1. THE CHALLENGES AHEAD

We are living in troubled times. The next few months will be the toughest for me since I became Prime Minister. The economic problems we now face are aggravated by the terrorist attacks on the US, the unfolding war against terrorism, and the world’s divided reaction to US’ strikes against targets in Afghanistan. If we look back, I would say that the challenges before us are the most severe since our independence in 1965.

Singaporeans, however, live in a cocoon, sheltered by an efficient and protective Government. Hence, tonight, I want to share with you the burden that the Government is carrying. I do so not to lighten my and the Government’s load, or to work on your fear for election purposes as Mr Chiam See Tong had alleged, but because the Government cannot solve all the problems by itself. We need you to play your part, first in solving as much of your own problems as possible by yourself, and next to work with the Government to overcome national challenges. We need you to be resilient, and united to fight the common threats to our stability and prosperity.

Before 11 September, the global economy was slowing down and Singapore was already moving into recession.

But there was hope that the global electronics industry and the US economy would pick up, if not in the fourth quarter, then maybe in the first quarter next year.

That hope is now dashed, by the terrorist attacks of 11 September.

The US and Britain are now carrying out strikes against military and terrorist targets in Afghanistan, and Osama bin Laden has threatened more terrorist acts on the US and its allies.

The unfolding events carry grave security implications for Singapore. They will also test our social cohesion and deepen our economic problems.

First, let me deal with the security implications.

The US has shown us the papers linking Osama bin Laden and his Al Qaeda terrorist organisation to the 11 September attacks. We are satisfied with the evidence shown. We are satisfied that the US military actions in Afghanistan are aimed at the terrorists and the Taliban who harbour them, and not against Afghanistan or the Afghan people. We are also satisfied that the US campaign is against terrorism and not Islam. We note that a number of Muslim countries support the US’ actions in Afghanistan.

We have taken a strong and unequivocal stand against terrorism. It is the moral thing to do. We have to be on the side of civilised human behaviour, and against barbaric and cruel acts which have no regard for innocent lives. No religion condones the taking of innocent lives. Islam does not. The Mufti of Saudi Arabia has said that suicide bombings are illegitimate and have nothing to do with jihad. He added that hijackers violate Islamic law because they encroach on people’s rights and harm public security. The Sheikh of Cairo’s Al-Azhar University has also expressed his view that suicide attacks against women, children and elderly people who are non-combatants, do not count as martyrdom. The Mufti of Singapore has said, "As a community that abhors violence and the killing of innocent civilians, our stand and feelings towards acts of terrorism committed anywhere in the world is the same."

Singapore is not immune to terrorist acts, even if we behave like the proverbial three monkeys which see, hear and speak no evil. In fact, terrorist acts have taken place in Singapore. In 1974, four terrorists from the Japanese Red Army and the Popular Front for the Liberation of Palestine carried out a bomb attack on the Shell oil refinery on Pulau Bukom and hijacked the company’s ferry, Laju. In 1985 and 1986, two bombs exploded at Faber House in Orchard Road. They were targeted at the Israeli Embassy which was then located there. More recently in 1991, four Pakistanis hijacked a Singapore Airline flight to force the Pakistani Government to release their jailed comrades.

All these terrorist acts were not aimed at Singapore, but they took place here against foreign targets. Hence, even if Singapore were to bury its head in the sand like an ostrich, terrorist acts may still occur in Singapore. We are a very open country with a huge international presence.

Terrorism has now taken on a strategic, global dimension. Osama bin Laden’s strategic objective is to get the US out of the Middle East so that he can topple moderate Muslim or secular governments everywhere, including the Pakistani Government. He would then establish new governments to carry out his own brand of Islam. With his control over vast oil resources, and Pakistan’s nuclear bomb, he would go on to fight a larger battle against all those whom he regards as non-believers as well as Muslims who do not meet his ideals of Islam. He has referred to the Saudi oil fields as "a large economic power essential for the soon-to-be established Islamic State" and possession of nuclear arms as "to possess the weapons that would prevent the infidels from inflicting harm on Muslims."

Osama bin Laden will use every means to achieve his objectives.

In February 1998, he issued and signed a fatwa which proclaimed that: "The killing of Americans and their civilian and military allies is a religious duty for each and every Muslim to be carried out in whichever country they are (until his objectives are met )."

Terrorism perpetrated in the name of Islam is now a global problem. Indian specialists estimate that between 11 to 15 thousand non-Afghans were trained in terrorism against the former Soviet Union. These human assets have now spread themselves to over 60 countries. They are also present in our region.

Many of the terrorist groups in Southeast Asia have established links with Osama’s Al Qaeda group. In the southern Philippines, the Moro Islamic Liberation Front, and the Abu Sayyaf Group which kidnapped 21 foreigners from the Sipadan Islands in April last year, have sent men for terrorist training in Afghanistan. Before his arrest in 1994, Osama’s brother-in-law established a business network in the Philippines that channelled funds to these two groups.

In Indonesia, Afghan militants have helped Laskar Jihad and other radical Indonesian groups fight Christians in Maluku.

In Malaysia, members of the Kumpulan Mujahiden Malaysia (KMM) were believed to be responsible for at least nine cases of murder, robbery and bombings since 1998. They are suspected to have links with Osama’s network. Also, a couple of Malaysians who fought in Afghanistan against the Soviet Union had been arrested for planting bombs in Jakarta to destroy churches and shopping malls. Initially, the opposition in Malaysia ridiculed the Malaysian Government’s revelation of KMM as "sandiwara" or a play. But as events have shown, it was a serious problem and not a play.

In fact, a researcher has found an ominous trend that while the number of terrorist attacks around the world has decreased over the past several years, the number of attacks in Asia has risen, from 11 in 1996, to 21 in 1997 and 49 in 1998.

Last year, ISD uncovered an attempt by a Middle East terrorist group to cultivate and recruit Singaporean Muslims into its fold. Several Singaporeans were introduced by an Indonesian religious teacher to the operatives of this terrorist group in the early 1990s. The religious teacher himself was a member of this terrorist group. He had been responsible for the Borobudur bombings in Jogjakarta in 1985. At least five Singaporeans were cultivated by the terrorist operatives. They were told to form a terrorist cell in Singapore and be prepared to go to war when called upon.

Fortunately, good sense prevailed among the Singaporeans. They withdrew contact with the foreign operatives.

This experience tells us that even if Singaporeans do not volunteer their services, they may be sought out by others to support the latter's violent plans. Indeed, the terrorist operatives who tried to recruit the Singaporeans might have the US in mind. In 1995, two of them conducted a video recce of our coastline, reportedly to assess the viability of a seaborne attack against passing US naval vessels.

We have to increase our vigilance against terrorist activities. Now that the military action against terrorism has started, there is a danger that radical groups in our part of the world may mount terrorist acts in our region to support Osama.

We have put in place plans to prevent terrorist attacks, and to deal with them should they occur. The 11 September attacks have taught us that it is better to be fully prepared than to be sorry afterwards.

Now, let me deal with the implications of the 11 September terrorist attacks on Singapore’s social cohesion.

Osama’s tactic is to turn the US war against terrorism into a war seen by Muslims as against Muslims. If he succeeds, he would have divided the world into Islamic and non-Islamic camps, and brought about a clash of civilisations. I do not think he will succeed because the Americans have been careful not to fall into his trap. Nevertheless, Osama’s message strikes a chord amongst many Muslims, even moderate ones, because of deep-seated historic reasons and the strength of Muslim brotherhood. Hence, it is understandable why Singaporean Muslims feel strong sympathy for the fate of the Afghan civilians, who are at risk of a humanitarian disaster.

On the whole, I am reassured by the way our multi-racial society has reacted to the 11 September terrorist attacks and the ensuing events to bring the terrorists to justice. Our Malay/Muslim leaders condemned the terrorist attacks and regarded them as un-Islamic. Islamic religious teachers have mentioned during their Friday sermons that Muslims should not regard the attacks as justified nor make prejudicial remarks that may affect relations between the races. Malay/Muslim leaders have gone on television to speak of local Muslims’ sympathy for those affected by the 11 September tragedy and to condemn terrorism. Several hundred Muslims also attended the memorial service held recently at the National Stadium for the victims of the 11 September attacks.

Our non-Muslim communities have also not looked at our Muslim population with suspicion, unlike in many other countries. In the US, UK, Australia and elsewhere, there have been many incidents of harassment and attacks against ordinary Muslims, and even Sikhs as well.

Tamil Murasu has rightly pointed out that the world should not associate Osama and his group with any religion since no religion propagates evil deeds. The Chinese press has urged its readers to direct their anger at the terrorists and not at Muslims or Islam.

Nevertheless, there are anecdotes which suggest that a small number of Muslims saw merit in the terrorist attacks. They reportedly took the view that the attacks were a punishment for the US for its policies in the Middle East.

There were also instances of Chinese students saying that the Americans deserved the attacks. However, the reasons for their reaction were different. In their eyes, the mighty, arrogant US bully had been taught a lesson.

While the reactions of Singaporeans so far have been commendable, our social cohesion could come under more stress now that the US has attacked terrorist and Taliban targets in Afghanistan. We are a multi-racial, multi-religious society, and Singaporeans may not all react in the same way to the same events.

It is important, therefore, that we get across the message that we support the US because it is fighting terrorism. Unfortunately, innocent Afghans are caught in the crossfire, and we sympathise with them. That is why we are extending humanitarian aid to Afghanistan.

We must expect Osama, the Taliban, and their followers to portray the US as being against Islam and attacking a Muslim country. They have called all Muslims to start a jihad against the US. I am comforted that our Muslims understand the issues and are not confused by the call. As the Singapore Mufti explained, jihad does not necessarily mean going to war. He has advised the Muslim community in Singapore to act wisely.

Our Muslim leaders have made clear where they stand in the fight against terrorism. Had they been ambivalent, the strain on our social cohesion would have shown by now. Therefore non-Muslim Singaporeans must not allow the actions and rhetoric of radical Muslim elements outside Singapore to colour their views of our own Muslim community.

However, in cyberspace, opinions have been inflammatory. There are netters, apparently Singaporean, who expressed glee about the attacks on the US. At the same time, there are others who linked the terrorist attacks to Islam and expressed negative feelings against Islam and Muslims. The potential for such hostilities in cyberspace to boil over to the physical world is real. I urge netters to be responsible in expressing their views. We do not want Singapore to be polarised along racial and religious lines. All communities in Singapore must see the conflict for what it is – a war against a common enemy, terrorism, and not one against Islam. We must not equate Islam with the terrorist acts of Muslims who perpetrate them.

We will deal seriously with anyone who tries to exploit the current situation to inflame relations between racial and religious groups. We will scrutinise all information related to inter-racial incidents. We have to be especially careful of any insensitive actions during this period.

I shall now deal with the impact of the 11 September terrorist attacks on our economy.

The attacks came at a particularly fragile moment for the US. Even before 11 September, the US economy was already heading into recession. With the attacks, consumer confidence will plummet, and pull the US economy into gloom.

Indeed, the attacks are likely to send the global economy into its most severe deceleration since the 1973 oil crisis.

The economic outlook is bleak and uncertain. No one is sure how the military action against Osama bin Laden and his terrorist network will pan out. No one knows how long it will last, nor how widespread the conflict will be. No one can be certain of the scale of the next terrorist attacks.

External demand constitutes 70% of our total demand. We will be hit harder than most other countries because of our greater dependence on exports.

Overall, our economy is likely to contract by around 3% this year.

MTI’s growth forecast for next year is -2% to +2%. My own view is we will be lucky to see any growth in the first half of next year. All our major markets - US, Europe, Japan and ASEAN - are down at the same time.

Fortunately, we have the resources to help Singaporeans tide over any prolonged downturn.

The second package announced by DPM Lee on 12 October is big. It is equivalent to 7% of our GDP. Even the US, faced with a sharp downturn, did not implement as big a package in terms of share of GDP. Its US$100 billion package is only 1.3% of its GDP.

But I want to caution you of further pain ahead.

To understand why, we should look at the two engines of growth - OECD and ASEAN - that have propelled our economic growth in the last three decades.

These two engines – the OECD market for our manufacturing exports and the ASEAN market for our services - have weakened considerably since 1997, and will likely be further affected by the 11 September terrorist attacks. It will take some time for these two engines to recover. Even when they do, they may not regain their old strength.

Let us take the case of ASEAN. Four years have passed since the 1997 Asian financial crisis. But many of our ASEAN neighbours are still struggling with their domestic problems caused by the crisis - high unemployment, slow progress in banking and corporate sector reforms, and various social and political problems.

As a result, investors have become more wary of investing in the region, and are turning their attention to Northeast Asia. Indeed, since the Asian financial crisis, there has been a clear divergence between the economic performance of the Northeast Asian and Southeast Asian regions. The Northeast Asian countries have become more attractive to foreign investors, mainly because their governments have undertaken structural reforms and liberalised their domestic sectors to foreign competition and investment. They also have political stability.

I do not foresee the region returning to the roaring growth of the pre-1997 years. Recovery will be a painful and long-drawn process. Persistent Japanese economic weakness also means that Japan cannot play the role of the locomotive for the ASEAN region as it did in the late eighties and early nineties. Japan is not likely to regain its vigour for several more years, at least.

After the Asian financial crisis, our OECD locomotive was the main engine supporting our economic growth. However, this engine also started sputtering last year. The dot-com crash left many technology companies heavily in debt. Many closed down. The global electronics industry also went into a downturn. The US economy slowed sharply. The EU did not escape unscathed either, and has begun slowing this year.

The 11 September attacks will damage further the OECD engine. Because of the sharp global economic slowdown, companies will be more preoccupied with survival in their home base, rather than in expanding overseas. As noted by Mr Alan Greenspan, the Chairman of the US Federal Reserve, the September 11 attacks strike at the roots of our market-driven economy. Investors and businesses require a sense of confidence in the state of the future before committing investments. The September 11 attacks have greatly increased the sense of uncertainty about the future, and will affect the level of economic activity. The appetite for cross-border alliances and investments may diminish in an increasingly unstable world. There will be greater risk aversion. We will not find it so easy to attract the same high level of investments from OECD countries.

Moreover, China is also developing rapidly. It is pulling away MNC investments which would otherwise have located in Singapore or the ASEAN region. We have to restructure our economy to take into account this competition and to tap into China’s growth.

Taiwan has seen a hollowing out of its traditional industries, and more recently, its electronics industry.

ASEAN countries, including Singapore, will face the same problems of hollowing out in the near future. Indeed, some MNCs and local companies have already been moving out of Singapore and the regional countries in recent years. This migration is likely to continue, if not accelerate, as companies seek to reduce costs and exploit the opportunities offered by the vast Chinese market. Many of the jobs that are lost during this downturn will be gone forever, as the companies which have uprooted themselves are unlikely to return.

India is also opening up. If it continues to do so, it will also be a formidable economic competitor.

Our operating environment and parameters have changed significantly. We cannot carry on in the way we have operated in the past, and hope to continue to progress. We have to fundamentally change our economic orientation, in order to succeed in the next phase of our development. We have to expand our economic space beyond our immediate region. We have to encourage Singapore entrepreneurship as another pillar of growth to supplement our MNC strategy. We must become an innovative nation. I had already outlined these strategies in my National Day Rally speech.

Tomorrow, Senior Minister will also share his views on this subject. He will be speaking to the university students on "Remaking Singapore for the New Age".

In short, we have to restructure our economy and change our development strategy. I have asked DPM Lee to chair an inter-Ministry committee to work out the blueprints, including measures to soften the impact of structural changes on Singaporeans. DPM Tony Tan, and Ministries such as MTI, MOM, MOF and others will be represented in this Committee.

As we undergo these structural changes, Singaporeans must recognise that we might never return to the heady growth of the last three decades. Since independence in 1965, Singapore has achieved robust growth of 8.7% per annum on the back of a healthy global environment. So while strong growth of above 6% may seem to be the natural order of things for many Singaporeans, this will no longer be so in the future because of the changed world around us.

To sum up, Singapore faces three threats in the coming months: threat to our security from terrorism, threat to our social cohesion if Singaporeans are divided over US’ actions against terrorism, and threat to our livelihood and jobs if the economic slowdown is prolonged.

We will recover from the economic recession - that is certain.

The team of Ministers and civil servants dealing with the economic problems is largely the same team that saw us through the 1997 Asian financial crisis. We have the support of MPs, grassroots leaders, unionists, the private sector and the people. And we have the financial resources.

We have gone through many major crises together: communal violence while in Malaysia, the British withdrawal from their Singapore bases in the late '60s, the 1973 oil shock, the 1985 recession and the 1997 Asian financial crisis. Each time, we rallied together and responded swiftly to resolve the problems. Each time we emerged from the battle stronger.

Our past success was the result of strong Government leadership and the close partnership between the Government and the people. I ask you to pull together again as one people. I ask you to work with the Government to restructure our economy. I ask you to be resolute in our fight against the threats to our prosperity. If we work together as one united people, we will overcome our present difficulties and go on to create a secure and even better Singapore.

Thank you.