SINGAPORE DOLLAR

Mr S. Chandra Das asked the Minister for Trade and Industry what is the impact of the strengthening of the Singapore Dollar on the economy, particularly on new investments, exports and tourist trade.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, whether Singapore can attract tourists and investments, and whether we can export goods and services depends not only on the strength of the Singapore dollar but even more on domestic costs, which are influenced by wage levels and productivity growth.

The Ministry of Trade and Industry has constructed an international competitiveness index which compares the cost of doing business in Singapore, including labour costs, productivity, and also exchange rates, with corresponding levels in South Korea, Taiwan and Hong Kong which are our major export competitors in the region. I have shown a graph (Cols. 255 - 256) of our trends of competitiveness. You can see between the first quarter of 1985, when our relative costs were at their highest, and the fourth quarter of 1987, the most recent, our competitiveness has improved by 32%. The sources of the improvement are: labour costs, 88%; exchange rate, 16%; productivity, minus 4%. graph - SINGAPORE RELATIVE UNIT LABOUR COST (Cols. 255 - 256)

In other words, the CPF cut and the wage restraint policy account for nearly all of our higher competitiveness. The exchange rate contributed only one-sixth, mainly because other NIC currencies, especially the Taiwanese NT, have appreciated by even more than the Singapore dollar. The contribution from productivity growth is actually negative. Even though we have enjoyed good productivity growth in Singapore, the other NICs have done still better than us.

Our competitiveness has continued to improve in 1987, despite the strengthening of the Singapore dollar against the US dollar. This reflects the success of our wage restraint policy, and the higher wage increases in the other NICs, particularly South Korea.

This restoration of our competitiveness has underpinned our strong recovery. Last year, our GDP grew by 8.6%, foreign investment commitments in manufacturing went up by 20%, and tourist arrivals up by 15%. Total non-oil domestic exports up by 32%, exports to the US up 29%, to Japan up 32% and to the EC up 45%.

Since 1980, the Singapore dollar has appreciated by about 7% against the US dollar. It has also appreciated by about 25% against the other three NICs. On the other hand, it has depreciated by about 40% against the Yen and 4% against the Deutschemark. On a trade-weighted basis, compared to a basket of foreign currencies, the Singapore dollar has appreciated by about 10 to 15%. As the Minister for Finance and I have earlier explained, there is no reason to expect the Singapore dollar to appreciate drastically, as Singapore runs a large trade deficit every year.

As a result of the stronger Japanese Yen and the weaker US dollar, some Singapore firms who import machinery and components from Japan and export final products to the US have had their profits squeezed. This is due not to the movement of the Singapore dollar, but to the bilateral exchange movement between the Japanese Yen and the US dollar, over which Singapore has no control.

MTI watches our international competitiveness very closely. It monitors all components of the index, especially labour costs. So far, the evidence shows that we are highly competitive and we intend to remain so.

Dr Augustine H.H. Tan (Whampoa): Sir, have these figures been submitted to the US government? Why is it that they remain unconvinced and keep on bashing us?

BG Lee Hsien Loong: Mr Speaker, Sir, all figures which we have available and are relevant and helpful to our case have been made public. The US government has access to them. It is not a matter of intellectual conviction but of political expediency which is causing the US to look for scapegoats to attack in order to divert attention from the fundamental problems which cause their trade deficit.