APPRECIATION OF SINGAPORE DOLLAR (Effect on export industries)

Dr Lee Tsao Yuan asked the Minister for Trade and Industry whether there is any empirical evidence that export industries (including the tourism industry) in Singapore have been adversely affected by the recent appreciation of the Singapore dollar relative to a number of other Asian currencies (except the yen).

The Minister for Trade and Industry (Mr Yeo Cheow Tong): Mr Speaker, Sir, in the first five months of this year, on a year-to-year basis, the Singapore Dollar (S$) has appreciated by 11% against the US$, between 3% and 15% against the currencies of the other East Asian countries, but depreciated by 5% against the Yen and 6% against the Deutschemark. The relatively large appreciation against the US$ partly reflects the weakness of the US$ in international markets. On a trade-weighted basis, the appreciation of the Singapore dollar is much less.

As the Deputy Prime Minister mentioned in this House in May, MTI and its statutory boards are helping the Monetary Authority of Singapore to conduct an in-depth study into the impact of the appreciation of the Singapore dollar on different industries. This study is still on-going and will be completed in several months' time.

Meanwhile, MTI's feedback from the manufacturing companies about the effects of the Singapore dollar is mixed. They depend on the specific circumstances of the companies. Companies whose export earnings are mainly denominated in US$ and whose inputs are mainly in Yen or Deutschemark are adversely affected. Conversely, companies whose export revenues are in Yen or Deutschemark benefit. For the manufacturing sector as a whole, as the US is a bigger export market than Germany or Japan, there has been pressure on profit margins.

In the tourism sector, the impact of the strong Singapore dollar is one of the many factors affecting tourism. Other important factors include the state of the economy in the tourist-generating countries, the development of excellent and competitively priced shopping facilities in the ASEAN countries which comprise the bulk of our tourist arrivals, and the competition from many new tourist destinations in the region.

Dr Lee Tsao Yuan (Nominated Member): When the Government does the study, does the Government intend to include in this study some policy recommendations to help the private sector adjust not only to the magnitude of the appreciation of the S$ but, I believe, the pace of appreciation of the S$, vis-a-vis these other currencies?

Mr Yeo Cheow Tong: Mr Speaker, as the Finance Minister and the Deputy Prime Minister previously explained, the value of the Singapore dollar is determined by the international foreign exchange market and it will be impossible for the Singapore Government to artificially set the value of the Singapore dollar. But what we can do is, when necessary, to intervene to slow down that pace of increase and this, I think, MAS will continue to do when necessary.

With regard to helping companies to adjust to the appreciating Singapore dollar, the Government has been actively encouraging companies to upgrade, to improve their productivity, and we will continue to do so aggressively. In fact, we are now in the midst of reviewing the role of the NPB and other agencies in the productivity improvement programme to see how we can make better use of the capabilities that we have and to review how we can reach out more effectively to the private sector to help them upgrade and improve their productivity.

Dr Lee Tsao Yuan: Sir, I am glad that the Minister has said that the Government would try somehow to moderate the pace of appreciation of the S$ relative to these other currencies. Would the Government also consider, as a temporary adjustment, to have a standstill on necessary Government fee increases which affect the business sector?

Mr Yeo Cheow Tong: Sir, the Singapore dollar will continue to increase as long as we continue to have strong economic growth and as long as we continue to have a healthy budget. I think that is the situation that is facing the private sector today, and we would like them to bear that in mind in planning for their business operations in Singapore.

The pricing of Government services to the general public and to the private sector in Singapore should be kept separate from the value of the Singapore dollar. Because as the costs of providing these services increase with rising wages, I think it is important for the Government to reflect these increasing costs in its pricing, so that business can actively adjust to it and ensure that we do not end up subsidising the private sector. Because once that happens, it is very difficult to hold back that sort of programmes.

Dr Lee Tsao Yuan: Sir, while I fully appreciate that there should not be a need to subsidise the private sector unduly, I think for the private sector, costs need to be calculated in toto, including the relative appreciation of the S$ as well as other business costs in Singapore.

Mr Speaker: Order. Dr Lee, could you ask your question?

Dr Lee Tsao Yuan: In the proposed study, will the Government include all the relevant business costs in Singapore, including Government fee increases?

Mr Yeo Cheow Tong: Mr Speaker, Sir, of course, all the cost factors, including cost factors influenced by Government's actions and activities, will be taken into consideration.