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."