FLUCTUATIONS OF THE YEN (Effects on the Singapore economy)

Dr Koh Lam Son asked the Minister for Trade and Industry what are the effects of the rise of the Yen on the Singapore economy and whether the effects will be reversed if the Yen falls.

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, since September 1985, the Japanese Yen has appreciated by over 30% against the US dollar.

The rise of the Yen has hurt many Japanese exporting industries with plants in Japan. These companies are anxiously trying to reduce their cost of production by moving their operations offshore. Singapore has benefitted from this outflow of Japanese investment, because of the timely and decisive changes in our economic policy which we have made last year. Manufacturing investment commitments from Japan have doubled, from $244 million in 1985 to $490 million in 1986. As our cost cutting measures take effect and our competitiveness improves, we should attract even more Japanese investment commitments this year.

The Yen's appreciation has made our exports more competitive, both to Japan, and also against Japanese exports to third country markets such as the US and the European Economic Community. Our non-oil domestic exports to Japan rose by 18.4% in 1986, compared to 7.6% the year before. In other words, the rate of growth more than doubled. Despite this, Singapore still runs a large trade deficit with Japan.

The Yen is not expected to depreciate against the US dollar. Nevertheless, whatever the movement in international exchange rates, provided Singapore maintains our competitiveness, we will always be able to adapt to these changes and find new markets and new sources of investment.

Mr Chiam See Tong: Sir, the Minister has said that our wage rate is competitive. How competitive is it now compared to Hong Kong, Taiwan and South Korea?

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, when we embarked on the package of measures after the Economic Committee published its report, we estimated that it would take about two years for us to regain our competitiveness; in other words, to get back to the position in 1981. We have since then been monitoring our progress. We have to calculate not just wage rates but the overall cost of doing business - cost of utilities, rentals, Government bureaucracy, administrative charges. MTI's assessment is that the measures have had a significant impact. We are perhaps three-quarters of the way to recovering our 1981 position but not quite all the way there. That is why the Government has said that we need one more year of wage restraint to make sure that we do not ruin the game plan before the game is won.

Mr Chiam See Tong: Mr Deputy Speaker, Sir, we still got no answer from the Minister. How competitive are we now in this present position as regards wage rates compared to Hong Kong, Taiwan and South Korea?

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, I do not have the statistics with me. Our estimate is that overall the policy measures have made a difference of about 30% to the cost of doing business and that this is not quite a complete recovery. How do I know it is not quite complete? Well, because if you look at our performance last year and the performance of the other NICs last year, we did a lot worse than they did. South Korea had 11% growth, Taiwan about 9% ---

Mr Chiam See Tong: 10%.

BG Lee Hsien Loong: 10%, even more so reinforcing my point. Hong Kong about 6%, Singapore 1.9%. I think that is reason to think we have not completely recovered.

Why do I think we have made progress though? Because our investment commitments last year went up drastically over the year before. The year before was $1.1 billion. Last year it was more than $1.3 billion. At the last count, I think more than $1.4 billion. And if you look at the commitments for this year, 1987, we are expecting an even better year for investments, although naturally EDB and MTI would be cautious about giving hostages to fortune and promising any numbers before delivering the results.

However, as I have said before, these investments have been committed on the assumption that they will find a low-cost business environment in Singapore. As one multi-national corporation employer said to me, "We put in these commitments in brick and mortar, believing the Government when it said that it would hold its wages down, when it said that the CPF would be trimmed, when it said that it was concerned with business costs in Singapore." If the Government now changes its position, or for that matter if the unions and the population now changes its resolution, and the assumptions on which these calculations were made are demolished, then I do not think the bricks and mortar will stand for very long. Because the entrepreneurs will remake their calculations and, if the arithmetic no longer works out right, they are not going to pour good money after bad.

Mr Chiam See Tong: Sir, one last supplementary question. The Minister has given a long answer. As I understand it, investments are still pouring into Taiwan and I believe the wage rates in Taiwan are now almost equal to that of Singapore. Why aren't the same amount of investments coming into Singapore, whereas investors are going in big numbers to Taiwan?

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, before we answer questions, I think we should examine assumptions. First, I am not sure that investments are pouring into Taiwan. I am not sure what the Member for Potong Pasir means by "pouring in". Taiwan has 16 million people, probably more than that. If we make a per capita comparison, or one based on the size of the GDP, I think we are not doing badly. Secondly, I do not know what the basis of the Member's statement is - that Taiwanese wages are almost as high as Singapore wages. The last time I looked at them, there was a very significant differential. I do not have the numbers with me. The differential is even larger for professionals like engineers. In Taiwan you can hire a fresh graduate engineer for S$800-$900 a month.

Mr Chiam See Tong: What about workers in electronics?

BG Lee Hsien Loong: Let me finish. In Taiwan you can hire a fresh graduate engineer for S$800-$900 a month. In Singapore you cannot find an electronics engineer for less than $2,000 a month. So for engineers, we are much more expensive. As for workers' per hour wage rates, there is no basis for saying that we are as cheap as Taiwan. If the Member has figures, I would be interested to see them.

Mr Chew Heng Ching (Kaki Bukit): Sir, I think we should not measure investment per se. It is the quality of investment that we are after.

I have a supplementary question for the Minister. He mentioned that last year there was an investment inflow of about $1.4 billion. Would the Minister tell us how many jobs are likely to be created by this investment inflow?

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, at a rough calculation, the capital investment per job is about $70,000. You need $70,000 worth of machinery, equipment, plant, buildings, in order to provide a job for one Singaporean worker, the equipment and the wherewithal for him to be productive to do a job well. On that basis, the total amount of investment will have created about 20,000 jobs. This is a gross total. We must also allow for job losses, ie other companies which have retrenched workers or other businesses which have not done well. I do not have a figure on net job creation for last year.