of course reflects on us," Hu said in an
interview with Dow Jones Newswires.

But because of the measures Singapore has taken, "the impact
will be medium-term, affecting the investment climate rather than
our own immediate prospects of economic growth," he said.

Hu said Singapore banks have protected themselves from the
kind of fallout seen from Indonesia's turmoil two years ago by
writing off most of their bad debt in the country.

The rest of Singapore's corporate sector has also undergone
massive restructuring and consolidation, improving transparency
and governance, in an attempt to buffer itself from another
crisis, he said.

Singapore has staged one of Asia's most dramatic recoveries,
with the economy expected to grow by 5 percent this year and
next, according to official estimates. The manufacturing sector
expanded by 17 percent in the third quarter, while non-oil
domestic exports surged 9 percent in the same period.

Despite the dynamic growth, Hu said he isn't concerned about
rising inflation, which he expects to remain tame next year at
between 1 and 1.5 percent.

"External inflation worldwide is fairly benign," he said.
"Except for an uptick in oil prices, most commodities have not
really rebounded severely."

Hu said given the mild inflation outlook, the Singapore dollar
is expected to remain "fairly stable," but if inflation exceeds
Singapore's historic range of 2-3 percent, the Singapore dollar
would strengthen.

The Singapore authorities have traditionally depended on a
strong local dollar to keep imported inflation down.

The finance minister said the budget deficit for this year
will be smaller than the expected 3.5 percent of gross domestic
product because of the surprisingly strong economic rebound.

Moreover, Hu said the budget will return to surplus next year
after two years of deficit spending if the economy meets the
government's growth target.

"If that materializes, I think it's unlikely we'll see another
deficit," he said.

While acknowledging the healthy rebound in the global
electronics industry and the continued strength of the U.S.
economy, Hu assigned the lion's share of credit for Singapore's
dynamic growth to the government's corporate cost-cutting
measures adopted during the downturn.

At the height of the crisis, the government unveiled a host of
measures worth more than S$10 billion designed to mitigate the
burden of the crisis on the corporate sector, including pension
cuts, tax breaks and the removal of levies.

Although announced in 1998, most of the measures took effect
Jan. 1, 1999.

"The importance of these was largely to insure our exporters'
costs were competitive to preserve jobs," Hu said. "We must
insure our prices our competitive."

He said the regional turmoil imposed much-needed restructuring
of Singapore's private sector, as well as hastened their push to
become regional players.

"Banks have particularly taken the opportunity to acquire
assets in neighboring countries," the finance minister said. "The
difficulty has always been in identifying suitable prospects.
Although our neighbors have suffered severe contractions, there
has been generally a reluctance to sell assets."