Singapore Government Press Release

Media Division, Ministry of Information and The Arts

36th Storey, PSA Building, 460 Alexandra Road, Singapore 119963.

Tel: 3757794/5

One week is a long time in politics. And one year can change the economic fortunes of a nation. The last twelve months have certainly seen a climatic change in outlook for the Asian economies.

No economic weatherman predicted the currency typhoon that swept through Asia in July last year, despite technological advances and improved forecasting techniques.

It is, therefore, useful to look back at what happened.

Before July last year, East Asia was booming. Economic growth averaged six to eight per cent a year in the major economies of the region. This was much higher than the world average of about four per cent. Jobs were plentiful. Incomes were rising fast. The sun was shining. The gods were smiling. The World Bank dubbed East Asia’s majestic growth an Asian miracle.

But out of the blue, disaster struck. The miracle burst like a bubble. Thailand floated its currency on 2 July after spending US$20 billion to unsuccessfully defend in a failed attempt to maintain its exchange rate of 25 Thai baht to one US dollar. The Thai baht lost 17% of its value immediately. Panic then set in, spreading like wildfire to other countries in the region. Their currencies lost between 30 and 75% of their value in US dollar terms. Their stocks also suffered a 30% drop in value on average. Their wealth was decimated.

Worse, their economies were badly damaged. In Thailand, to reduce the selling pressure on Thai baht, interest rates were raisedwent up. But high interest rates hurt many businesses. Workers worry that their salaries may be cut or that they will lose their jobs. The Thai National Economic and Social Development Board earlier estimated that 1.8 million Thais would be unemployed this year based on zero economic growth. But some analysts expected growth to be a negative three percent or more this year. So the unemployment figure could be even higher.

In Malaysia, the Malaysian Trade Union Congress (MTUC) estimated that more than half a million jobs could be lost by the year-end. The biggest retrenchment will be in the construction industry. Workers in retail, hotels and restaurants would also be hard hit. Even film stars face the threat of retrenchment as TV channels cut back on purchases of locally- made dramas and shows.

In Indonesia, unemployment jumped to 9 million at the end of last year, as factories closed and construction sites laid off millions of casual day labourers. This is two and a half times the population of Singapore. The Indonesian Manpower Ministry estimated that unemployment would rise further to 13.5 million this year. But the Federation of all Indonesian Workers Union warned that "disguised unemployment" might reach 40 million this year, or nearly half of Indonesia’s 90 million workforce. These are workers who have less work than needed to provide basic needs. The grave unemployment situation is made worse by rising prices of such necessities as rice, milk and cooking oil. According to the World Bank, the number of Indonesians living on US$2 to US$3 a day would almost double to 20 percent of the population of 200 million because of the crisis. In other words, 40 million Indonesians will be living below the poverty line. To protect the poor, the Indonesian Government has decided to continue subsidising the cost of food and fuel for a few more months. It is also creating jobs through public works like the cleaning up of canals. Each such worker earns about US$1.50 a shift.

The international community is also helping out by providing humanitarian food and medicine aid to the unemployed and the poor. The Singapore Red Cross has also launched a campaign to collect funds to provide humanitarian aid to Indonesia. I commend NTUC for its pledge to raise $350,000 for the Singapore Red Cross.

The currency crisis arose because financial resources were easily available and used inefficiently and, sometimes, for the wrong projects. Let me explain.

The boom years in East Asia saw a massive inflow of foreign funds into the region. Foreign bankers were so bullish about the economic prospects of East Asia that they lent easily and cheaply. They chased entrepreneurs and businessmen. They lent against the prospects of the borrowing companies rather than against their fundamental strengths or the present value of their collateral. Except in Malaysia, the private sector in the affected economies borrowed foreign currencies massively from the off-shore market, mostly US dollars, to finance domestic projects. This made business sense because the exchange rates were stable and there was an interest differential of up to 8% between borrowing in US dollars and in domestic currencies.

Local banks were part of this business chain. Unfortunately, they were poorly supervised. The banks tapped the offshore funds and on-lent them freely to corporations, many of whom were associates and friends. The corporations used them to finance major infrastructure projects, office buildings and housing. They over-borrowed, over-invested and over-built. They chased up share prices. A financial bubble soon developed. But nobody noticed or cared, at least not until currency traders and speculators began attacking the Thai baht in early 1997.

The attacks drew international attention to Thailand’s large current account deficit, high private sector debt and overvalued exchange rate. When the Thai baht succumbed to the selling pressure and was allowed to float on 2 July, many foreign investors scrambled to get their money out of Thailand. Their actions weakened the baht further, thus creating a self-fulfilling depreciation.

The Thai currency crisistyphoon spread very quickly to Indonesia, Malaysia and Korea, as their situations were almost similar to that of Thailand. Malaysia had relatively little foreign debt, but its banks had over-expanded domestic credit. The regional currencies fell, one after another, like dominoes. As foreign bankers and currency traders pulled out their funds, this caused the locals to panic. They too converted their saving and capital into foreign currencies so as to protect their wealth from further erosion in value. Not surprisingly, this caused a further loss of confidence in local currencies. Confidence, once lost, takes a long time to return. International investors now demand corrective actions before their capital would return.

Singapore too has been affected by the currency typhoon. We are part of the region. We have close economic and other ties with our neighbouring countries. It is impossible for Singapore to escape the turbulence of the typhoon. Our growth will be reduced by at least two to three percentage points this year because of the slowdown in the region. We cannot now achieve the 1984 Swiss standard of living by 1999. We have fallen behind by about 2 to 3 years.

Nevertheless, if you look at the situation objectively, we are emerging stronger. The plunge in the value of our currency against the US dollar and the drop in our share prices have been less severe than in other countries. In fact, the Singapore dollar has strengthened against regional currencies by 30 to 190 %.

Our reputation amongst international investors has also been enhanced. For example, the Economist (7 Mar 98), observed that Singapore is looking a lot healthier than the rest in the region because its economic fundamentals are strong. It said,

"Singapore also remains in Asia’s first division. It has a huge current account surplus (15% of GDP last year) and a strong and well-regulated financial sector. It also boasts a clean government and a reliable legal system."

The International Herald Tribune (3 Nov 97) held a similar view. It described Singapore as a model economy by most conventional measures. And it observed that besides budget surpluses and strong foreign exchange reserves, Singapore has invested heavily in education and training to take advantage of technology to drive our economy forward. It noted that foreign investors praised the Government as "uncorrupted, efficient and consistently pro-business".

Because of this, investors have differentiated Singapore from the other economies. Their confidence in Singapore will benefit us over the long term. When the region recovers, Singapore as a financial centre in South-east Asia will be unchallenged.

Singapore is small. Our growth and prosperity will always depend on the external environment and our ability to draw investments and business. A loss of international confidence in Singapore will wipe out our economy. And as the currency crisis has shown, confidence can evaporate overnight should there be mismanagement or even perceived mismanagement of the situation.

Given the critical importance of the confidence factor to our survival, we should use this period to consolidate our strengths and increase investor confidence in us. It is pointless to bemoan the slow-down of the economy as it is beyond our control. Rather, we should be realistic in our wage expectations over the next two years. Better still, we should focus on the period beyond the current crisis. Strategically, we must identify the key areas that instil investor confidence in the medium and long-term soundness and competitiveness of Singapore.

One key area is manpower resource. In an increasingly technological and knowledge-based global economy, the quality of a country’s manpower will determine the winners in the economic race. Capital is scarce. Investors will put their money where the available manpower can give the greatest return for their investment.

BERI, a business risk analysis company, in its worldwide ranking of workers, has consistently ranked the Singapore workforce as No 1. Singapore has done it again in 1998. I congratulate NTUC and our workers for retaining the top position in the 1998 BERI worldwide ranking of workers. Singapore’s overall rating of 82 points is substantially better than Switzerland’s (76) and Japan’s (74). Overall, we did better than these two countries mainly because BERI gave us high marks for our legal framework and workers’ relative productivity. We still lagged behind both Switzerland and Japan in the areas of worker attitude and technical skills. We have to do better in these two areas.

We must stay ahead of problems. In the area of industrial relations, if we ever have a stevedores’ strike like the one in Australia, our whole economy will be crippled. To prevent a serious strike from ever taking place, we must never take the excellent state of industrial relations in Singapore for granted.

We must always take measures to prevent problems from arising. We did this in 1986 when the NWC introduced the flexible wage system. This enabled us to cope with changes in the global market. Currently, nearly 80% of companies in Singapore have implemented the flexible wage system.

We also established the Tripartite Committee on the Extension of the Retirement Age to address the issue of an ageing workforce. Among the measures it recommended were: the base-up wage system to replace the existing seniority-based wage system, wage reduction for workers after age 60, an alternative medical benefit scheme to encourage responsible use of medical benefits, and the capping of retrenchment benefits to help companies remain competitive. Some of these measures are major departures from current practice. But union leaders and employers’ representatives agreed fully that they are necessary to enable Singapore to overcome the problems of a rapidly ageing workforce and to ensure that Singapore remains competitive.

The test for tripartism is during difficult times when the economic pie is shrinking or not growing as fast as it used to be. The last time this happened was the 1985-86 economic recession. Then, in order to save jobs, amongst various anti-recession measures, we reduced the employers’ CPF contribution from 25% to 10%. Workers and unions accepted the wage cut and subsequent wage restraint. The economy recovered within two years.

This regional economic crisis will test our tripartism again. Our economy will grow more slowly, this year and next. Some workers have already been retrenched. More may be retrenched, especially older workers. I am glad that with the strong support of the NTUC and Singapore National Employers’ Federation, we are able to form the Tripartite Panel on Retrenched Workers to deal with the problems of finding new employment for retrenched workers and upgrading workers for higher skilled jobs. I am also pleased that the Singapore National Employers’ Federation has backed NTUC’s call not to axe staff at the first sign of trouble, doing it only as a last resort. Employers will instead make use of the flexi-wage system and other cost-cutting measures to keep their businesses viable and to save jobs. This is a significant commitment on the part of the employers but it also means that workers will have to brace themselves for wage restraint this year. We must face reality. Our immediate priority must be to save jobs by keeping costs down.

Looking beyond the immediate future, we must focus on lifelong learning and employability for the long term.

Our future prosperity will be built on a knowledge-based economy. That is why we are revamping our education system to produce thinking students. The future economy will be driven by information technology, knowledge and global competition. The types of jobs change, and change rapidly. This means that workers must have broad basic skills and the capacity to learn new skills. Only then will they have employable skills throughout their working lives. So we must have Thinking Workers and a Learning Workforce.

In fact, the whole country must become a Learning Nation. We must make learning a national culture. We will have to evolve a comprehensive national lifelong learning system that continually retrains our workforce, and encourages every individual to learn all the time as a matter of necessity. The Ministry of Manpower will work closely with Government agencies like EDB, PSB and MOE and with NTUC and employers to establish such a system to provide training and retraining opportunities to all our workers. Here, I want to commend the NTUC for pioneering the Skills Redevelopment Programme or SRP. In the past 14 months, the SRP has reached out to 76 companies, and retrained 5,000 workers. The programme has succeeded in reaching out to mature workers with less than secondary two education. It is helping to enhance the employability of workers in a direct and practical way. The programme has met with good response from employers.

This programme has potential. The Government will support its expansion to reach out to more workers. The Ministry of Manpower will oversee this expansion. The programme will also involve the Skills Development Fund, EDB, PSB, SNEF, ITE and the polytechnics. The Government will contribute a sum of $50 million to help fund the expanded SRP. NTUC will work with MOM and SDF to reach out to 20,000 workers over the next year, in particular, those who are not so young and with less than lower secondary education. These groups of workers face the greatest threat of structural unemployment.

In addition to the $50 million, the Government will provide a matching grant of $3 to every dollar raised by the NTUC to set up a separate $12 million NTUC Education and Training Fund. NTUC will raise $3 million and the Government will give a grant of up to $9 million to NTUC. This programme aims to encourage up to 10,000 workers each year to take on skills upgrading as a personal responsibility. The Fund will provide a 50% subsidy on approved courses.

Whether such upgrading and retraining programmes succeed or not depends ultimately on the workers themselves. We can only help those who are willing to help themselves. If the Government’s and NTUC’s calls to retrain fall on deaf ears, workers must expect increased risk of unemployment as they get older. Since the Government has committed funds for the training of workers, I urge the workers to go for retraining for their own benefits.The country must also be prepared for a less competitive economy.

I want to end my speech by coming back to the regional economic crisis.

on a more positive note. Japan has taken strong measures to stimulate its stagnant economy. We should see positive results from July when taxpayers receive their rebates and more money is spent on public sector projects. Japan has also taken steps is showing leadership to help other the Asian economies in trouble. It has pledged more than US$19 billion for Korea, Thailand and Indonesia through the IMF.

Indonesia is now implementing the IMF measures. But though it has some tough days ahead. The Korean and Thai situations have stabilised.

These are positive developments. But they may be marred by political and social discontent if the affected currencies do not regain strength soon and the pain bites deeper. Singapore has been relatively unscathed by the currency turmoil. Let us build on our strengths for the growth that will come to the region after the crisis period is over.