ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL, 1998 TO 31ST MARCH, 1999 (Paper Cmd. 3 of 1998)

Order read for consideration in Committee of Supply [2nd Allotted Day].

[Mr Speaker in the Chair]

Head N (cont.)

Resumption of Debate on Question [11th March, 1998].

"That the total sum to be allocated for Head N of the Main Estimates be reduced by $100." [Mr Leong Horn Kee].

Question again proposed.

The Minister for Finance (Dr Richard Hu Tsu Tau): Sir, with your permission, I would like to answer the question which I was not able to complete at yesterday's sitting.

Mr Inderjit Singh has suggested that the GST exemption threshold should be raised from $1 million to $2 million. He also asked whether GST registered businesses could delay their payment to the Income Tax Department for GST collected by one quarter to help ease their cashflow.

We believe that the current GST annual turnover limit of $1 million is already high and excludes, therefore, practically all small businesses. With this $1 million turnover threshold, most businesses such as provision shops, retail shops, hawkers and HDB shopkeepers are exempt from applying GST.

Currently, businesses are already allowed to file returns on a monthly or quarterly basis and pay IRAS the GST collected within one month after the returns are filed. The traders who are in a net refund position from Government usually choose to file returns on a monthly basis. Businesses with turnover of less than $1 million but has voluntarily registered for GST purposes are also allowed to file returns on a half yearly basis. As the GST payable is, in fact, money collected from customers, the traders who choose to file quarterly returns have the use of GST collected for two months on average. Since the GST is not a tax on the trader, unlike income tax, there is therefore no basis to allow companies to keep the money which belongs to Government any longer than what is already provided.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman: Amendment No. (2), Mr Chiam is not here.

The sum of $532,215,600 for Head N ordered to stand part of the Main Estimates.

The sum of $368,238,500 for Head N ordered to stand part of the Development Estimates.

Head W

The Chairman: Head W, Ministry of Trade and Industry. Amendment No. (1), Mr Leong Horn Kee.

Mr Leong Horn Kee: Sir, I beg to move,

That the total sum to be allocated for Head W of the Main Estimates be reduced by $100.

Sir, local companies have been lamenting about the rising cost of doing business in Singapore for several years. They have been encountering cost pressures in terms of increases in wages, fees and rentals. Now, with the economic slowdown, local companies are facing the added problems of lower business turnover and credit squeeze.

As I have mentioned earlier in my speech during the budget debate, more than 50% of local firms feel that their businesses will be badly affected by the economic slowdown, both in terms of local and foreign sales. On the other hand, they also encounter difficulties with banks which are now putting a credit squeeze on their banking lines. It is fair to expect that banks would wish to review their loan exposure and minimise their doubtful debts. However, in the process, local companies are being further squeezed by higher interest cost and fewer credit facilities.

In the area of cost of doing business, local companies wish to see that the Government could consider reducing rates and fees such as HDB and JTC rentals, instead of just putting a freeze on them. In the area of increasing costs, local firms have found that in the last two years, PSA has actually increased their fees three times. Now, with the expected introduction of ERP, businesses are also concerned that their transport costs will increase, since it is essential for them to travel, especially along the expressways so as to ensure fast delivery of their products. Hence, ERP may, over a longer term, cause them to incur higher transportation costs.

Local companies are also faced with the burden of higher financing cost of borrowings. Most small firms are charged 2-3% above prime rate for bank borrowings. In addition to borrowing cost, they also have to incur higher interest charge, and thereby weakening their already poor cashflow.

I would like to ask the Minister whether the Government would consider doing a comprehensive review of the problem of cost of doing business for local firms, in the light of the economic slowdown.

In addition, I also like to urge the Minister to look into the problem of credit squeeze faced by local companies. As a result of the higher costs and tightening bank credit, many local firms may be forced to close. This will have serious repercussions on the economy. It will, in turn, create unemployment and hardship for Singaporeans. Hence, I would like the Government to monitor closely the health of the local industries.

Mrs Lim Hwee Hua (Marine Parade): Sir, as my GPC Chairman has alluded to, the number one gripe of the business community has to be the rising, if not high, cost of doing business in Singapore. The attendant issue of the erosion of our competitiveness is fundamental to our survival. These concerns have been made more pronounced in the light of the current economic and financial crisis.

At our GPC's various feedback sessions, complaints and concerns range from expensive real estate to high manpower cost to a heavy burden of Government fees and charges. Most seem to accept that with the limited manpower resources available, there is little room to artificially raise supply without affecting work quality. Yet, on the other hand, the Economic Development Board has managed to clinch record investment commitments year after year, which is a feat not to be scoffed at. What is it that draws multi-national corporations to Singapore from the wide range of choices that they have? Political and economic stability is obviously an important prerequisite, but this must be matched by a viable business cost profile. For at the end of the day, it is still dollars and cents that speak loudest.

My question to the Minister is, therefore, a fundamental one. What is our operating cost profile, for the country as a whole or by sectors, in terms of the various components, including real estate, manpower, Government fees and charges? And how does this breakdown or profile compare with our competition? More importantly, is the real estate component disproportionately high as felt by many? Finally, does our cost structure resulting from the free market forces in play for real estate and manpower inherently disadvantage the smaller operators?

The Chairman: Mr Lim is not here. Mr Tay.

Mr Tay Beng Chuan (Nominated Member): (In Mandarin): Sir, over the past few days, the debate in this House has focused on the question of the rising cost of doing business in Singapore. This is because these are the key factors that affect the survival and development of our businesses and our international competitiveness.

Sir, in the operating cost of doing business, I think the various levies and charges imposed by the Government and statutory boards account for a very large proportion, such as factory and shop rentals, utilities charges, foreign labour levies, property taxes, GST and port charges. Recently, the devaluation of currencies in our neighbouring countries has made it more difficult for us to compete with them in terms of our cost of business. Over the long term, this will be detrimental to our exports and external trade.

According to a recent survey conducted by the Singapore Chinese Chamber of Commerce and Industry among its members, more than 50% of its members fear that there will be rising cost of doing business in various degrees, and this includes the charges and levies imposed by the Government and statutory boards. Obviously, any such charges and levies and their upward adjustments will accumulate to produce serious negative effects on the cost of doing business here.

Sir, the greatest worry among the business community is that adjustments of Government charges and levies appear to be made on the basis of "to each his own", and are aimed at balancing income with expenditure or accumulating substantial surpluses. Under such circumstances, the Government departments and statutory boards, because of the rising cost, will compete to adjust upwards their own charges and levies and neglect the overall competitive edge of the country.

Sir, in order to solve these key issues, I would suggest that the Government set up a review committee on Government charges and levies in order to review and monitor the various adjustments by the Government and statutory boards. This is to ensure that such adjustments are reasonable and properly coordinated. In this way, our businesses can then rely on the price-competitive and efficient public facilities and services to maintain our international competitiveness. 12.45 pm

Mr David T. E. Lim (Aljunied): Sir, rentals are not usually a large component of total business costs, but nonetheless they are a significant component. I would therefore like to address this issue. I will confine my remarks to rentals about factory spaces although the same principle would also apply to other industrial and commercial properties.

In a stable and open market, rentals are set by negotiations between willing sellers and willing buyers. A price that is produced by this interaction reflects the level at which tenants are able to profitably and productively make use of rented space. These market transactions are therefore a good benchmark for the HDB and JTC to set their posted prices, but under stable market conditions. In a falling market, however, these benchmarks represent only the ability of new tenants to pay this price and are no longer representative of the prices at which existing tenants are able to profitably make use of this space. By right, existing tenants who cannot afford the rentals should now give up their space. And if no new tenants can be found, market prices will then fall. But if tenants at the posted prices can be found, then market prices will be maintained. But the existing tenants may find it difficult to give up their space immediately, even though they may be better off doing so, and there are several reasons for this.

For example, tenants may be locked into long leases. They may not be able to break their leases without having to pay stiff penalties. Secondly, they may not be able to give up just a portion of the rented premises and keep the rest because of the specific configuration of the factory space. Thirdly, they may still need the space even though it is no longer profitable nor productive just to store slow moving inventory. The net effect of these reasons is that businesses will hold on to rented premises at higher prices for some time before they finally give up the space. High occupancy levels, therefore, do not necessarily mean that posted rents still reflect the rates that tenants are able to pay. They may simply have no choice in the short term.

Many HDB and JTC tenants are already paying less than the posted prices, but this only proves that not all businesses can afford to pay posted prices. In a rising market, it would be correct for the Government to continue to adjust these below market rentals gradually to the level of the posted prices. But in a falling market, it is inadequate for the Government to simply freeze posted prices. The real level of affordability has already fallen even though the statistics do not necessarily show it, because of the lag factors which I have enumerated above.

The Minister for Finance has said that the Government should not wait for all the statistics to be available before taking action. He has said that we should also allow for anecdotal evidence to guide us in interpreting the emerging market trends. I hope therefore that MTI would accept the feedback from the many Members of this House who have spoken that rental levels are too high for many of our small businesses. I am glad to hear that MTI consults regularly with the business community. Perhaps it would be useful also if the Ministry makes some field trips to speak to small businesses directly, those who rent just a few hundred square metres of space in HDB and JTC factories. Then they can see and hear for themselves the real impact on these small businesses.

I think they will find sufficient evidence that there is a case to not just freeze rentals but to adjust posted prices downwards and to slow down or indeed to freeze the increase in rental rates for those who are already paying below posted rents. If the Ministry would do this, perhaps for a year or two or three, until such time as the economy rebounds, it would help a lot of small companies to ride through this rough patch.

Sir, apart from the lower rentals, business costs can also be reduced by streamlining operations. However, some of the current rules by HDB and JTC make it difficult for businesses to do so. For example, an HDB tenant who spoke to me said that he rents three separate units of flatted factory space from the HDB. To streamline his operations, he has, on his own, negotiated and agreed with other tenants to swap factory units so that he can have a single contiguous space. However, he is unable to make this exchange with other tenants for the reason that their rentals would go up if they make the swap with him. This happens because the tenants he wants to exchange the unit with are paying less than posted rental rates. HDB treats the exchange of units as two separate transactions, firstly, a return of each unit to HDB and, secondly, a new allocation of each unit to the tenant.

I hope that both the HDB and JTC would reconsider this rule. The tenant should pay the same total rent as he had paid before the exchange with his fellow tenants. Some adjustments can be made for technical factors, such as the location of the unit or the quality of the finish. But the rents themselves should not be adjusted to current posted price. In this way, HDB or JTC would not collect less rent than before. The new tenants or the existing tenants will also not have to pay more rent than before. But they would still be able to save cost by streamlining their operations. The total space utilised would be more efficient. This is a "win-win" situation for all. I hope therefore that the Minister would ask the HDB and JTC to consider this suggestion.

Mr Leong Horn Kee: Many companies have responded to the Government's call to regionalise by investing overseas. The task of seeking opportunities overseas has been a difficult and arduous one. Those who have ventured out find the going even tougher now, as they are being exposed to the Asian market's financial crisis. These companies venture out to invest in the region on their own with their eyes open. Therefore, they cannot blame the Government when they encounter difficulties or incur losses.

According to the statistics released by the Government in October last year, the total cost of direct investments overseas by Singapore companies grew 21% to $46 billion as at end of 1995. About 35% of these companies invested in ASEAN countries and about 59% invested in the whole Asian region. These regional investments have left Singapore firms exposed to the Asian economic slowdown. Sales in these countries are dropping and coupled by the appreciation of the Singapore dollar against the ASEAN countries, the returns are depressed and the risks are now higher. Several years of effort have been put into promoting the regionalisation drive. Many companies have established good connections in neighbouring countries. I feel that although there is a temporary setback on the regional crisis, Singapore companies should not give up their regionalisation drive. Those with the financial strength and manpower resources should continue to look for opportunities in the region. The idea is to use the neighbours as low cost manufacturing bases for Singapore firms. For example, the idea of promoting cross border investment holdings with Malaysian companies may be meaningful, as it would be helpful to enhance the comparative advantages of both countries for mutual benefit.

Our focus on the regional crisis now seems to be on Indonesia, and Singapore being its closest neighbour would be particularly concerned with the adverse impact should there be a major implosion in Indonesia. I would like to ask the Government how it intends to handle the situation should Indonesia suffer a major financial and political crisis. Indonesia's economic collapse will have an adverse effect on Singapore's investment, trade and commerce with them. Singaporeans are naturally concerned that a collapse in Indonesia will have a major impact on Singapore and Singapore's economy. Perhaps there are ways to shield ourselves from an Indonesian fall-out arising from a collapse which, of course, we hope will not happen. I would like to ask the Minister whether there are means for Singapore to isolate ourselves from the Indonesian difficulties.

Mr Inderjit Singh (Ang Mo Kio): Sir, regionalisation is still very important because the second wing of our economy is the one important way for Singapore to continue to grow and create wealth for the country.

As I mentioned in my Budget debate speech, I hope the Government will not get too easily distracted by the problems faced by the region. We still should have a long term view in mind. In fact, this is an excellent opportunity for our companies to look for bargains in the region both in greenfield investments as well as to buy into troubled companies which can benefit from the management expertise of Singapore companies. While I am disappointed at the lack of new initiatives to encourage regionalisation, I would like to suggest a number of new short term and long term measures to accelerate the momentum of our regionalisation drive.

First of all, can the Government share some of the costs related to regionalisation for some of these companies? These include the cost of relocating the employees to the overseas operation; the cost of training and retraining employees as they go for assignment overseas and as they return back; and the cost of higher insurance of offshore operations.

Secondly, to provide further incentives and funding for capital and asset investments made by the companies in the region. In my opinion, although we have some schemes, the current allowances are too small to be effective.

Thirdly, to provide tax rebates for individuals (the employees of the companies) who take up regional and international assignments. Rebates can be used to offset the higher cost of the children's education in international schools in case the company does not provide the loss of spouse income and other incomes for the employees who leave Singapore.

Fourthly, to work with the Ministry of National Development to allow the period of absence from Singapore to be counted when computing the minimum occupation period of the HDB flat into consideration when the individual wants to sell or upgrade. Currently, the period of absence is not counted. So this becomes a big problem when the employees return and they intend to upgrade.

One other issue that I would like to mention, and this was also mentioned by Mr Leong just now, is: can the Minister enlighten the House as to how Singapore will be impacted should the Indonesian economy collapse? The impression among many Singaporeans is that we are highly dependent and that if the Indonesian economy collapses, so will the Singapore economy. I hope the Minister can give us assurances that this will not happen.

The Chairman: Dr Lee is not here. Mr Rai.

Mr Shriniwas Rai: Sir, I agree with what Mr Leong has informed the House earlier that we should look for opportunities in the region and the fact that the regional economies are not doing well should not deter us. In fact, we should be bold and courageous and look for new grounds. As pointed out by Mr Inderjit Singh, we can seize the opportunity, and in this regard, I would request the Minister whether he and the experts in his Ministry could advise the would-be investors what are the areas that our investors could go into. I think we should also look beyond the region. We should look for markets. I was rather surprised that a Malaysian company got a project in Andhra Pradesh in India to build roads. I do not see why with our vast experience in building construction our builders were not encouraged to do so. If the Malaysians can do, so can we. 1.00 pm

Sir, the other question that bothers me is this. We are focusing ourselves too much in the region. I think there are fertile markets that we have not explored, eg, Latin America. I am glad that the Ministry of Foreign Affairs has got roving ambassadors. We should examine markets where nobody has gone, and I think we should be the first to go. Because in these countries - Africa, Latin America, and the Caribbean - there may be some opportunities.

One area which I think we should seriously explore is that our banks should see whether there are openings in other parts of the world, and take an equity participation in viable banks. Similarly, I think in the world, the United Nations, are places for our building construction. We should also explore ideas with other institutions in other parts of the world on how we can go about building houses, and in this area, I think India would be a classic example where there are a lot of opportunities. I know that there are obstacles but we should try to examine our opportunities in the sub-continent as well as in Latin America again. And, if necessary, I think MTI should take a mission, make a study on its own, and then get our investors interested in the project. I said this because unless MTI takes the lead, I do not think we can proceed. MTI can take the lead, convince our people that there is some hope, and this can be done only if there have been studies done by MTI.

So I will ask the Minister whether he and his officials have done any study as to the opportunities of building properties, and construction in Latin America and Africa as well.

Mr Inderjit Singh: Sir, once again, I would to like to bring up the issue of the short-term problems businesses in Singapore are facing due to the regional crisis. No one could have predicted the extraordinary outcome of the regional crisis where the regional economies and their currencies `nose dived' at such a fast pace. No matter what actions the governments of the affected countries took, none were effective and none could restore the loss of confidence in these countries. Many companies in the region are effectively bankrupt and many of our own companies used to do business with these companies. The net effect on Singapore businesses has been widely spoken about in the House over the last few days. The bottomline is that many Singapore businesses are faced with short-term cash flow and credit financing problems.

Sir, Thailand and Indonesia, as countries, faced similar problems, resulting in the crippling of their economies. For these countries, the IMF rescue package was set up to bail out their economies. I have a similar suggestion, on a smaller scale, but with the same principles, for Singapore businesses that may face the same crippling problems. I would like to ask the Minister to consider the following:

Firstly, to create an IMF-style or equivalent bailout package for Singapore- based economies and companies which are still viable for the long term, but are caught by the sudden turn of events that even our Government could not have foreseen. This need not be a handout, but in the form of loans which can be jointly administered by local banks and the Government with special interest rates. The Government can establish stringent criteria so that we ensure only the companies with strong fundamentals qualify and we do not end up helping truly `sick' companies.

Secondly, can the Minister or the Government also guarantee letters of credit issued by local businesses, just like the proposal we made for Indonesian companies? This will be another avenue to help ease the cash flow and financing problems faced by our companies here in Singapore.

The Chairman: Mr Ahmad Mohd Magad is not here. Mr Singh.

Mr Inderjit Singh: Sir, I will touch on the competitiveness of the manufacturing sector. As I mentioned in my earlier speech, I feel that the proposed budget for 1998/99 did not adequately address the critical issues faced by the manufacturing sector. There are both long term issues as well as transient issues caused by the crisis and also by the long term competitiveness of Singapore as costs go up and down here. Being one of the biggest contributors to the economy, at around 25% of the Singapore GDP, this sector deserves more attention than it got in the Budget announced.

For the long term, I am glad that the Minister for Trade and Industry, a few days ago, reaffirmed the Government's commitment to make manufacturing and services the twin engines of growth for our economy.

I would also like to highlight that even in developed countries, manufacturing continues to be an important component that will fuel economic growth in these countries. I quoted the success of the Taiwan economy, which attributed its growth to the electronics and semiconductor industries by 15 times in a span of seven years. I strongly believe that we still have a long way to go and we can follow some of the growth policies of the Taiwan government.

For the short term, the regional crisis has created strains on many companies, mainly related to the loss of value of assets invested in the region, cash flow problems and also the inability to collect debts and the loss of sales because of inability of customers located in the region to purchase.

I therefore would like to ask the Minister to consider the following proposals, so that we can ensure confidence in our manufacturing sector.

Short term measures - some Members have mentioned these. I would like to say it again. Land and rental costs have always been a key component that contributed to the high cost of doing business in Singapore, other than labour cost. Can JTC and HDB rentals be lowered by 15% rather than freezing them at current levels? In fact, rentals in the commercial sector have been coming down. So, why not JTC and HDB rentals? Although we can understand that the rentals currently for JTC and HDB are lower than market rates, our businesses are used to these rates. So as they face problems, we need to accordingly come down by the same percentage quantum as the commercial rates have come down.

Secondly, to stop all increases in Government charges, like utilities and PSA charges. In fact, PSA has increased charges three times in the last three years, citing corporatisation as an excuse.

Thirdly, to give a utilities rebate of between 10% and 15% to all businesses for the next two years.

Fourthly, to extend credit schemes like the LEFS to trading companies which are having problems getting bank loans.

Fifthly, how can the Government ensure that 15% reduction in the property tax get passed on to the tenants? Many Members have mentioned this. I hope that the Minister can devise a mechanism where the landlords will ensure that tenants get part of the savings.

Long term measures - could the Minister consider preferential land pricing for new start-up manufacturing companies, which invest a minimum amount of capital? I am looking at land rent waivers for a period of 10 years and subsidised pricing of the property that they purchase.

Secondly, to allow JTC tenants to more easily sublet their premises and let them have the flexibility in managing the premises that they are already renting from HDB or JTC. So I am suggesting that there should be little interference once the tenants have rented the premises from JTC.

I strongly feel that manufacturing and technology will always be important for Singapore's future growth. I, therefore, hope that the Minister will seriously consider these proposals.

Mr Leong Horn Kee: Sir, the retail industry has been facing slower business in the last three years. I understand from the Singapore Retailers Association that the retail industry will continue to face a difficult period in the next few years. Moreover, with the strengthening of the Singapore dollar against the ASEAN currencies, the cost of goods in Singapore would be dearer by some 20% to 50%, compared to those made in the ASEAN countries. This will further impact the retail trade as it would be difficult to attract visitors from the region to come to shop in Singapore.

To help the retail industry, I have the following suggestions:

Both the Singapore Retailers Association and the Singapore Hoteliers Association wish to request whether the Government could consider shortening the ALS hours on Saturdays, so that the retailers, shops and restaurants in the shopping centres and hotels in the CBD zone can do more business during the weekends. They suggested the hours of operation could be shortened, say, from the present 2.00 pm to even 12 noon. With the introduction of the ERP, this request can be factored into the operation of the ERP.

The second idea is to curb the release of more retail space, since there has been a reduction of business in both the main Orchard road tourist belt as well as in the regional suburban centres. The request is that the Government should consider curtailing the supply of additional retail space in future land tenders.

Thirdly, the retailers feel that the relevant authorities such as the Singapore Tourism Board (STB) could help to put out more effort to promote tourism to Singapore. This is even more important now to bring in more Australians, Europeans and Americans to supplement the drop of tourists from the Asian region. It would be useful to promote more mega events such as the Great Singapore Sale, Aerospace Show, and other major exhibitions and events.

I hope the Government could look into these suggestions to help the local retail industry.

Mr Inderjit Singh: Sir, small and medium enterprises will always be important and always employ a very large proportion of our workforce. I believe an economy focusing on a large network of SMEs will always result in a more flexible and adaptable economy that can respond to changes fast. In fact, in the Silicon Valley in the USA, many such companies are playing a more and more important role. The same is true in Taiwan - I touched about this in my Budget debate speech - which is one of the strongest economies in the region and which was relatively unhurt by the regional crisis.

So far, for the last two years, in the budgets announced by the Government, the signals that are given to our local SMEs have not been very encouraging. I would like to request that the Minister look into a few areas:

In reply to a similar question last year, the Minister stated that there are numerous schemes available (I believe about 60 schemes or so which are very confusing) to assist the SMEs, both financially in training and in infrastructure. Sad to say, not many SMEs have benefited from these schemes for one main reason - it is just too complex and difficult for them to process their applications. I am sure very competent and highly qualified civil servants may have drafted these schemes, but what they may not have realised is that the SMEs do not have similar high calibre people to understand this. This mismatch is what our real problem may be. Could the Minister help simplify the schemes to make them more user-friendly, so that more SMEs can successfully utilise them? Otherwise, it will only benefit the larger companies who have the appropriate resources to apply.

The Minister for Finance in his summary speech on 10th March gave some figures of the companies successfully applying for some of these grants. I would like to know what percentage of the total SME population this represents. In my own opinion, this number may be very small of the total population of companies that we have.

Secondly, can the Minister consider changes in the SDF claims policy? I suggest we allow the maximum claimable from the current 30% to 70% to be raised to 90% for the SMEs. To really benefit the SMEs, I would also like to suggest that management level workers and foreign workers also be eligible for SDF claims.

Thirdly, a very specific suggestion is the tax deductibility of vehicles, which is currently at $35,000. Can this be raised to the full market value of the vehicles? Today, the COE costs about $35,000. So the full cost of the vehicle comes up to $80,000 to about $100,000. So I believe we should review this policy.

Mr Tay Beng Chuan (Nominated Member): (In Mandarin): Currently, through the Productivity and Standards Board, the Government is implementing the Local Enterprises Technical Assistance Scheme (LETAS). According to the Board's statistics, so far, about 2,900 SMEs have benefited from this scheme. However, under the scheme, the quantum of assistance is rather restricted whereby engagement of professional consultants can only be financed up to 70%. In other words, the enterprises will still have to fund the remaining 30% in order to engage a professional consultant to assist them in their overall business development. As a result, many new and promising enterprises will not be able to benefit from this scheme due to financial constraints. They are, therefore, unable to get a breakthrough in their business development.

In view of the above, I would appeal to the Government to increase the quantum of assistance to expand the assistance scheme and to liberalise the limitation and restriction by increasing the subsidy to 90%. I would also suggest that the Government consider enlisting the help of the Chambers of Commerce to help in the implementation of the LETAS scheme. At the moment, the various Chambers of Commerce have full understanding of the needs and development of the various trades and industries. However, due to lack of funds, they could not afford to engage enough full-time staff to help their members apply to the Productivity and Standards Board for assistance under LETAS.

I hope that the Government can consider granting funds to the Chambers of Commerce to employ suitable staff to provide full support to their members in applying for the assistance as well as helping more members to enjoy the benefits under the scheme.

Sir, last year, the Chinese Chamber of Commerce and Industry, through the LETAS scheme, assisted seven textile member firms in their computerisation programme. Through the Singapore Chinese Chamber of Commerce and Industry, the seven member firms jointly engaged one computer company to help them implement full computerisation for their businesses. By so doing, the Chamber helped the PSB to save six times the grants they would have given should the seven companies apply separately. Very clearly, close cooperation between the Government and the Chambers of Commerce will achieve greater cost effectiveness. More importantly, by so doing, the link between the Government and the business community can be further strengthened.

Sir, recently, the Government has been sparing no efforts in promoting regionalisation, and the active participation of SMEs is a force that cannot be overlooked. But because of their constraints in size and scale, many SMEs will find it difficult to go regional without Government assistance. Therefore, I would suggest that the Government establish an investment fund aimed at the regional market to assist SMEs to venture into the ASEAN region and help them to secure soft loans at a preferential rate of interest on a dollar to dollar basis. At the same time, I would also suggest that the project be coordinated by a well established business and trade organisation and managed by professionals from both private and public sectors to ensure that the objective of the fund can be achieved.

Mr Inderjit Singh: Sir, today, Singapore is still very dependent on large multi-national companies, and over the years, we have developed a large pool of very qualified managers who have been helping these companies remain competitive and productive. While there is nothing wrong with this, I feel we strongly lack a good pool of entrepreneurs who could propel our economy even further. I am highly impressed by the many technology start-ups in the Silicon Valley in the USA and the Hsinchu based Science and Industrial Park in Taiwan. We have to ask ourselves why we are not seeing the same success in Singapore. Sir, it is my contention that we do not have an environment that is conducive enough to promote or encourage the entrepreneurial spirit. Unlike the countries I mentioned where both are the lands of many `second chances', in Singapore, we have the exact opposite where there are very few second chances. The Singapore environment and its laws do not tolerate failures and therefore do not encourage creativity and innovative risk-taking.

I would like to make a number of proposals, which I think will greatly help change the Singapore environment and encourage more risk-taking, especially in technology start-ups. First, we have to amend our bankruptcy laws - the current laws are very unforgiving and create a long-term stigma for those who have ventured and failed in the risks that they took. This for sure discourages innovation and the entrepreneurial spirit. I hope changes can be quickly made to our bankruptcy laws to give such people more chances.

Second, to provide incentives and facilitate a conducive environment for venture capitalists and technology investors to be easily set up to support entrepreneurs on high risk, high return projects. For the few Singaporean venture capitalists we do have, my experience has shown them to be highly conservative. We need more competition for them by inviting and providing incentives for venture capitalists to set up funds in Singapore. Sir, such funds can be in the range of $100 million to $200 million and not necessarily the billions of dollars of funds that we have been trying to invite in the past.

Thirdly, I see a need to set up a consortium of local private sector companies who can collaborate in R&D for home-grown technological ideas. In this consortium, people constantly rotate in from the local companies on a secondment basis so that there is a constant flow of new ideas both ways from the companies to the consortium. While it should be mainly a private sector initiative, the Government can help by providing the infrastructure and some funding. The funding can be shared between the participating private sector companies and the Government and the individual companies can share the technology developed through cross licensing agreements with the consortium.

Sir, individually, many of our local companies do not have sufficient resources to achieve what the synergy among them in a consortium can achieve. So I truly hope that we can consider setting up such a consortium.

Finally, I suggest that we allow easier listing of start-up companies by modifying the SESDAQ rules, to waive the three years' operations and profitability requirements, much like the NASDAQ in the USA where companies with good ideas get listed even before there is any inflow of cash from the businesses that they have set up.

Sir, while we try to teach creativity in schools, I believe teaching alone is not enough. We need an environmental change to nurture the entrepreneurs of tomorrow.

Mrs Lim Hwee Hua: Sir, it is common knowledge that tourism has been and will continue to be a challenging sector, not least within the Asian region, given the confluence of several negative trends. The currency and economic turmoil will seriously dent tourism prospects. Singapore is not spared. Industry players here are already struggling with a sharp downturn in tourist arrivals, particularly from the ASEAN region, less spending power and rising operating cost. Given the threat of a shrinking pie, competition has intensified, if not, turned ferocious. We have already witnessed the adverse impact these negative trends have on airline companies and almost certainly the wave will hit the hospitality and retail sectors equally hard.

While most players have accepted certain eventualities such as slowing demand from the economic crisis, they are concerned that the situation might be aggravated if the following issues are not addressed. Firstly, the adverse impact of a severe haze similar to that that Singapore experienced last year. A repetition of this health hazard would erode Singapore's credibility as a tourist destination and would put to waste all the past promotional efforts, especially those made in the wake of last year's haze. Any pre-emptive or preventive effort would therefore be most critical to the fate of the entire tourism industry. Secondly, that if tourism promotion efforts were to be curtailed by the overall austerity intent of this new Budget, then some players, especially the smaller hoteliers and retailers, would be rendered non-viable.

In fact, on the contrary, it is felt that the Government should all the more pump in extra resources at this time to sustain the promotion of Singapore as a tourist destination. I would therefore like to reiterate my GPC Chairman's request that the Government considers investing more in innovative tourism promotion, including the design of packages and programmes that takes into account a generally more budget conscious clientele.

Mr Shriniwas Rai: Sir, I agree with Mrs Lim about the need to review our policy on tourist promotion. We have achieved a great deal and I would like to pay tribute to the Singapore Tourism Board and its officials. But, nevertheless, I would urge them not to rest on their laurels. Opportunities are coming up now in the sense that more and more airlines are coming and air fares are getting cheaper. But, unfortunately, as mentioned by Mrs Lim earlier, the haze has created a big problem, and Members have also shown their concern. It is not within the purview of the Minister, but it is very important to minimise this problem. Sometimes the media paints a picture that Singapore is such a dangerous place. The important thing is to drive home the message that Singaporeans are more healthy than probably those in other parts of the world. So the messsage has to be sent. But in the meanwhile, we should also re-examine the issue and I would suggest an angle which has probably not been looked into.

There is a growing generation of tourists both from America and Europe who are coming to this part of the world and they are looking at the Museums and the cultural scene. Singapore is uniquely situated in the sense that no other country, probably with the exception of Malaysia which is a big country, whereas Singapore has a very small area, has got the Chinese culture, Indian culture, Malay culture and others as well. What we ought to do is to promote this cultural heritage and I would suggest that we can take a leaf from the Indonesian experience. When I was there years back, the Ramayana Mahabatra Ballet was superbly performed. The tourists enjoyed it. May I urge the Minister to examine the possibility of having the same.

We could have Chinese opera, probably in English. We could have musicals from China. We could have musicals from India. The Indian and Chinese cultural scene could be created in Singapore and the tourists will enjoy it. This is an area which the Minister may want to study because we are having a lull period now. We should see what other areas the tourists want. I remember reading in the newspaper that the museum tourists are getting bigger. We do not have many museums but at least we have a cultural scene. I would go even further. We should form our own ballet company. At least we could invite the Indonesians and I think they will be willing to come here to perform on a cultural exchange basis for some months. We could advertise this to the tourists and they will come. I am not suggesting that they just come and watch the procession of Thaipusam which has a considerable crowd. There are other aspects of the Indian and Malay cultural scene which could be put on showcase and the tourists will enjoy it. So I am asking the Minister to give some serious consideration to this issue.

The other point is this. I know the Tourist Promotion Board does tie up with Singapore Airlines. I think they should also tie up with other airlines to see how we can sell Singapore. 1.30 pm

The Chairman: Mr Goh Choon Kang.

Mr Goh Choon Kang (Marine Parade): (In Mandarin): Sir, recently, a voter came to see me and complained that he had been conned by a commodity futures trading company. Within a short period of six weeks, he lost nearly $200,000. This happened some two years ago. Over the past two years, he went from the Commercial Affairs Department to other Government agencies for assistance, but was unable to recover the money he had lost.

According to him, he responded to a "vacancy for part-time traders" advertisement in the newspaper and fell into the trap of the commodity trading company. What happened to him was quite similar to what was described in an article published in the Lianhe Zaobao on 17th December last year. This article entitled "One has to be extremely careful when going into commodity futures trading" by one named Zhenwei.

According to this voter, the company first arranged for him to attend lectures and to listen to how the company enlisted their clients. Subsequently, he was persuaded to open an account of his own, for trading in commodity futures. He was coaxed into signing the contract without looking into the small print therein. Subsequently, he found that this was a legal contract authorising the traders to transact in commodity futures on his behalf. The people in the company used all kinds of incentives and inducements to talk him into putting all his money into the account. The impression created then was that by "investing" more money, he would be able not only to recover all his losses but also make profits amounting to some $1 million. So within a short period of six weeks, he put in $200,000. When he had exhausted all his savings, he was even asked to sell his flat and get cash for further "investment". Fortunately, with the advice of friends, he decided to instruct a lawyer to write to the company to close his account. At the time when his account was closed, he found that there was only about $5,000 left in it.

Sir, I am moving this amendment to create an opportunity to tell Singaporeans that trading in commodity futures is a highly speculative activity which entails extremely high risk. Some traders have resorted to improper means to induce ignorant and ordinary citizens to indulge in such speculative activities. In the process, these people earn huge amounts of commission, but their poor clients lose all their hard earned savings or even retirement money. I therefore would like to ask our citizens to be vigilant and not to fall into the trap with the hope of making a quick buck. At the same time, I would like to ask the Government to take proper measures to check such unscrupulous business activities.

Mr Low Thia Khiang (Hougang): (In Mandarin): Sir, to develop Singapore into an international business centre to ensure that in the next century we can be the leader in the regional economy is an important economic strategy.

To develop into an international business hub, one of the main conditions is to be able to attract foreign companies, particularly the multi-national companies to set up regional headquarters in Singapore.

According to the statistics of EDB, up till the end of 1996, Singapore had approved only 22 companies to have their offices in Singapore accorded the status of oversea headquarters or business headquarters.

I would like to ask the Minister whether he is satisfied with this result. I would also like to know whether the concessionary terms presently offered by the Government are adequate to attract other MNCs to set up their regional headquarters in Singapore.

Faced with the impact of the current regional financial crisis, will it not be necessary for the Government to review the incentives offered? In attracting foreign companies to set up their regional headquarters in Singapore, what is the Government's target?

Mr Leong Horn Kee: Sir, the objective of the Government is to maximise the use of local manpower resources. Many MPs have been exhorting the Government to concentrate on training and retraining of workers, particularly during this period of economic slowdown.

I feel that this is a good time for companies to be given short-term assistance by the Government for retraining of workers, so that local companies and their workers can rightfully adjust to the changes in the economy. One idea is to ask the Government to consider increasing the subsidy level for SDF-funded training programmes from the current top level of 70% to, say, 90%. This increase can be a short-term measure for, say, two years, so as to encourage companies to devote more funds to retrain their workers during this difficult period.

The Chairman: Dr Toh is not here. Mr Lim Swee Say.

Mr Lim Swee Say (Tanjong Pagar): Sir, I would like to touch on the subject of economic development and manpower planning.

Sir, the purpose of any government must be to enhance the quality of life and the standard of living of the people. To achieve this, economic development is an important means to this end. Full employment could go a long way in helping the Government to achieve the objectives of enhancing the quality of life and standard of living of the people.

Since the late 70s, because we have been able to sustain full employment, the life of Singaporeans has indeed improved tremendously. According to statistics, the real incomes of Singaporean workers have gone up, on the average, by 5.4% a year since 1973. More significantly, workers who earn less than $1,500 per month, as a percentage of the workforce, has declined from about 80% in 1987 to 42% last year, a drop of about 40 percentage points over a period of 10 years. I think this is a very significant achievement that the Government can be proud of.

Looking ahead into the future, Sir, I feel that we have two major challenges. Firstly, how are we going to sustain full employment? And, secondly, how are we going to help more lower income workers to move into the higher income group, as what we have done in the last 10-20 years?

Firstly, on the issue of sustaining full employment, I think this is going to be a very challenging task. Today, if we were to look around the world, not many economies are enjoying full employment. I have stated many times in this House that there are 35 million workers in the US who are working on a part-time basis, 18 million workers unemployed in Europe, and in the last two days, I read that unemployment in South Korea has gone up to 1.5 million, and every month 10,000 workers are becoming unemployed. In other words, many OECD countries and NIEs are finding it difficult to create enough employment to sustain full employment or to lower unemployment.

In the case of Singapore, I feel that during this period of slowdown, we have to take a fairly serious look towards containing the cost of doing business in Singapore, so as to slow down the pace of retrenchment, which may be picking up very soon or continue to pick up over the years. I have looked at last year's Economic Survey, and according to this report, it was stated that the unit business cost (UBC) of the manufacturing sector continued to increase in 1997 at the rate of 0.4%. And this report went on to say that last year, ULC's (unit labour cost) contribution to UBC's growth was negligible, because ULC's growth was flat. Services cost contributed 0.46% to the growth of UBC while Government rates and fees lowered the UBC index by 0.06 percentage point. From this report, it would appear that the main contributors towards the higher unit business cost in Singapore is not quite labour cost nor Government rates and charges, but rather it is services cost.

What are services cost? Again, according to the various reports, services cost would include rental, utilities, communication, trade and transportation, interest and finance. Of the five items, I believe the first four items rental, utilities, communication, transport and trade are very much related to the fees and charges imposed either by the statutory boards or corporatised entities. These include the JTC, HDB, PSA, CAAS and so on.

Sir, my point is that since the services cost has been the main contributor to higher unit business cost in Singapore, I would like to suggest that, if possible, the MTI may wish to take the lead to take a closer look into this area and to see what can be done to encourage these relevant agencies and statutory boards to review their pricing policy.

Sir, there are basically two ways of determining the rate of charges to your customers. Some organisations look at the cost of provision, either a product or services. They add the normal profit margin and from there, they determine the price to charge the customer. This is known as the cost-plus method. The second approach is to look at the market place and see what would be a fair rate to charge the customer, what the market can afford to bear. And from these, do whatever is necessary to lower the cost of production, so that you can continue to remain viable without charging too high a price to the customers, what is known as price-minus approach. 1.45 pm

In the business world of today, in the private sector, many organisations have moved away from the cost-plus method towards the price-minus method. The reason is very simple. Competition is so keen that any provider of products and services is no longer a price-setter, but rather a price-taker. Therefore, they have to accept this is what the market can bear, and their challenge is to lower the cost of production so that they can meet the price expectation and yet remain viable. In this regard, I sincerely hope that some of our statutory boards and corporatised entities can really change their mindset by moving away from the cost-plus mentality and challenge themselves to what extent they can move towards the price-minus mentality.

I say this because two days ago, the Minister for Finance in this House, in response to the call for containing the Government's rate of fees and charges, mentioned that these Government agencies will continue to do regular revisions with small increments for fees and charges in order to meet the rising cost of operation. His statement is probably valid for the ministries and departments which are providing a public service. What I am afraid is that some of the statutory boards and coporatised entities may misunderstand what he said and continue to adopt that kind of business approach in their dealing of the products and services. This is the first point. It will go a long way if MTI can help to contain the cost of business, in particular, services cost, so that companies can continue to survive in this difficult period and hopefully, the pace of retrenchment can be managed somewhat.

Secondly, on the issue of helping the lower income workers to move into a higher income group. According to the Labour Force Survey of 1997, among workers who are 30-40 years old, there are 150,000 of them earning between $1,000-$1,500 and 130,000 of them earning between $1,500 and $2,000. What this means is that there are 280,000 workers in Singapore, aged between 30-39, earning between $1,000 and $2,000. I believe that many of these workers are trainable and it is worthwhile investing in their upgrading because they have another 30 years of working career ahead of them. At the same time, I believe there will be enough good paying jobs and better paying jobs for these workers to move into because under the Committee on Singapore's Competitiveness, I believe the various sub-committees have identified the growth sectors for the next five to 10 years.

I would therefore like to suggest that MTI may wish to consider taking stock of all these new growth sectors identified by the various sub-committees and do a projection on the kind of employment opportunities that are coming up in our economy over the next five to 10 years, look into the kind of skills needed for the workers to move into these new growth sectors and provide that information to the Ministry of Manpower so that the Ministry of Manpower, in coming out with new initiatives and enhancing the quality of workforce, will make sure that their programme and the economic development programme under MTI are kept in sync.

In conclusion, Sir, I feel that the setting up of MOM is a very timely move. At the same time, I also feel that MOM and MTI must work hand-in-hand so that all the new and better jobs being created in the economy in the future will be able to benefit the Singaporean workers, especially the older and the not-so-young workers who are under-educated. Many of them are not looking forward to more handouts through wealth sharing, but are looking forward to be given a chance to participate directly in furthering the economic progress of Singapore so that every Singaporean can live a better life in the next century.

Mr Chuang Shaw Peng (Nominated Member): Sir, in this fiscal year there is a big budget allocation for the Ministry of Education. For the preparation of our young ones, this is understandable and I fully support it. As our economy matures, there must also be a budget for retraining of those in the workforce. I commend the Finance Minister for his quick response to support the call from Mrs Yu-Foo Yee Shoon for more retraining and upgrading of workers.

We need to recognise the past contribution of our workers and stand by them during hard times. Is it not our moral obligation to retrain and upgrade these workers to enhance their future employability? I would like to call on the Government and the employers to recognise this.

Without retraining, our workers' productivity will remain stagnant. Any retraining will enable them to get a higher value job which will imply a higher income for them, as Mr Lim has just pointed out. This would also generate more profit for the employers. Since we have quite a large pool of workers below Secondary Two education, there should be a large scale training programme, including providing a basic education such as primary and secondary education, IT training and specific skills training, etc. Some of these forms of training are already being carried out by NTUC and MOL. The NTUC has the BEST and WISE programmes. They also have the Skills Redevelopment Programme (SRP) for which 80% of the training cost is paid by SDF and 20% is paid by the employer. At the same time, EDB pays 70% of their salary during training with the balance of 30% paid by the company. These programmes have received overwhelming response. So it is necessary to reach out and convince all employers and workers to participate in programmes of this kind.

It is understandable that the employers, especially the SMEs, are afraid of losing their employees after training them. But if all employers can change their mindset and capitalise on this window period of slower economic activities to train their workers, there would be a better chance of success because workers are less likely to job hop. We applaud the NTUC and MOL for their effort in setting up the programme but I would like to urge the Government to upgrade this retraining programme to a nation-wide programme. To achieve this, I hope the proposed budget that allows for the upgrading of skills of 9,000 workers only in the fiscal year 98/99 will be increased substantially. At this point, I would like to cite one example of what other governments have similarly done for their workers in terms of training.

The Construction Industry Training Authority of Hong Kong provides basic courses such as bricklaying, plastering, carpentry work, plumbing, etc. Similar to our SRP programme, their trainees for these courses receive training allowances as well as free-of-charge training in their basic craftsmanship and construction supervisory courses. In addition, there is also a subsidy scheme for the employers where the employers are subsidised HK$2,000 per month for two to three years for every single basic craft graduate they employ. This encourages the employers to employ such properly trained persons in their construction work. The Singapore Contractors Association and the Building Construction and Timber Industry Employees' Union (BATU) are currently discussing to work out a programme to intensify skills training in the construction industry. We hope the Government will support the effort.

Sir, the retraining of workers should be regarded as an urgent national issue. Therefore, I urge the Minister to ask for more off-Budget allocations to do more for the upgrading of the national workforce.

Mr Chiam See Tong (Potong Pasir): Sir, my amendment is on the training of manpower.

Sir, I hear with great interest what Mr Lim Swee Say has said. In fact, he has brought up many valid points about the retraining of workers. But the only problem of retraining of workers is that it costs a lot of money. In fact, the Secretary-General of NTUC has said that two to three times more money has to be spent on the retraining of workers than what has been done now.

Sir, the Government only pays lip service to the retraining of workers. There is no provision for funds anywhere in the Budget which has been set aside for the retraining of workers. Singapore wants to attract high technology industries, but the high technology industries need plenty of trained workers. It was reported that the job growth at 4% in Silicon Valley at California is the highest in America, but the problem there is that there is a great shortage of skilled workers. Singapore shall also suffer the same fate if not enough skilled workers are trained. The wafer fabrication and other high technology industries take in only trained workers. If Singapore does not have enough trained workers, the high technology industries may be reluctant to come and as a consequence our economy shall suffer.

In these times of low economic growth and where the private sector is not doing well, the Government must play a bigger part in the retraining of workers. The Government cannot, like in the past, depend only on businesses and the Skills Development Fund to carry the burden of retraining of workers. In these difficult times, the urgency for Government to give financial support for retraining of workers is all the more greater because of rising unemployment. I know the Government's policy is against paying out freely for welfarism. But money put aside for the retraining of workers is definitely not payment out for welfarism. It is an investment. I would again call on the Government that in these times where retrenchments of workers are on the rise it should give generous releases of funds for the retraining of workers.

Dr Toh See Kiat (Aljunied): Sir, many speakers before me have mentioned that these are indeed tough economic times and it is important that Government spends time, effort and funds to prepare Singapore to face the challenges ahead. We have allocated indeed some funds for skills retraining and for the training and development of manpower to help those coming back to work and to retrain them to prevent structural unemployment.

I would like to ask the Minister to consider putting even more money because this must be seen as an investment for us to make at a time when things are relatively cheaper and workers are able to spare that time.

The three basic areas that I would urge the Ministry to look deeper into are as follows. The first is this group of elderly people and housewives who are returning back to the workforce. With these two groups of people there are certain problems which I think have not been addressed sufficiently. First of all, for those returning to the workforce after 10 or 15 years away from the working world they have a lack of confidence. Sometimes, even if their skills are still there, they feel that their skills are now obsolete and out of date because times have changed. For example, teachers would feel that students nowadays are not quite the same as they were when they first taught 10 or 15 years ago. So they lose that confidence. I think we can use this quiet time to spend a little bit more time in orientating them back to the working world, back to schools or companies or whatever professions they are in. And we must encourage companies to do these things by giving them tax incentives and grants. We also need to have a kind of agency which can match the job and the skills with the particular person that needs to come back to the workforce. We do not see too much of that currently and with the Ministry working perhaps in conjunction with the Ministry of Manpower, some funds can be allocated for projects like this. An agency like this could then be able to match more accurately the needs of the market and the skills that are out there waiting to be harnessed. 2.00 pm

The second area that we need to look closer into and more deeply is this area of service skills. I have just had lunch with a group of businessmen who feel that these are tough times because Singapore is costly and the region is very cheap. And if any tourists were to start coming back again, they would go to our neighbours rather than here. Our discussion turned to this area of service skills. Many of our shops, whether they are big or small, are still caught in a time-frame which I think is what made us competitive in early days when our labour costs were low. We emphasise the cheapness of what we sell rather than the quality of what we sell and the quality of service and the follow-up that we give after the sale. I think we need to spend effort to give companies and workers the rationale, the incentive and the reason why they should upgrade their service skills. Because right now Singapore is already an expensive place, and if you do not pack your products or services at a higher level, then you cannot compete with the crowd. You have to rise to the situation where, like on Fifth Avenue in New York, things are very expensive, everybody knows that, yet the whole world makes a pilgrimage there whenever they go to America. And I think we must begin to give Singapore that cachet, that image of a place where you come because you get good products, you get good after-sales service, and you will not be taken for a ride.

The third area that I would urge the Minister to look at and to give more funds to is this area of preventing structural unemployment. This means that there are workers out there who are not quite so skilled but perhaps have never had time to go for training. And even if they had time after work, they are too tired to do so. Many of the workers would actually be holding two to three jobs and they might say, "Look. I have no time to go for training." I think this is an opportunity then for us to find schemes to give companies the opportunities to retrain the workers on the workers' own work time. Because to ask them to do so otherwise would not be very successful.

With this, I would like to ask the Minister to continue looking deeply into these issues.

Mr Low Thia Khiang: (In Mandarin): Sir, the training of workers and the upgrading of their skills in this technological age are of utmost importance. Skills training will enable workers to reach the level as demanded of them. This will enhance their employability. From the economic point of view, the upgrading of our workers' skills will make Singapore's economy more competitive. Although the funds for the training of workers come from the Skills Development Fund (SDF), the manner in which the training is done depends much on the employers. The Government has not been active in providing the training and upgrading of the skills of the workers. The employers call the shot. This is often very restrictive because in the curriculum, the courses are designed in such a way that they cater only to the needs of the companies employing them. More often than not, they do not help to expand the vision of the workers themselves, and the companies only care for themselves. As a result, all this training cannot achieve our overall national objective.

On the other hand, because how and when the workers are to be trained is in the hands of the employers, the workers feel that if there is no more future for them in the company or in the industry, they will not be motivated to embark on courses to improve themselves. Although there is now a Skills Redevelopment Programme (SRP) to enable the trainees to get better and more comprehensive training, I think only about 1,500 workers have benefited under the scheme. The Government should expand such training courses.

I would suggest that the Government consider providing bursaries for workers to encourage and help them to upgrade themselves or to go into another area of higher skills. For example, the Ministry of Education gives bursaries to people who want to become teachers and it also gives bursaries to existing teachers to upgrade themselves. I think we should give these workers a similar kind of bursary to help them upgrade. The Government should be able to know what kind of industry will, in the process of economic development, be needing more skilled workers, and what kind of industry will be eventually phased out. So they must have objectives charted out to make sure that these workers in the sunset industry can upgrade themselves to go into the sunrise industry.

Mr Cyrille Tan (Nominated Member): Sir, the spending of the Ministry of Trade and Industry for its economic development programme is reported to be 1.8% of GDP for this year. I am also happy to note that, as reported in this House, a total of 76 companies participated in the Skills Redevelopment Programme (SRP) initiated and launched by the NTUC. These 76 companies, together with NTUC, EDB, ITE and polytechnics have committed to retrain and upgrade the skills of over 5,000 workers. An estimated $20 million is needed to complete the training of these 5,000 workers. In the next phase, an estimated 20,000 to 25,000 workers will be targeted to participate in the SRP. To train such a large number of workers is no small task. But I think the commitment of the various organisations, as well as the participants, is not to be doubted. But what is lacking, however, is the funding required to carry out this skills upgrading programme. With the next phase of participants targeted at 20,000, the SRP will require at least $80 million to successfully carry out all its intended programmes.

Of the total number of retrenchment exercises carried out in the electronics industry in the last fiscal year, more than 60% were carried out in the last three months. The prospects for these workers in finding alternative employment are tough as more companies are restructuring and downsizing. Without a proper education and nation-wide recognition of their skills and experience they have acquired over the last years in the previous company, it is unlikely they are able to gain alternative employment. Moreover, if they are able to find alternative employment, even in the best situation, who is to say that they will not be retrenched two to three years down the road? No one can guarantee life employment. But with SRP, what can be guaranteed is life long employment. If no significant effort and funding is provided for the retraining and skills upgrading of these workers, what we may face is the very difficult problem of structural unemployment. This upgrading will in time increase the productivity of these workers who will bring back the increases and other relevant skills back to the respective companies. Thus, unions do have a part in adding value to these companies. This new partnership direction gives an added new dimension to the labour-management relation that is developing in Singapore.

MTI's increased spending will create jobs. But if we do not train these workers now, when these higher-paying jobs become available, our workers will not have the necessary skills and qualifications available to take them up. If no significant effort and funding is provided to the training and upgrading of these workers, there will be a mismatch between these new jobs and the current workforce.

SRP has the ability to confer skills certification upon completion of its programmes. This was made possible through the development of the national skills certification and recognition in Singapore. It is also progressive, because as existing industries continue to innovate and new industries develop, new skills upgrading syllabus can be produced and the new skills can be certified to meet the needs of the industries. I see skills upgrading of our workforce as critical. It is necessary because of the 5,000 workers currently in the SRP, 71% have Secondary Two qualification and 50% of them are 40 years old. If their skills are not upgraded, they will find themselves left behind. Employers have done their part, so have the unions and workers. It is now up to the third party of the Tripartite Committee to do its part.

Lastly, the Government has Edusave for those in schools. Sir, may I propose that in the long term, Government should have "Skillsave", so that the future workers will not be caught in the same web of circumstances as the current workforce.

The Chairman: Mr Chay is not here. Dr Wang.

Dr Wang Kai Yuen (Bukit Timah): Sir, I am glad to see that, despite belt-tightening in the Government's budgeting process, the R&D funding for various Government organisations in the R&D community has remained very strong. It is a reflection of the far-sightedness of our Government and it is also indeed a preparation for the future. R&D is actually a long term process. If you look at the various R&D programmes, typically, it will take about three to five years before we see any tangible results. So, therefore, funding for R&D cannot be on a roller-coaster basis, but should be on a steady basis. When we can also take note of the effectiveness of such long-term programmes from the commercial sector.

Sir, I know it is a generalisation, but many American companies will cut back their R&D funding whenever their profit margin is being squeezed. On the other hand, for Japanese corporations, they have a long term plan for R&D. Indeed, they capitalise their R&D programmes. So, in the recent years, Sir, if you look at the number of patents, R&D outcome for Japanese companies, they tend to be more productive than the American companies. I do support the funding provided by Government in this year's budget for R&D. But, nonetheless, when the Government budget is tight, we have to be more critical in supporting the various R&D programmes. At a time when my colleague, Nominated MP, Mdm Claire Chiang, had lamented the small amount of budget we allocated to MCD, it is all the more so for us to ask whether the R&D money allocated to the various Government-funded R&D institutes is actually value for money and value for money well spent.

We need to have the National Science and Technology Board, which is the overseeing organisation, and ask more critical questions in assessing how much benefit would incur from the money we spend on such programmes. I would suggest to the Minister that maybe now is a good time to review the whole R&D funding programme to trim the fat and to critically review the programmes funded by the NSTB in this financial year. 2.15 pm

Mr Zainul Abidin Rasheed (Cheng San): Sir, as our economy upgrades to more high-tech industries, I think we will need more R&D activities. I learn from the Economic Survey, the latest release by the Government, that the number of personnel engaged in R&D activities in 1996 grew by 18% to 15,419. I think it is a credible improvement and progress. But I believe that more could be done. If you look at the statistics again released by Government, you will notice that as far as the gross expenditure on research and development is concerned, it has tripled from 1990 to 1996. Similarly, the number of research scientists and engineers has more than doubled from 4,329 in 1990 to 10,153. However, if you were to look at R&D expenditure per research scientist and engineer (RSE), it has increased only from $130,000 to $177,000 for the same period, which is less than 30% growth. So I think here is an indication where in fact more needs to be pumped into this area to help facilitate the growth of R&D and R&D activities to expedite the upgrading of our industries.

Another point, Sir, is that the private sector was the largest employer of R&D personnel in 1996 employing 57% of the total R&D manpower and the RSEs in the private sector were most highly concentrated in the electronics industry cluster which is about 2,780, followed by engineering which is a low second, about 895, and IT and telecommunications at 614. Here, again, we will notice that the spread of our RSEs is uneven and, in view of that, more could be done to effect a better spread of our R&D energy.

The National Science and Technology Board (NSTB), Sir, is doing a good job in continuing to facilitate the build-up of technology and its knowledge infrastructure to benefit industries and companies. And they are doing a credible job. For example, in 1997, 14 research institutes and centres collaborated in more than 120 joint projects with industry and train more than 170 researchers to support the five key industry clusters, mainly electronics, manufacturing and engineering, IT and telecommunications, chemicals and life sciences industry clusters. But, again, here, I think we are very far from our full potential and I believe MTI could look into it to provide more resources for its development.

In the area of nurturing greater interest in science and technology, Sir, the School Adoption Scheme (SAS) saw the participation of 144 students in 16 R&D companies and organisations, while the national undergraduates research programme and the overseas R&D attachment programme in the universities encourage the participation of more than 648 students respectively. While it is a good start, I think there is room for more participation and I hope we can provide facilities for that.

Finally, Sir, we need to create a more conducive environment to foster a culture of innovation and technology entrepreneurship in Singapore. In 1997, for example, NSTB facilitated a total of 16 international R&D collaborations with Singapore based companies and R&D institutions. Again, it is a credible start, but I think there is room for more collaboration projects which will enable Singapore to leverage on overseas technological capabilities and manpower resources. One point I think that bears scrutiny is, for example, the problem we face in terms of losing some of our scholars. As the demand for our scholars, in terms of R&D areas, will grow from multi-nationals and international companies in America and Europe, we need to provide more opportunities for such collaboration so that we can also expose our scholars and manpower to such needs.

May I continue with the next cut, Sir?

The Chairman: Yes.

Mr Zainul Abidin Rasheed: Sir, much has been said about IT and its role today. IT is expected to permeate our daily lives even more in the years to come. May I say that no one will be able to escape the growing tentacles of information technology. Much also has been done by the Government, NCB in particular, to prepare Singapore and its people for IT. Be they in the industry or schools, we can be proud of the proactive approach taken by NCB and Singapore to get our island all wired up and IT-friendly. But we have not achieved the desired results for all the programmes we have. The FAST FORWARD by PSB and its predecessor for adult workers, for example, achieved limited success, some say even failure. However, in the light of the importance about IT and our future, whether it is in our economy or quality of life, we should not relent and should instead press on with programmes to bring more people on-line by hardware and heart-wise. For the latter, that is, to help more Singaporeans to cross the psychological barrier before they embark on familiarisation and improvement courses, I would like to urge MTI and NCB, in particular to do more work at the grassroots level, tap the grassroots organisation network and reach and goodwill to bring home the message of the importance of IT familiarisation hands-on and upgrading. The grassroots, Sir, are an important base to plant the seeds of IT culture.

Dr Toh See Kiat: Sir, in last year's Committee of Supply, Dr Ho Tat Kin raised this problem of the millennium bug. The millennium bug or the year 2000 problem is a programming design defect in some software, hardware and microchips which could cause havoc when computer systems do not recognise the change of century from the 20th to the 21st century, because these computers are programmed to only recognise the year by two digits and so it cannot tell the difference between the year 1900 and the year 2000. When computer systems are as widely used as they are today and they are so prevalent in all sorts of equipment and even the cars that we drive, a serious problem can arise if these computers or chips do not recognise that the year 1999 has changed to the year 2000 and then it stops working. If they stop working or if they think that the year 2000 is the year 1900, then of course banks will be paying a hundred years of interest and cars may decide that they are due for maintenance and therefore switch off so that drivers will be forced to send them for repair.

These things may be minor but I think in America and in Europe, the estimates for potential loss actually go into the region of billions of dollars. Because there will be liability for mishaps if a car suddenly stops and knocks into somebody and kills, or damages property, or if banks suddenly have to reorientate the software because there is a lot of financial recalculation to be done. There could be a new financial crisis of a different sort. And perhaps for companies that have not prepared themselves for the litigation that could arise or the problems of changing the computers to meet the 21st century, suddenly they may have to report insolvency because so much money has to be spent and they do not have it.

I know NCB has actually been doing a lot of publications and publicity, seminars, and so on, to help Singaporeans realise that there is this problem out there. The frightening thing to me is that as the seminars continue to be conducted, there are more and more people attending, that means, there are a lot of people out there who are just beginning to realise that there is a problem. Banks of course have been warned by the MAS to look into this carefully. The Government is also basically ready for the year 2000. But, Sir, I am afraid that the private sector may not be ready. This is why earlier, at a sitting of Parliament some time last year, I asked the Minister whether it was necessary to legislate for a contingency like this. The answer was of course that it is not necessary to legislate for a one-off event to ensure that companies prepare for the millennium. But, Sir, I would like to urge the Minister to rethink that perhaps even if no legislation is required, there should be some strong directives to tell companies that they must spend money and there must be incentives to help them recover or pay for the changes that they have to make.

In an article in PC Week Asia on 8th February 1998 entitled "Asia not prepared as year 2000 draws near", there was a study of six countries in Asia and Singapore was one of them. This report alarmingly stated that almost half of Singapore companies, 47% to be exact, have not addressed this problem. For those who have addressed this problem, only 1.1% have completed it and 33.4% are in the process. Sir, it is already 1998. They have to have the systems ready in 1999 or the end of 1998 to test it for one year before the millennium changes. I am afraid, Sir, it might be too late for many of them. And I do urge the Minister to redouble his efforts to make sure that the private sector realises the impact of the year 2000 problem.

Dr Wang Kai Yuen: Recently, Prime Minister Mahathir of Malaysia has stated that Malaysia will continue to supply water to Singapore beyond the expiration of the two water supply agreements. Perhaps, Sir, this is the first time in my memory that such a statement has been made by such a prominent Malaysian leader. To me, it seems to present a historical opportunity for us to seal the security of water supply for our future generations. And if we can do so, it will remove a form of contention that has bugged the relationship between our two countries and will allow us to ensure that the relationship and collaboration between us will be on a sounder foundation in the future. I realise this is a very sensitive subject and perhaps currently under negotiation between our two Governments. But, nonetheless, I would like to take this opportunity to urge the Minister to be bold to seize the opportunity and to remove water as an issue between us and perhaps take this opportunity to ask him whether he would be prepared to share his view with the House on this very important matter.

Mr Low Thia Khiang: (In Mandarin): Sir, water resource is a very hot issue. Our water tariffs have been raised again and again. I would like to know what efforts have been made to develop water resource in Singapore. First, has the Government made any study on the potential of our subterranean water as a source to augment our water supply? Secondly, what is the progress on the study on sea-water desalination?

Dr Wang Kai Yuen: Sir, on 14th March 1996, the Minister stated in Parliament in the Committee of Supply about the principle behind charging electricity rates in Singapore, especially those tariffs implemented by Singapore Power. On that occasion, he said, firstly, Singapore Power's rate of return on total assets is low because our electricity tariff is low. Secondly, I will quote him, "there is a need to allow SP to increase electricity tariff by 12% to 14% over the next three to four years or an average increase of 3% to 5% a year to restore its financial health." But we are now in 1998, Sir. So from 1996 to 1998, it has already been two years. Presumably, we are still in this process of allowing Singapore Power to adjust its rate from 3% to 5% a year. Recently, in fact, SP has increased its rate by 5%. The Feedback Unit has received various negative feedback from the industry and the commercial bodies. A 5% increase in today's terms is in fact substantial. It has substantial impact on them. In fact, one organisation whose monthly electricity bill is $1 million said that a 5% increase is equivalent to $50,000 increase per month. So it is indeed a heavy burden to them. I would like to ask the Minister what is the basis of the recent rate increase. Is it based on the need to increase the return on total assets of SP or is it an increase based on the fuel price increase used by SP? And if it is based on this formula that Mr Yeo Cheow Tong formulated more than two years ago, perhaps I would like to urge the Minister to defer or hold back such increases until our economy has recovered to a more sounder foundation. 2.30 pm

The Chairman: Since we are well ahead of time, Dr Lee, you can have the floor.

Dr Lee Tsao Yuan (Nominated Member): Sir, thank you for letting me speak.

Singapore's regionalisation effort intensified in the 1990s. Although Singapore-based companies have been expanding overseas for decades, Senior Minister's speech in 1993, regarding the need for Singapore to develop a second wing gave a major thrust to regionalisation.

We now know quite a bit about the external economy. For example, we know that the size of the external economy has continued to grow, and that it is now roughly one-tenth of the domestic economy. We also know that Singapore's earnings from the external economy, as a proportion of total income, has also increased to 14% in 1997. We know, for example, the distribution of overseas investments in terms of region and activity. But what we need is a clearer picture of the extent of benefit to the domestic economy of our regionalisation efforts. I recall that this was the raison d'etre for regionalisation. There must be clear and direct positive linkages to Singapore. I would therefore like to suggest that because of the increasing importance of the external economy, our indicators of the economic performance should include the performance of the external economy as well as that of the domestic economy. For example, in the current crisis, what has been the rate of growth of the external economy? What about in boom times?

A case in point is the Hong Kong economy. In the 1970s and 1980s, the average annual growth rates of Hong Kong and Singapore were roughly the same 9.5% in the 1970s and about 7.5% in the 1980s. However, Hong Kong's average annual growth rate in the 1990s was 5.1% compared to Singapore's 8.4%. But is this an indication that Hong Kong has become less economically vibrant than Singapore? I would suggest not. I think that it is more because a major portion of Hong Kong's manufacturing has already shifted offshore, to China, for example, so that Hong Kong's dynamism is no longer adequately reflected in its GDP figures. Similarly, for Singapore, in the next 10 years, our GDP growth may no longer adequately reflect our true economic activity, because a large percentage of our growth may be in our external as opposed to domestic economy.

At the moment, the main indicator of economic performance in Singapore is Gross Domestic Product (GDP) which measures economic activity within Singapore, and we all know how GDP growth rates are watched with an eagle eye, regardless of whether one is in the public sector or in the private sector. I would urge the Government to consider how the external economy can be taken into account in a measure of overall economic activity.

There are basically two concepts, the Gross National Product (GNP) or GDP plus factor income from abroad, which I shall call GDP plus, for short. At present, neither of these are computed in real terms, so we do not at this present time know the real growth rate of either GNP or this other term called GDP plus factor income from abroad. As the discussion is quite technical, I would not want to elaborate here in Parliament. But I realise that there are a number of statistical difficulties in doing so and that very few countries, for example, compute this concept of GDP plus the factor income from abroad, which I believe is really the best measure that we can have of the overall economic activity of our domestic economy plus the external economy; in other words, the first wing as well as the second wing.

The basic point is that because of the increasing importance of the second wing to Singapore, we should begin to develop a measure of economic performance that includes both wings. The fact that there are problems and that very few countries do this are surely not sufficient reasons for Singapore not to pioneer the effort.

Mr Leong Horn Kee: Sir, we are ahead of time, in fact, by a couple of hours. It seems many Members have missed their chance to speak. May I ask for your generosity to allow Members who have missed their cuts to speak as well?

The Chairman: That is what we just did.

Mr Leong Horn Kee: I would like to urge other Members who missed their cuts to make their points and put their questions to the Minister.

Dr Tan Boon Wan (Ang Mo Kio): I am much obliged, Sir.

I was most happy to hear the Finance Minister, Dr Richard Hu, announce the approved cyber trader scheme. This clearly indicates that the Government recognises the importance of electronic commerce and that the industry needs help to grow. More should be done to grow the industry.

The volume of electronic commerce world wide is expected to expand some four to six folds from the current US$46 billion within five years. If the astounding development and growth of the information technology industry is any clue, I am confident that this prediction will come true. We must encourage our companies to go into electronic commerce. It has many advantages. We can make more efficient use of manpower and resources. We can operate around the clock. It provides convenience to the customers. Electronic commerce is a concept of the global world. It links the markets of the world into one big marketplace and thus expands the economic space of nations. Electronic commerce is thus ideal for small nations like Singapore to serve the world. Many who are local entrepreneurs and companies have dreamt of venturing overseas, but the cost had been prohibitive. Electronic commerce will change this. It would allow our companies, at affordable cost, to offer our goods and services to the world and we can do it from Singapore.

We already have many of the infrastructure to support electronic commerce. Singapore is highly computerised. We have good, advanced and efficient telecommunications, shipping, air and logistics services. If we look at the transaction cycle, while many of the steps can be carried out electronically, the physical goods must still be physically delivered to the door of the customer. It is conceivable that an efficient company in Singapore, supported by our efficient air and service links with the world, will be able to serve an overseas customer more speedily from Singapore than the customer could from a company in his own country.

The Americans understand the importance and potential of electronic commerce. President Clinton set up a task force to spearhead its development. The task force released its findings and recommendations last year.

Electronic commerce requires various sectors of the economy to work together. At the moment, I am aware that efforts are being undertaken by various bodies to develop electronic commerce in Singapore. This approach does not provide a common focus nor does it appear a concerted effort. Given this potential, I ask the Government to consider setting up a central agency to plan and spearhead the development and growth of electronic commerce. Such a body will accord electronic commerce the importance it deserves, champion it and hasten its development.

For electronic commerce to work world wide, common practices, rules and regulations must be evolved and adopted by countries. Initially, countries may resist to protect their markets, but unless they relent, they will shut themselves from the world and the benefits that electronic commerce brings. We saw this with the Internet. I would like Singapore to work with world bodies to quickly evolve these much needed international standards and rules to support electronic commerce. I would urge our universities and relevant research institutes to study the subject and carry out research to provide much needed knowledge and information in electronic commerce.

Mr Chng Hee Kok (East Coast): Sir, let me first declare my pecuniary interest as a director of Singapore Power.

Sir, the recent power failure in Auckland, New Zealand, was a very serious one. We are talking of a power failure on the scale of not hours but weeks, and now it is running to a month. A power failure of this scale, not only causes a lot of personal inconveniences, but will be very disastrous for commerce and industry.

With the now privatised electricity and gas of the former Public Utilities Board (now part of Singapore Power), we are encouraging competition to make sure that we provide a good service at reasonable cost to consumers. Tuas Power Station will be coming on stream sometime next year as reported.

Whilst competition is good and necessary for efficiency and lowering cost, as quite well demonstrated in the case of the cellular phone system, competition may also mean a ruthless look at cost cutting that may, over a period of time, mean a negative impact on performance. A major power failure in Singapore on the scale of New Zealand will be a disaster. Right now, Singapore's power supply is one of the best, if not the best, in the world.

Sir, I would like to urge the Minister, whilst encouraging competition, to keep a close watch on the regulation of power supplies, to watch not just the cost but to ensure that performance will be tip-top, and that we must never allow a major power failure to happen.

Mr Choo Wee Khiang (Jalan Besar): Sir, JTC's IT 21 actually is quite a good plan. I think it will put Singapore's land to best use in years to come. However, I have been receiving quite a number of feedback pertaining to JTC's way of conducting business, in that it has been very inflexible and rigid.

Especially in view of the currency and economic situation, many private sector enterprises are going through a tough time. They are all trying to tighten their belts. In fact, they are fighting for survival. I feel that JTC, being one of the largest landlords in Singapore, should try to help various enterprises which are going through financial difficulties in that probably JTC should consider not just holding on to the current rental charges and other charges, it should instead take a bold step to reduce rentals, and also take a bold step to understand various problems which are faced by various enterprises in terms of their financial difficulties and non-fulfilment to make payments to JTC.

Also, on a number of occasions, businessmen have complained to me about JTC's demand pertaining to the utilisation of land and buildings. With this kind of economic downturn, it would be very difficult for many companies to accede to JTC's demand of, for example, fulfilling the gross ratio requirement.

Sir, I think the Minister should enlighten the House as to whether JTC will take any major steps to help enterprises and businesses in Singapore to tide over this difficult period. 2.45 pm

Dr Toh See Kiat: Sir, first on electronic commerce. Singapore is positioning itself to be the hub of electronic commerce (EC). This is evident from the fact that we have a national project called the Electronic Commerce Hotbed (ECH) programme and from the incentives given in the Budget under discussion. For the uninitiated, EC is a broad term to refer to all manner of buying and selling services and products through the use of electronic communication channels, foremost of which is the Internet. Some people even consider the transfer of funds through bank ATM machines as electronic commerce.

There is, I believe, a committee which has sat and made some recommendations to the Government on how Singapore can position itself to become an EC hub. These recommendations include laws and other regulatory policies. Unlike the recommendations of the banking sub-committee which was released and made public and largely approved recently, the efforts of the ECH Committee have been kept relatively under wraps. There was a reply by the Minister to Dr Lee Tsao Yuan's question earlier this year, I believe, which sketches some of these recommendations, but I would urge the Minister to consider revealing what these plans and recommendations are more broadly so that investors and EC participants would know what to do, how much to invest in, when to invest and so on. Because if they are unable to obtain information on what is in store for them in future, how are they going to prepare themselves. I also hope that the new Law Reform Unit set up in the Attorney-General's Chambers will look specifically into all aspects of the law which relate to electronic commerce as a priority and not just incidental work, and to seek private sector input before these laws are formulated.

Many of these recommendations, I understand, have been formulated with input largely from academics and public sector officials. This is an area for which more private sector input is required. There is much promotional and educational work that also needs to be done to ensure that consumers take readily and kindly to EC. I wonder if the Government would dedicate funds to do these things, and whether Government would allocate funds to the private sector if there can be found champions who would take these tasks upon themselves. Here, Sir, I must declare my interest as the founder of one such organisation called CommerceNet Singapore.

Could the Minister also brief the House on our participation in international fora which are working on research, policies and laws which will facilitate EC. Again, would the Minister say if the Government would fund some of the work which is being done by Singapore organisations that are representing Singapore's interest and views in international fora, such as the United Nations, International Chamber of Commerce, SWIFT and other similar private sector initiatives? I know of some private individuals who are regularly invited to present Singapore's perspective and expert opinions in such international fora, but who have to spend their own private funds for this national service. I have for many years called for the setting up of an agency to support these efforts, privately and publicly, but my calls have not been answered. Indeed, there is also a need for an agency to discuss and gather all these learning experiences from different conferences and projects to which Singaporeans have attended and to transmit this to other Singaporeans, businesses and Government agencies alike. We need a concerted effort of both private and public sectors, perhaps even a Government Ministry to plan, monitor, coordinate or even regulate such efforts.

Sir, at the Committee of Supply debate last year, I argued for a Ministry of Information Technology. Perhaps what I should have argued for is not so much a Technology Ministry as a Ministry which would lead and envision the different ways we can harness technology. We can harness this to use and manage information so as to promote trade and the competitiveness of Singapore. Additionally, as IT related agencies are all over the place currently, with the NCB, TDB and EDB in MTI, SBA in MITA, TAS in MinCom, etc, it is perhaps time we pooled all of them together in one Ministry to prevent confusion to investors and the public and send a message to the world that we are serious about making IT and EC work in Singapore.

In a question to the Prime Minister's Office about the formation of a Ministry of Information Technology, I received a reply that Singapore already has the NCB and the National Information Technology Committee which actually has done a lot of things and kept Singapore very much up-to-date and the plans like IT 2000 have all been going on track. I would suggest that perhaps one of the most important things is when we have a Ministry that pools together all these agencies, even if they have been working well with an inter-agency committee like the National IT Committee. It is perhaps time to emphasise that Singapore really cares about making IT work and Electronic Commerce as a strategic matter that Singapore is concerned about.

Mr Heng Chiang Meng (Cheng San): Sir, actually what I want to say is on a later amendment, but since this subject has been brought up earlier by two other Members, I thought I would say it now so that the Minister can reply in one go. This is to follow up on the issue of structural unemployment brought up earlier by Dr Toh See Kiat and Mr Cyrille Tan. Like them, I am fearful that the unskilled and the poorly skilled workers, mostly aged 40-plus and above would face structural unemployment as Singapore's economy takes on the characteristics of a developed country.

Sir, the 1997 Labour Force of Singapore showed that we still have about 722,000 with lower secondary education or worse. This is not a small figure and is about 39% of our workforce of about 1.8 million workers.

They would be earning about $1,000 to $2,000 a month and supporting a family with teenage children. Essentially, this means that this group of workers has very little savings and can ill-afford to be out of work. Yet, in a competitive world, these workers will be the first to be retrenched and when retrenched they will be forced by circumstances to look for any unskilled job to keep self and family alive. Therefore, I would like to propose that the Government take the responsibility of training them and also other similarly unskilled workers, and that during this period they be given a salary to fulfill their financial requirements. Sir, this is not a new idea. Companies today pay, in fact, the normal salary for their staff on training courses. Therefore, if we were to consider that all economically active citizens are workers of Singapore, ie, on the payroll, being economically active, then giving them a salary while they are under training is actually akin to the practice being presently prevalent in private companies and also the private sector as well as public organisations which send their workers for training. If this is not acceptable, could the Minister consider some sort of grant, as Mr Cyrille Tan has said, skills fund, or some sort of interest-free loan? The important thing to remember is that these workers need an income to fulfil their financial needs. As long as such income is not forthcoming, all the exhortations on the need for training will be wasted on them, not because they do not want to be trained but because they cannot afford to be trained.

The Chairman: You can take your other topics.

Dr Toh See Kiat: I will take all my related cuts together in this speech. The first issue I want to talk about relates to fair and ethical trading.

The Singapore market place is an orderly one and most businessmen are prim and proper persons earning an honest living. In recent years, however, there has been a growing number of persons who have been skilfully skirting the grey edges of our current law to perpetrate all sorts of schemes which exploit the naive, the gullible and the poorly-informed.

There is a growing mass of persons who are selling goods and promises which are useless or not exactly what they have been promised. Our current laws on misrepresentation, false trade descriptions of goods, investments and sales of goods and services are woefully inadequate for such scams. Let me highlight some examples and figures.

First, there is something called the switch and bait technique. An advertisement or a poster campaign or a circular campaign might advertise that a certain travel agency is selling tickets to, say, the furthest end of the earth, the North Pole, at $200. People looking for adventure might say, "Hey, that is a wonderful deal." They run down and the shop says, "Sorry, we just sold the last two." Actually, they never had any. But they just want you to go down there, bait you down there, and then switch you to another product or service they are selling. I do believe that is not quite fair game.

Secondly, they use scare tactics. There was one case where an advertising campaign warned about all the dangers of drinking coffee and it was pitched as a health education campaign. They exhibited scientific reports about foetal abnormalities and thing like that. On further look, we the Consumers Association of Singapore realise that the company actually was a company that was in a beverage line. What they were saying was that coffee has caffeine but you do not know that cocoa also has caffeine. Did you? Because every evening mothers make a hot drink of cocoa for the children before they go to bed. And they said cocoa has caffeine. The implication therefore is that it is not safe. But of course this is a company selling a non-cocoa based beverage. So scare tactics are there, making people think that unsubstantiated papers are really facts. The other thing about this advertisement campaign was that the paper that they had was dismissed by our medical experts as an ancient paper. It was obsolete. The studies were no longer relevant. But the uninformed consumer cannot tell.

There is a third technique which is unconscionable and, that is, the hard sell tactics that have become such a common way of doing business in Singapore. We have heard Mr Sin Boon Ann yesterday talk about soft commodities being sold that way. They advertise a job vacancy and they say "elderly people, housewives, retirees, students, anybody, no training needed, no skills needed, just come and you have got high income, $2,000-$3,000 a month." When people go down there, they say, "You have to go through two days of on-the-job training." And it is really two days of hard sell, at the end of which they are told, "Well, I think you have to prove. You have to learn on the job and prove that you are a good person. So good in this line. Therefore, we want you to put in your own money, $15,000." When the $15,000 is lost, they say, "To recover that $15,000, you need another $15,000." I think many MPs have written to CASE and I share the pain of these people. They are factory operators, 3-room residents and they lose $30,000 or $60,000. They are not rich people. These are frightening facts.

In terms of time-share complaints, from April 1995 to March 1996, CASE received 53 complaints. From April 1996 to March 1997, we received 109 complaints. From May 1997 to February 1998, we received 607 complaints. Because this line is so lucrative, they made so much money that they do not care what ethics are. Because as far as they are doing something that the law does not prohibit or doing it in ways which the law does not prohibit, they say they are safe. These facts and figures reflect only the most egregious examples. They are the tip of the iceberg as Singaporeans find it too embarrassing or too troublesome to raise these matters publicly. They reflect the failure of the law to adjust to changed market conditions. Such unethical and unconscionable ways of doing business should be eradicated from Singapore if we do not want Singapore's image as a shopping haven to be tarnished. It is hard enough getting tourists to Singapore. If they and Singaporean consumers are exploited like this, then we become known as a nation of thieves and this is not something that the retail sector or the related trades would want to be known for, because they are already in the doldrums, and they will be in the doldrums for a long time to come if they do not change these unscrupulous traders in their midst, and turf them out, so to speak. 3.00 pm

Sir, as I said, many are indeed honest and fair. But when they see others resorting to these unscrupulous tactics, the temptation is always there. They are not being caught, they are not being prosecuted, perhaps I am a stupid fool if I do not do the same thing. And I think the decline of standards would be gradual, but it would be inevitable.

Sir, it is time to pass legislation which makes it illegal for businesses to resort to such tactics. A Fair Trading Act along the lines of what CASE has been advocating will enhance Singapore's image as a shopping haven, enable trade associations to self-regulate and set their own standards, so that Government continues to have a light touch. It would prevent and avert litigious resolutions of consumer disputes and make the retail trade a more productive one. Because if the retail resources are not chanelled into combating unfair competitive moves by unscrupulous business rivals and the demands of unreasonable consumers, then the resources can be used elsewhere. CASE will be forwarding a proposal to the Ministry within the next few months to explain the issue further, and I hope the Minister will consider its recommendations.

Sir, may I move on to the next cut?

The Chairman: Perhaps you could continue after the tea break. I propose to take the break now.

Thereupon Mr Speaker left the Chair of the Committee and took the Chair of the House.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.35 pm.

Sitting accordingly suspended at 3.02 pm until 3.35 pm. Sitting resumed at 3.35 pm

[Mr Speaker in the Chair]

Debate in Committee of Supply resumed.

[Mr Speaker in the Chair]

Head W (cont.) -

The Chairman: Amendment No. (1), Dr Toh See Kiat.

Dr Toh See Kiat: Sir, I will just take one small cut on what I did not complete earlier on about Approved Cybertrader Scheme.

The electronic commerce incentive that is given under the Approved Cybertrader Scheme is targeted to encourage international traders doing offshore trading. And these incentives are very good and, in fact, timely. But I believe there could be more to be done ---

The Chairman: Dr Toh, are you talking on the Cybertrader Scheme?

Dr Toh See Kiat: Yes, Sir.

The Chairman: We have not come to that amendment yet. We are still on Amendment No. (1). I believe you still have other topics under Amendment No. (1).

Dr Toh See Kiat: Yes, Sir.

The Chairman: Could you restrict yourself to the topic under Amendment No. (1)? We are still on Amendment No. (1).

Dr Toh See Kiat: Can I give way to some other Members first?

The Chairman: So you do not intend to speak. Because there is no one else speaking already. Mr Lee.

The Minister for Trade and Industry (Mr Lee Yock Suan): Sir, I wish to thank all the Members who have spoken for their valuable suggestions and views. I wish to assure them that my Ministry will give their views utmost consideration.

I was told that we are well ahead of time. So the answers to be given by myself and my colleagues in the Ministry will be somewhat longer than usual. I hope Members will bear with us. I can assure you that that is not our usual style of answering questions in Parliament.

First, on the topic of cost of doing business. Several Members have spoken about this topic and they have made impassioned pleas for Government to do more to reduce the cost of doing business. The signals have come across loud and clear, and I can assure you that we are monitoring the situation very carefully. Unlike what Dr Lee Tsao Yuan said that we might be caught flat-footed, I can assure her that we, in fact, have a number of indicators, and should there be a downturn, I think we would be able to spot the downturn fairly quickly. We are not just depending on the quarterly statistics. In fact, we have preliminary statistics, then we have actual statistics as the trade figures come in, and so on. So that is the reason why we feel that if the need arises we will be able to adjust very fast; sometimes, maybe too fast, because the Government is able to decide very quickly on various measures.

First, as Mrs Lim Hwee Hua pointed out, it is instructive to look at the composition of business costs in Singapore. The largest component is wages. In Singapore, remuneration accounts for about 35% of total business costs. This is a key component to moderate for Singapore to stay competitive. For the manufacturing sector, rentals account for only about 3% of business costs, while Government taxes and fees account for about 2%. The corresponding figures for the services sector are about 9% and 7% respectively, 9% for rentals and 7% for Government taxes and fees, as compared to 3% and 2% for the manufacturing sector.

If you compare this with Hong Kong, remuneration accounts for about 60% of business costs in Hong Kong (Hong Kong's manufacturing sector), while rentals account for another 8%. Hence, compared with Hong Kong, our remuneration share of business costs is about 60% of Hong Kong's share, while our rental share of business costs is only about half. This is for purpose of comparison. Of course, it depends on the structure of the economy, the kind of industry they have, and so on. In Hong Kong, the manufacturing sector has mostly moved to China and even in the past, the manufacturing sector tended to be rather labour-intensive, electronics, garments, toys, and so on. So, therefore, their labour cost component will tend to be higher. Similarly, now with the move towards more of the service sector, the cost component again is mainly manpower as well as rentals. So in the case of Hong Kong, rentals are an important factor, more important than in Singapore. With the pegging of the Hong Kong dollar to the US dollar which has been maintained so far, and also with the high cost in Hong Kong, which used to be higher than Singapore, I think they are fearful of losing their competitive edge. And that is one reason why they came out with such a strong plethora of concessions for the economy. In our case, we have been watching costs very carefully and we are not quite in the same situation. In fact, I think we are very different. And also our currency has depreciated by about 15% versus the US dollar.

With rising productivity, labour costs have moderated in Singapore in recent years. The Unit Labour Cost (ULC) index of the overall economy rose by 1.1% in 1997, slower than the 4% in 1996, and 3.3% over the 1990 to 1995 period. The ULC of the manufacturing sector registered flat growth in 1997. There are several reasons for this. One, of course, is that the NWC has been recommending flexi-wages and keeping the wages under control. The Government has also been more flexible in allowing in more workers, both work permit holders as well as employment pass holders. So these have helped to check the labour cost situation.

It is also one reason why we have such a big number of foreign workers in Singapore now. I think Dr Richard Hu mentioned a figure of more than 450,000. So this would be a good buffer for us in terms of employment, in case there is a severe downturn and some workers will lose their jobs. In that situation, of course, we have to retrench the least productive worker first, but at the same time there will be openings created, and if the Ministry of Labour, by then Ministry of Manpower, could be more careful in issuing work permits, this will provide more job openings for Singaporeans. Of course, they will have to be prepared to be flexible and not insist on the old salaries or the same kind of jobs, but jobs there will be. And our projection so far is that we do not see a severe retrenchment or unemployment. In fact, in the recent situation when Seagate retrenched some workers, I was given to understand that some of the workers were very happy. They collected the retrenchment benefits on one hand, and they got new jobs very soon thereafter. And the ones who were unhappy were, in fact, the ones who were not retrenched. So it is quite an unusual situation that we have in Singapore, despite the crisis that we are going through.

To help businesses to control costs, we have to pay careful attention to the following: 3.45 pm

Firstly, wage costs. The National Wages Council will be meeting soon to deliberate on wage guidelines for the year. Over the years, we have built up the annual variable components of salaries to provide for the eventuality that wage costs may have to be cut in a recession. Now we are not yet in a recession. I hope we will not be. But when the NWC meets and before it concludes its deliberations by late June, I think the economic situation will be clearer and I hope the NWC will be able to look at the different sectors, the impact, the total situation, and come out with guidelines to help us overcome this problem.

On its part, the Government will also be reducing the levies for skilled foreign workers in the manufacturing, marine, construction and service sectors from $200 per month to $100 with effect from next month. This is for skilled workers. So the intention is to lower cost and also make it more advantageous for employers to recruit skilled workers and also for them to train the workers and upgrade their skills. So the orientation is towards that area.

The second important factor is of course rentals, and many Members have spoken about this. I would like to inform Members that in July last year, after JTC did its annual review, half of JTC's estates enjoyed a drop in posted rents, while the rest have their posted rents frozen. Many of JTC's lessees are paying rents that are well below market rates. The reason for this is that there has been a cap of 7�% on the extent to which they can raise their rents yearly. So as the property market shot up over recent years and the rises were very sharp, JTC was prevented from going up so fast by the cap. So in fact, many of the companies are enjoying rentals which may be less than 50% of the posted rents, and even the posted rents tend to be lower than the market rents. JTC does surveys of the market and they peg the posted rent and the tendency has been to peg it much lower than the market rate. As mentioned in the Budget speech, JTC and HDB will be extending rental concessions to their tenants and lessees. The Government will also be giving a 15% property tax rebate for commercial and industrial properties.

The third factor concerns Government rates and fees. In this area, the rate of increase has moderated since 1995. The Unit Business Cost Index of the manufacturing sector shows that the Government rates and fees actually fell by 1.8% in 1997 as against a growth of 5.1% in 1996. In any case, the fees are quite a small component of cost and in recent years, in fact, it has fallen. But we should not be complacent. We should continue to watch. And with Members' comments, it will in fact make it easier for MTI to press the other people to keep costs down.

At this point, we do not see a need to further reduce JTC rentals substantially. Any fall in market rents will be taken into account at JTC's annual review of posted rents in May or June. If the posted rents are reduced at the next annual review, new lessees and tenants will benefit from these lower rates. The rents for existing lessees and tenants will also be adjusted downwards accordingly when the current rates are due for their annual review. This point may be a bit confusing because Government has said in the Budget speech that we are going to freeze the posted rent and we are going to moderate the increases for those who are far below the posted rent. In fact, with the freezing, something like 70% of the tenants will not have any rental increase, even based on the current posted rates. The others will have some increase but this will be kept at certain levels. JTC will be announcing the details soon. But the point I was just making is that in addition to that, JTC also does an annual review in May or June and if at that time it is clear that the market rates are below posted rates, then JTC will adjust its posted rentals down further. So if we freeze rentals, it means they cannot go up but can come down, depending on the market situation. So maybe this is a bit of good news for the manufacturers and other businesses, that we are capping rentals, but there is a possibility of a downward adjustment. The adjustment, if it comes, will of course depend on the market situation.

At the same time, Government should refrain from introducing unnecessary rules and regulations that will increase the cost of doing business. If the economic situation worsens, the Government is ready and prepared to implement further measures. We should remember, however, that business costs are only half of the competitiveness equation and will continue to reflect Singapore's basic resource constraints. While we continue to manage our costs, we must also focus on the capability factors and constantly upgrade the productivity of our workers and companies so as to sustain our economic competitiveness. This is the collective responsibility of the Government, the employers and the workers.

Let me now turn to the point raised by Mr Tay Beng Chuan on whether we need to set up a Government charges and levies review committee to coordinate and review these charges and levies to ensure Singapore's competitiveness in the region. I would like to inform him that there is already a mechanism in place to ensure that major fee hikes are coordinated since all such increases require the Cabinet's approval. It is also Government's practice to fully explain the rationale behind any major fee increase. The Government has done so on all occasions when fees have been increased. My Ministry also monitors the impact of such increases on both the Consumer Price Index and the Unit Business Cost Index to ensure that Singapore remains competitive overall.

Mr Leong Horn Kee and Mr Inderjit Singh spoke on the question of PSA charges and said that the charges have increased three times in the last two years. I presume they meant three occasions. I was told that this is not quite right. The last tariff revision was done in January 1996 and there has not been any revision since then. So I do not know whether there has been some misinformation. Nevertheless, MPA and PSA Corporation are keenly aware of the need for Singapore to keep its port tariffs competitive. The Marine and Port Authority (MPA) reduced port dues for container ships by 20% in May 1996. Further, PSA Corporation negotiates on a case-by-case basis to grant rebates for terminal handling and towage charges to its customers. So I can assure Members that PSA will remain responsive and make sure that they are competitive in terms of their rates.

Mr Choo Wee Khiang and Mr Inderjit Singh made some points on the question of subletting of JTC space in situations where there has been a business downturn and there is extra space available. I can assure them that JTC is flexible in this area. JTC did a review of its subletting policy in August last year as part of IP 21 and has decided that lessees of JTC land and ready-built factories are now allowed to sublet up to 30% of their space for the first five years of their lease or the first three years for factory lessees and up to 50% thereafter. They can sublet up to 70% if the sub-tenants are related companies. As JTC tenants are on relatively short terms of typically three years, they may also prematurely terminate their tenancies at any time if their space requirements have changed. JTC recognises that some tenants may find themselves in genuine difficulties and is prepared to consider their special requests for subletting.

I think I must say that Mr Choo was a bit unfair when he said that JTC is inflexible. I think it is far from the case. They have in fact been very flexible and even before the latest moves by the Government as announced in the Budget, they have on their own been adjusting their rates down. So I think we should give due credit to JTC.

As for Mr David Lim's point that current HDB and JTC rules make it difficult for businesses to streamline their operations by swapping premises, JTC does allow requests for swapping of units by existing tenants. The swap will have to be mutually agreeable and the usage compatible with the adjoining users and consistent with the existing JTC guidelines. JTC is also prepared to consider not imposing a rental adjustment upon a swap for bona fide cases with valid reasons, such as for purposes of business consolidation. As for HDB premises, I will refer Mr David Lim's suggestion to HDB for consideration.

On Mr Inderjit Singh's suggestion to help start-up manufacturing companies with preferential land pricing, he may wish to note that there are already several existing schemes which assist start-ups in various aspects of their businesses. JTC is planning to introduce as part of the local enterprise programme a plan to help start-up companies which are engaged in higher valued-added manufacturing activities. More details will be announced in a few months' time.

I think I have covered most aspects on this topic of cost of doing business.

Next, I would like to move on to the topic of regionalisation. I am very happy to note that all the speakers who spoke on this issue made the comment that we should not let the current temporary setback divert our attention from the longer term goal and it is imperative for us to go regional, in fact, global. This is one of the strategic thrusts recommended by the Competitiveness Committee which I am chairing, that in our Singapore context, because of our resource constraints, or land, labour, and so on, it is unavoidable that we must move offshore. As we do so, we try and retain the linkages between these offshore operations and the Singapore operations so that in the process, we are able to push ourselves upward and be in a position where we manage the operations, ie, we do the designing work, research, higher value manufacturing, services and so on, and harness the resources in the region. So this is something that we will continue to do.

Whilst the present situation presents opportunities for us to invest overseas, of course, we have to do so with great care because the situation in neighbouring countries is still rather unclear. We do not know whether there are any hidden losses in some of the books, and what is going to happen. It is time for companies with the cash reserves to look around and see how they can tap into the region and establish useful linkages in the region. But, as I said, they must do so with care because if something happens, there will be no government to bail them out. That is the basic policy of the Government. You go in, you go for your profits, but if things turn bad, hard luck. If things turn out well, very good, please invest more.

Dr Lee Tsao Yuan made some comments about having GDP plus and whether we can develop better indicators to help us assess the extent of our regionalisation efforts and its contributions to our economy. I think the points are well taken. In fact, I think this is one area where she may give me some lessons on the different components of GDP and GDP plus, and so on. But I have some data here that may reassure her on this aspect.

Our approach to regionalisation is to build an external economy which is strongly linked and beneficial to the domestic economy in a way that strengthens Singapore's role as a business hub without hollowing it out. Thus, even as factor income from abroad has increased from 1993 to 1996, the contribution of foreign operations to value-added in the Singapore economy fell from 12% to 11%. In other words, the domestic economy continues to grow and, in fact, grew faster even as we developed the second wing. That is why the contribution from the external factor is, in fact, less than before. It has gone down from 12% to 11%, even as we invested more and more overseas. I see Dr Lee shaking her head. Maybe I have to go to her for the lesson!

Moreover, our export of business and professional services has expanded due to regionalisation. It almost doubled between 1993 and 1996 to reach $2.45 billion. This is the export of business and professional services. A linkages indicator which measures the percentage of sales of overseas manufacturing affiliates which were channelled back to Singapore shows a high of 20% or $4.7 billion. This is indicative of the extent of linkages between the parent companies and their overseas affiliates.

To promote regionalisation, Government has put in place a number of incentive schemes and bilateral mechanisms to assist our businessmen. In encouraging businessmen to go regional, we must never mislead our companies to go beyond what is commercially prudent. Whilst there are opportunities to reap rewards, companies must weigh the risks as well.

Some Members have stated during the main Budget debate that we do not allow losses from overseas ventures to be offset against Singapore taxes. In fact, the Minister for Finance explained clearly why this has been the case. But here, I would like to point out that when local companies go overseas, they can, in fact, apply for what is known as the Overseas Investment Incentive Scheme. This scheme allows companies to offset the capital losses arising from the liquidation of approved overseas investments against the company's other taxable income. Before they invest, if they apply to EDB for this incentive and if EDB approves it, then they have this insurance that in case they have to liquidate the companies and there are losses suffered, those losses can be brought back and offset against local taxable income.

Mr Inderjit Singh has suggested that tax rebates should be provided for families to defray the higher cost of children's education overseas. As explained before, there are various schemes to help companies in their drive and there are also various tax incentives. But tax concessions for individuals may not be effective, since these individuals are unlikely to pay any taxes in Singapore. If the employees have to go overseas and they pay more for the overseas schools, very often, it is the employer who is bearing the cost. So if any help is provided, maybe it is to the employer that we should be giving the help.

With regard to Singaporeans counting their period of absence overseas into the minimum occupational period of HDB flats, MND has informed my Ministry that they have already made provision for this. Those posted overseas on official duties are allowed to include the period of subletting their flats in the computation of the minimum occupation period, subject to a maximum of three years for direct purchase flats and one and a half years for resale flats. I hope the Minister for National Development can confirm this when his turn is due to discuss the budget.

Mr Inderjit Singh and Mr Leong Horn Kee have inquired about the impact of the Indonesian economic problems on Singapore. The events in Indonesia will have an impact on the entire region. Singapore will not be an exception. However, we should not speculate on a possible collapse of the Indonesian economy. Many countries including the US, Japan, Australia and ourselves have been discussing measures to help Indonesia towards economic recovery. Much of our trade with Indonesia is in the form of intermediate goods as part of the regional supply chain for final products for OECD markets. Similarly, a significant portion of our investments in Indonesia are manufacturing investments situated in the Riau islands linked to plants in Singapore which supply products to countries like the US and the EU. In the financial sector, the House was informed recently that as at 31st December 1997, the exposure of the six local banking groups to Indonesia was S$5.4 billion, representing only 2.3% of their total assets. So while Singapore cannot remain unaffected by the Indonesian economic downturn, our global linkages and diversified economic structure will buffer us from any fall-out effects. Of course, we are hoping that the economy will recover and there will not be any serious setbacks.

Next, I would like to turn to the topic of the Local Enterprise Financing Scheme (LEFS). Mr Inderjit Singh has expressed concern that the recent enhancement of the LEFS is insufficient to help local companies ride out the regional financial turmoil. I wish to emphasise that the LEFS is not intended to bail out sick companies but to support viable local enterprises. The lending decisions are made by the participating banks with the Government sharing part of the risks. The LEFS has been popular with smaller companies. As at January 1998, over 4,000 smaller SMEs, ie, those with less than 100 employees each, have benefited from the scheme. The coverage offered by the enhanced LEFS has now been extended so that SMEs with fixed assets up to $30 million or employing up to 300 people can also qualify. Government has increased its provision in LEFS loan lines from $760 million to $1.1 billion. With the Government's share of the risk for working capital and factory loans increased to 50% and the doubling of the limits for such loans, more assistance will be provided for our SMEs. It is not feasible to have an IMF-style bail out package for our companies which are caught in the regional financial turmoil.

Whilst we sympathise with companies which are selling, for example, to the Indonesian market and now find that the market has practically disappeared in some cases, I think it is just not feasible for Government to come in and help in those situations. But if there are companies here which have viable operations and they have good export orders, and they also have good collateral here which can be used to pledge to banks, then it is up to the banks to decide whether to lend them money. And they can then perhaps use that money to finance the operations in, say, the Riau Islands. This is what is being done by multi-nationals. They treat their regional plants like cost centres, sub-contractors. So they do all the sales here. They do all the purchasing of parts and components here and they feed the regional plants. So they are able in that way to insure those plants and isolate those plants from the turmoil. If some of our local companies can do likewise, I am sure our banks can consider and where it is viable, they will provide them with the assistance.

Mr Inderjit Singh also said something about whether banks, Government or whoever can guarantee the LCs issued by local businesses. This point is not very clear to me. The problem, for example, in some of the regional countries is that the banks which give guarantees for LCs are no longer acceptable. For example, maybe some banks in Korea may already be in serious trouble. So foreign lenders do not have any confidence in that bank and are not prepared to accept LCs from that bank for the purpose of selling them products. In our situation, our banks are very strong and there is no problem for them to issue LCs for the import of materials from overseas. So I am not quite clear what Mr Singh meant in this situation.

Next, I would like to turn to the question of the small and medium enterprises (SMEs). As Mr Inderjit Singh has mentioned, there are some 60 schemes to help our SMEs. I also get confused with the large number of schemes. I can assure Members that the statutory boards, like EDB, PSB and so on, have been trying their best to help the small and medium enterprises, and they have come up with all these different ideas, incentives and what have you, to help our companies, to cater for their different needs. Maybe it is time now for us to have a relook and streamline the operations.

Last year, when we debated this issue, there was this comment that we did not publish the booklet in other languages. The PSB has since done so and they are also in the process of trying to simplify the application procedures, to make the forms easier for everybody.

The PSB has also set up its first-stop SME centre in the PSB building in April last year to facilitate and coordinate access to all schemes offered to SMEs. The centre serves as a focal point for guidance and advice to SMEs not familiar with the various upgrading schemes. If our SMEs have any problems, they can approach this first-stop centre and get assistance.

Mr Singh also asked about tax deductibility for Q' plate cars. On this issue, the Member may wish to note that the registration of Q' plate cars will be discontinued under the new vehicle tax structure that has just been announced recently. All company cars registered after 1st September this year will be subject to the same taxes as for private cars. This is the information we have obtained from LTA. I hope this answers his point.

Next, I turn to the points made by Mr Tay Beng Chuan. He commented about the Local Enterprise Technical Assistance Scheme (LETAS), whether the grant quantum could be increased from 70% to 90% of the allowable cost of engaging external consultants. On this point, I wish to inform him that, in fact, the PSB already allows 90%. For certain projects which benefit the industry as a whole, not on a company basis, but where it is a scheme or a study meant to benefit the whole industry group, the PSB does approve 90%. A good example of this is the recent relocation of small factories from Woodlands to make way for the wafer fabrication plants in Woodlands. These factories have all been moved to a new multi-storey flatted factory and, in the process, PSB has to come in and help them to lay out the factory, plan various things and so on. The funding for that was at 90% level.

Mr Tay also asked whether we could give financial grants to trade associations to engage professionals. I would like to inform him that the Government does provide LETAS grants to the Singapore Chinese and Malay Chambers of Commerce and Industry to implement projects that upgrade their members' operations. PSB will continue to work with trade and industry associations on worthwhile projects that have industry-wide applications.

On the suggestion that Government provides soft or matching loans to finance joint investment projects in ASEAN, the Nominated Member may wish to note that this is available under the Local Enterprise Regionalisation Finance Scheme for machinery loans. This scheme is administered by EDB and is meant to help our companies set up factories overseas. The loans are provided at I think low cost or low rates for them to set up factories and to buy machinery. 4.15 pm

However, I want to reiterate that the granting of loans is a decision that is best left to banks to make on commercial grounds based on prudent assessment of risk and return. This is the best approach to avoid abuses or misallocation of resources.

Several Members have spoken about the retail industry and the tourism industry. I am leaving them to be answered by Mr Tang Guan Seng. So please bear with me on this area.

Mr Low Thia Khiang asked about the Regional Headquarters Scheme and whether the Ministry is satisfied with the progress made so far. He quoted a figure of 22 companies which have been granted the Regional Headquarters (RHQs) or Business Headquarters (BHQs) status and whether the incentives are enough in view of the recent slowdown.

I wish to inform Mr Low that the scheme has in fact worked very well. Since the figure that he quoted in 1991, the number of RHQs has increased very significantly. I do not have the actual figures here, but I think it exceeds 100 companies now. The contribution to the economy runs into billions of dollars in terms of expenditure that they incur here. So it has been a very good scheme and the EDB will continue to promote the scheme.

In fact, with the slowdown, it has indirectly led to more companies coming here for this purpose. When these companies pull out from the region, they still want to have a presence in Southeast Asia, and the natural place is Singapore. So we are in fact seeing some of that flow coming back. Contrary to the reports recently in some newspapers that we are losing people, we may be losing some of these expatriates in certain areas like banking, but we are getting a gain in other areas.

Mr Low asked about the target. We do not have any targets, the more, the merrier. We have plenty of office space and this is a very good field. It helps us to control the operations in the region and they can source components here and engage in development work and so on. So it is a very desirable form of high level activity, for example, international trading. In fact, they are doing trading which does not pass through Singapore. All they need is a phone, some fax machines and some able staff, and, of course, plenty of good contacts overseas.

Several Members have spoken about this important topic of training and retraining of our workers. I can assure Members that training has always been a top priority for us, together with education.

Mr Chiam See Tong made the point that we only give lip service to training but where is the money. Here, may I just make the point that in fact SDF in a way is also like public funds because in the past, before we had SDF, in fact we had payroll tax. So payroll tax was in a way converted to SDF and subsequently it was increased to four percentage points and adjusted down to 1% now for workers who earn less than $1,000 per month. So he might like to look upon it as a kind of taxation which is directed towards training, the idea being that companies contribute to this fund based on the number of employees, and the more they train, the more they get their money back. This is to encourage and support them.

In the same way, the Government's other revenues are mostly taxes. It comes from the whole economy. The Government itself does not generate this income.

Mr Chiam See Tong: I want to clarify on this point. The SDF is not budgeted. It is not in the Budget. It has never gone into the Consolidated Fund. Therefore, it is not Government's money. It is a fund quite separate from Government revenue and Government funds. In that sense, Government has not contributed any money.

Mr Lee Yock Suan: Thank you, Mr Chiam. I would not split hairs here. I was just trying to make a general point that these are public funds, in a way that the Government has imposed it on the system in its overall taxation, as it were, and directed it towards certain uses. The money is put in the SDF. In the past, we had in fact payroll tax and this was replaced by the SDF.

It is, of course, not true to say that Government has not been spending money on training. We have the ITE and other schemes which are in different parts of the Budget. But I take the point that for the purpose of the Skills Redevelopment Programme, we have not had any budget yet in this latest annual budget, the reason being that there was not enough time for us to evaluate the scheme fully and come out with a recommendation to the Ministry of Finance to have it in the Budget. But I would like to assure all the Members who have spoken that we support the scheme, and my Ministry is evaluating it to see how we can fund it and expand the scheme, because the scheme fits in very well with the need to upgrade our older workers. It is a wonderful idea if, whilst they are working in certain low skilled jobs and there is a threat that they may lose their job, we train them in a systematic way with certification so that they can be upgraded into higher level and better paying jobs, say, for example, in the wafer fabrication industry. Of course, we must make sure that the training is relevant and that there is no wastage. Very often, when you train a young person, say, in ITE, he does not apply the training after that.

So we have been adopting this principle that the Government's responsibility is to provide good education and skills up to a certain level, ie, 10 years of schooling and also skills in the ITE. But the employers themselves have to train the workers for their own needs. That is the most effective way of training. We cannot foresee what kind of industries will come, even though we know there are certain general directions. And even for different companies in the same industry, they may have their own needs. But having said that, I think there is a case for us to upgrade the general ability level, for example, literacy, computer skills and other skills of our workers so that they are able to do the higher level jobs.

What I am not comfortable about in this SRP is this part about the absentee payroll, because we do not want to get into a situation where we pay workers just to learn. We think that it is better that if they are holding a job and they are learning on- the-job. In the situations that I have quoted, these employees are actually still working and contributing to the existing employers, but they are pulled out for, say, 20% of their time to undergo training in ITE either on a part-time or full-time basis. On that basis, EDB has supported the programme under their INTECH scheme, up to 70% of the absentee payroll. The course fees are paid up to 80% via SDF. Anyway, the point is that we support the scheme. We are evaluating it and we will discuss with the Ministry of Finance and see how we can get money for the scheme.

In the meantime, the scheme can just push on and money would be forthcoming, say, from the SDF funds which still have several hundred million dollars of resources left. There should be no need for us to slow down the scheme for reasons of lack of funds.

One of the Members asked whether we allow the SDF to be used for training foreign workers. The answer is, yes, we do, especially if the foreign workers have three-year work permits, which means that they are skilled already, and we feel that it is useful for us to upgrade their skills further. Within certain limits, we also allow training of two-year work permit holders. But here we have a cap because we want to make sure that the funds are used more to train our own people rather than transient workers.

With regard to executive training, this is supported if it is part of the company's total training and development plan. But for executives, there are other schemes. For example, EDB's INTECH scheme is used to train executives for new projects when they have to send employees overseas to train in headquarters so that they can bring back the knowledge and help start up the local operation. INTECH has also been used to send people for training, to man our regional plants for example.

Several Members have asked for the percentage support under SDF to be increased from the current levels. Here, I would like to say that PSB is generally sympathetic and is aware that under the current economic situation, some companies may be more reluctant to train. So maybe there is a need to increase the funding level on a temporary basis. The general level of support is 50% of fee course. But for the more desirable skills, the higher skill areas, the PSB does go as far as 80%. But we do not want to go too far because it is important that the resources are not wasted. If we go up to, say, 90% and the employer only pays 10%, there is a possibility that the training may not be so well regulated and there could be wastage. I think 50:50 is in fact a good ratio. But for special cases, we can go somewhat higher.

Mr Lim Swee Say made the point that we should try and project into the future in terms of the kind of economic structure that we will have and try and assess what kind of workers will be needed and prepare ourselves for that. This point is well taken. We will be working together with the Ministry of Manpower to see how we can do this. Of course, one of our main concerns is to prepare our workers well, not only the young ones, but also the older ones, so that we will not have a problem of structural unemployment. I think the Skills Redevelopment Programme fits in very well with the latter part of the programme.

The data from EDB shows that most of the investments coming in now tend to involve more skilled jobs, something like 70% or so for the newer industries. So it is very important that we upgrade our workers so that they can fit into those kinds of jobs. But I would be reluctant to have a situation where there are retrenchments and we provide the workers with wages for them to train, because in our tight labour market - Members will be surprised that our markets is actually still quite tight - there are plenty of jobs available. So when workers get retrenched, the best thing for them is to find a different job quickly, and be prepared to adjust their expectations. In the process, of course, we will help with the training as well. But they should not expect to sit at home or be paid just to learn. That will be carrying it a bit too far.

We also have various schemes to help the housewives and retirees to come back to the labour force. This is known as the back-to-work programme and it has been going on well.

Next, I would like to turn to the point made by Dr Wang Kai Yuen. First, he asked about the water agreements. Following PM's visit to KL on 16th to 17th February 1998, the Government of Malaysia has agreed to continue the supply of water to Singapore beyond the expiry of the 1961 Agreement in 2011 and the 1962 Agreement in 2061 on terms and conditions to be mutually agreed upon between the two governments. This undertaking by the Malaysian Government will be confirmed in an agreement within 60 days of the issue of the Joint Communiqu� by Singapore and Malaysia. I share his view that this is a golden opportunity for us to try and settle this matter. I hope the Malaysians will proceed in a business-like fashion. It is a win-win situation; otherwise the water will be going to waste, and it is zero value for them. But if we are prepared to buy from them - it is very important to us, of course - if we can come to this agreement in the near future, this will remove a big psychological barrier between us. From then on, I hope it will be possible for us to really cooperate. As close neighbours, there is much that we can do together. As matters are still under discussion, I am afraid I cannot go into more details.

4.30 pm

Concerning the electricity rates, the recent increase in the electricity rates has given rise to queries, both outside and inside the House. And I informed the House recently, in answer to an Oral Question, that this increase recently was just to pass on the fuel cost increase. There has been a time lag between the fuel price increase and the tariff increase, and this is unfortunate. Whilst the price of fuel has come down, in US dollar terms, because of the depreciation of Singapore dollar versus the US dollar, the actual cost in Singapore dollar has actually gone up leading to this increase in the fuel cost. But we see a situation of softening of the fuel oil prices, and if that continues, then I hope there will be a reduction in this component in the next round when we review the prices.

The electricity price is composed of two components. There is a fixed component where you have the depreciation, the overheads, the wage cost, and so on, and the return, and there is this fuel component. The fuel component is just passed straight through. Unfortunately, there is a time lag between the actual cost and the price adjustments.

As for the other components, I think this was debated thoroughly in 1996 when the decision was made to increase the return on investment of Singapore Power. At that time, it was found that Singapore Power was costing their electricity on a different basis. They did not take into consideration their capital which was invested in plant under construction, and they were only basing their return on plant in operation. So on that basis, they were earning a return which was adequate under the old basis, ie, under the World Bank basis, but not adequate for a viable business. The Government recognises that power is actually a very stable business. It is not one of those high-flyer types where it goes up and down. The return should be reasonable but on the low side and stable. So it is a very stable kind of situation. The key thing here is to make sure that our power rates are competitive. And I want to assure him that my Ministry is watching this carefully. The tariff rates have to be approved by the PUB and we will have to make sure that this component of cost is kept under control as well.

Mr Chng Hee Kok, who is not here, asked about the blackout in New Zealand. I think the answer has already been given that it is not likely that in Singapore we will suffer a total blackout, like in Auckland, which happened to their central business district. I understand that some of their cables were, in fact, very old and not designed for this unusually dry weather. As a result, the heat was not carried away fast enough and there was a trigger effect. PUB and Singapore Power have assured us that they have taken all necessary precautions and a blackout of this nature, a total collapse, will not happen in Singapore.

I will leave the other questions to my colleagues to answer.

Mr Choo Wee Khiang: Sir, can I make a clarification, please?

The Chairman: Yes.

Mr Choo Wee Khiang: Sir, earlier on, the Minister mentioned that I made unfair comment on JTC. Indeed, it was not true, because I did not make that comment. By saying "inflexible", I did not mean that JTC has not been doing well. In fact, I said that IP21 is actually quite well drawn up. I must declare that I am a tenant of JTC, and I am quite happy with it. But whatever I said earlier on were actually comments and feedback from friends of mine who are tenants of JTC.

As mentioned by the Minister, salary, wages, rental and service charges are the key components of the cost of doing business. But I am sure the Minister is well aware that when it comes to wages and rentals, it actually equates to cost, cash upfront. You just have to pay. And therefore many companies in Singapore are having this problem, meaning financial difficulties, in paying up instalments, and wages. Therefore, earlier on, I had asked if JTC would be prepared to be even more flexible to come out with some financial schemes, eg, deferring of payments and lowering of the rates, and so on and so forth.

I am actually quite pleased that the Minister has reassured us that they are quite watchful of costs. But I hope that the Ministry will continue to monitor the costs. We do not know what is going to hit us with this turmoil. So I hope that the Ministry will keep on monitoring the costs and be even more flexible.

The other point mentioned by the Minister is about the SME schemes. He himself said that there were too many schemes and he could not recall all of them. I just wonder whether we should take a fresh approach by seeing how we can actually help SMEs. Maybe they can take a global approach and restructure some of the schemes, so that SMEs will be able to enjoy to the fullest the various schemes introduced by the Ministry.

One last point, Sir, is about JTC again. I just wonder whether JTC has come out with some kind of survey to see what kind of grievances there are from the tenants. At the same time, have there been any service performance indicators reflecting the good work put in by JTC? JTC tenants would then be more than willing to take the point on cost control and reduction, and freezing of the rental charges, and so on and so forth. I am sure with this explanation, they will be more perceptible to the complaints on the inflexibility of JTC.

Dr Wang Kai Yuen: Clarification, Sir. I accept the reply from the Minister regarding the electrical power supply charges. But Mr Yeo Cheow Tong in 1996 had laid out a programme on the increase of tariff which will be spread out over three to five years, and every year it will increase by 5%, on the average. My question to him is whether this built-in increase is still going to be implemented, come high or low water. Would he take into consideration that in 1998 Singapore will face economic contraction and maybe the danger of recession? Will this 5% increase, to enable Singapore Power to increase its rate of return on total assets, be continued to be implemented? Perhaps he will give us a clear answer.

Mr Lee Yock Suan: Sir, I thank Mr Choo for his clarification. I take it that he accepts that JTC is generally quite cooperative, although some friends of his have told him that it is rather inflexible in some ways. But my own impression of JTC is, in fact, that it has been very accommodating to its tenants, and it is amongst the first to move to support our industries in the current crisis. On its own volition, without any pushing from me, it has gone ahead and made various adjustments.

As for the cash flow problem that he mentioned, he may be aware that JTC has also allowed the payment of quarterly rentals to be done on a monthly basis, instead of quarterly. So I hope that would be of some help to the tenants.

As regards Dr Wang Kai Yuen's point on the return on investment, yes, Mr Yeo Cheow Tong did mention a target in 1996. It slipped my mind just now. I am glad to inform the House that, in fact, the target has already been reached. So that is not a reason for electricity increase because after they went through the process of corporatisation, they have been able to increase productivity. When I joined the Ministry early last year, they informed me that, in fact, they had already reached the target. So I would like to assure Members that this will not be a cause for increase of power charges. In fact, the cost of power is capped. The fixed component is capped at CPI-X (where X has been set initially at 1%). So it means they cannot just increase rates at will. They must pass on their productivity to the users.

Mr Choo Wee Khiang: Sir, he has not answered my question pertaining to SME schemes, whether he is going to restructure the various schemes that we have now.

Mr Lee Yock Suan: Yes, as I said, we are looking into how to simplify the schemes and I am in favour of streamlining the schemes, and not only for PSB's schemes relating to small and medium enterprises but the tax incentive schemes in general, because there is a big range of them. My impression is that in the eagerness of EDB and the others to promote investments and to help our industries, they have, in fact, made the schemes more and more to start with, and also more and more generous. So I think, on the whole, our businesses here should be very thankful for this.

Mr Choo Wee Khiang: Sir, my question was not answered. It is about the survey. Does JTC conduct any survey on its performance? How often do they collect feedback from tenants of JTC, so that the tenants have better service?

Mr Lee Yock Suan: I can assure the Member that JTC is in close contact with the tenants. If nothing else, the tenants come to them and protest, if anything is not proper. But I take his point. I think it would be a good idea if JTC has regular surveys. I mentioned earlier on that, in fact, the posted rentals are set through surveys. They measure and find out what is the market rate. So even though we have said that we have frozen the posted rates, in fact, if the market rentals go down, then JTC will follow downwards.

I suggest that at this point, we let my colleagues answer the other points. If need be, we can come back again on some of the other issues.

Mr Inderjit Singh: Sir, the Minister was confused about my letter of credit question. So I would like to clarify. I am talking about the category of companies who are fortunately still able to secure sales, but because of the tightening of credit financing, they are not able to purchase the goods that they could sell. I was therefore hoping for some form of backing through any means, banks or Government, to back the purchases that they can make for the sales that they have already secured. So it is quite different from those companies who have lost sales or are in trouble because of the crisis.

Secondly, I hope my question on the entrepreneurship will be answered later on too.

Mr Lee Yock Suan: Firstly, on the letters of credit, my impression is that if a trader has a good export order and he needs to buy goods, he is able to use this to factor his export bills with banks, and banks will be willing to lend. Of course, if the trader is in a rather shaky position, then the banks will have to evaluate whether it is too risky to lend him the money and, in some cases, they may require collateral and so on.

The problem is more pertaining to LCs from the other countries because in those situations, their LCs are no longer acceptable. So that is where the problem arises. Our traders or manufacturers may be selling to the region. But the LCs that their importers in those countries want to open with their banks are not acceptable to our banks here. And this is an area where Singapore has been trying to help Indonesia to see how we can facilitate this trade through some kind of a guarantee of their Bank of Indonesia. Firstly, the Bank of Indonesia will guarantee this group of banks which offer the LCs and we will guarantee the Bank of Indonesia. But that scheme is contingent on having a multi-national effort involving many countries, and at the moment we are still waiting for response from some other countries. 4.45 pm

The Second Minister for Trade and Industry (BG George Yong-Boon Yeo): Sir, Mr Inderjit Singh raised a very important question about the promotion of high-tech entrepreneurship. As we all know, in the next century, the basis of wealth in human communities will not be in raw materials but will be in human knowledge. Those who are close to the sources of knowledge who are upstream, they get much more value than those who are downstream. If you were to look at a PC, there is a very high extraction of the total value, first, by Intel, then by Microsoft. If all you are doing is welding or assembly work or metal bending, you are paid commodity prices. As a total economy, it is very important that we promote this particular area of high-tech entrepreneurship in order that we will be able to maintain our relative position in the world.

In this area, no one can beat America. The Japanese tried but they are now left far behind. The centre is in Silicon Valley. It is a very exciting place and every important city in the world tries to re-create Silicon Valley within its midst. But obviously, it is not so easy. So when Mr Inderjit Singh talked about promoting high-tech entrepreneurship in Singapore, he is really asking a very fundamental question. How do we try to replicate some of the conditions there in order that, in this new world, we will also swim upstream and will have our share of the total value of the world's product?

He made four specific recommendations which I shall now like to respond to. First, amending the bankruptcy law in order that we be more tolerant of failure and that Singapore be an economy with many second chances. Our bankruptcy law went through a major reform in 1995 with the new Act coming into force on 15th July 1995. One of the primary objectives of the new law was to encourage entrepreneurship, especially in cases where bankruptcy had arisen from misfortune rather than malpractice, by having a more liberal regime in bankruptcy discharges. With the scheme of easier discharges, bankrupts were also encouraged to work towards early discharge. Since July 1995, close to 6,000 bankrupts have been discharged.

The Official Assignee is constantly reviewing bankruptcy laws and practices. In September of the same year, a further amendment was introduced to enable the Official Assignee to discharge more bankrupts by certificate. Our insolvency laws are being further studied to determine if additional amendments are necessary in the interest of both creditors and bankrupts.

The problem with having many second chances is that of moral hazard. You use other people's money, that money is given or loaned to you in trust, and if it is so easy to fail and somehow betray that trust, then we create a very serious problem. But we recognise at the same time that in the specific field of high-tech, the investment is often in the nature of a debt and that if we are too harsh on the directors of these companies, say, for instance, by preventing them from becoming directors again, then naturally there will be very few people who will be prepared to become directors of high-tech start-ups for which the failure rate is very high. These are some of the areas we are looking at and, if necessary, we will make further amendments to our laws.

Mr Inderjit Singh also talked about the rigidity of SESDAQ rules. In fact, under existing rules, a company applying for admission to SESDAQ need not meet any minimum profit or share capital requirements. Companies seeking listing on SESDAQ usually have three-year operating records, but companies having shorter operating records can also apply.

This is an area which the Corporate Finance Committee, formed by the Government to study corporate fund-raising issues, is currently looking into. The problem is more complex than that. In Israel, where they have many start-ups, they do not have their own equivalent of SESDAQ or NASDAQ. Many of them, when they succeed, they list on NASDAQ. So they make use of the fund market in the US. Creative which is listed on NASDAQ and in Singapore has 90% of its stocks transacted in NASDAQ and only 10% here. But we should try. And if it is possible to somehow make SESDAQ an attractive place to raise high-risk capital funds, we should try to do so, and we need to tweak some of our other rules and regulations as well, for example, our rules on stock options which are much too restrictive for high-tech start-ups.

Mr Inderjit Singh also asked about Government helping R&D consortiums. In fact, the Government has been supporting the set-up of industry consortiums. This is an important way for industry, research institutes and universities to come together to work on common R&D projects. And through this approach, industry members benefit from reduced development cost and time, as well as from information sharing and technology co-development. The Government facilitates the formation of such consortiums and supports their projects through grants and other forms of assistance. Examples include the Aerospace Technology Programme, the Marine Technology Programme and the Intelligent Progressive Die Design and Manufacturing Software Programme. Our research institutes and centres are also spearheading a number of other consortiums. For example, the Institute of Microelectronics and the Gintic Institute of Manufacturing Technology lead a consortium involving 29 industry members from the printed circuit board assembly industry. Individuals or companies who have good project ideas and are interested can approach NSTB or any of the research institutes.

Then the question of venture capital. Mr Inderjit Singh asked what we are doing to encourage this industry. Again, this industry is not as simple as it sounds. It does not mean that when you have the money, you have the rules, and you have venture capital. Two weeks before Chinese New Year, I paid a visit to Silicon Valley and had many interesting discussions with venture capitalists and lawyers who are experts in the field in Silicon Valley. These are experts. They watch the bottom line very closely. They are very good at sizing up human beings to decide whom to place bets on and they also recognise that many of these entrepreneurs who all have giant egos also have failings. They cannot manage people, they do not know how to institutionalise the procedures in the company. So these venture capitalists, in many ways, help to bring ideas through a process of metamorphosis, all the way to IPO. There is specialisation at different stages of the process of watering an idea and seeing it flower, and eventually bearing fruit. We are just beginning. In fact, we have brought down many experts and consultants to help us here. We will do everything we can, if necessary, to make our laws and regulations conducive but these are only the preconditions. Whether or not we will succeed depends on something more fundamental.

In fact, we have not done all too badly. The Government has been actively promoting the venture capital industry since the mid-1980s. As at end 1997, there was over $7.7 billion worth of venture capital (VC) funds managed in Singapore. Currently, VC funds enjoy tax exemption on the gains from disposal of investments and on certain investment incomes for a maximum of 10 years. At the same time, fund management companies that manage such funds can qualify for pioneer status. To further encourage the growth of the industry, the Minister for Finance recently announced in his Budget Statement that the current 10-year limit will be extended on a case-by-case basis, by up to a further five years, at a concessionary tax rate of not more than 10%. And this will further encourage the industry.

In cases where private funds are not prepared to assume the high risks associated with investing in seed stage companies, the Government has stepped in by establishing venture funds, such as the $50 million Technology Development Fund (TDF) which co-invest with private firms to fund early stage ventures. The TDF has invested in more than 20 local start-ups and has attracted more than 10 overseas technology companies. Other similar funds include the $100 million Technology Commercialisation Fund and $100 million Pharmaceutical and Biotechnology Growth Fund. At the same time, EDB Investments Pte Ltd also runs venture capital funds which invest in start-up companies at various stages of development.

In addition, we have various support schemes to assist technopreneurs and innovators, including NSTB's Technopreneur Assistance Centre and PSB's R&D Incubator Programme. These are infrastructural aspects. At the end of the day, what we need is to create in Singapore an environment which conduces high-tech entrepreneurship and the growth of start-ups. It is not an easy thing to do. It is a complex organic process and we have had a few successes. You take, for instance, Sim Wong Hoo's Creative Technology. 70% of PCs carry his sound card, the Sound Blaster. And he is quite a big name in Silicon Valley. I have met people there who hold him up as a model to emulate, not in Singapore, in Silicon Valley.

So I visited his facility recently and was very inspired by his briefing and of his plans for the future. He has very big ambitions. I asked him this question, "To what extent do you owe your success to Singapore?" He is Chinese educated. He is not a university graduate. He only has a polytechnic diploma and he listed six success factors all starting with "F". He said, "Well, some of them like hard work and so on." They are Singaporean factors and he thinks that his Singaporean origins are very important and he must maintain his roots in Singapore which is why Creative is listed on our Stock Exchange. But he said there are other aspects like fun and failure tolerance which are more American in character and he wishes that we have more of them here. He wants to expand here. But he also has an operation in Silicon Valley. I asked him, "Do you do more creative work here or in Silicon Valley?" He said, "In the Valley. But Singaporeans are very good, very kiasu. When it comes to product development and manufacturing, debugging, Singapore is much better than Silicon Valley."

We have got to take a very realistic view. I do not think we can ever be like Silicon Valley but we can swim close to it, be well-connected there and, at the same time, create an environment here for Asians, for Westerners who want a good wholesome family environment to locate here and to do creative work here. And if we do that, then we will succeed in technology entrepreneurship. If we do not, then it is very difficult to keep up with this very fast paced game in the next century.

I would like now to answer the cut on R&D by Dr Wang Kai Yuen and Mr Zainul Abidin. Again, this is an area connected to what I have just discussed about technology entrepreneurship, which is key. The problem is we can easily measure inputs. But how do we measure outputs? Mr Zainul Abidin was concerned that our inputs were not sufficient. Dr Wang Kai Yuen was concerned that we were not measuring outputs carefully enough and therefore we might be wasting money.

This is a difficult area. We know that to remain competitive, we must continually upgrade our technology base through the promotion of industry-relevant R&D and innovation. And the Government's general approach to R&D is encompassed in the National Science and Technology Plan, NSTB 2000. I do not think it is our objective to nurture rocket scientists in Singapore or astrophysicists. But at the same time, on the spectrum of the manufacturing process, from assembly all the way to pure research, instinctively we know that we must move rightwards if we are going to keep up in this knowledge game. We want to invest long term in projects whose outcomes are uncertain but whose results are not so far into the distant future that they are immeasurable even after a long period of time. That is the dilemma which we face.

On the whole, NSTB 2000 is progressing quite well. Gross expenditure in R&D as a percentage of GDP, that is the input number, reached 1.35% in 1996. In 1990, it was only 0.84% and our aim is to raise it to 1.6% by the year 2000. More importantly, the private sector share of gross expenditure on R&D has risen from 54% in 1990 to 63% in 1996, against our target of 65% by the year 2000. The private sector companies have got to answer to stockholders. They have quarterly reports, annual reports, so they are much more careful. This statistic, the fact of their share of a growing pool of R&D funds in Singapore, shows that we are doing quite well. About 79% of the estimated $6.5 billion in sales revenue attributed to R&D performed in Singapore, about 79% of this revenue, was from commercialized products and processes launched within the preceding two years.

[Mr Deputy Speaker in the Chair]

5.00 pm

The Second Minister for Trade and Industry (BG George Yong-Boon Yeo): Another index of success is number of patents. The number of patents filed by Singapore companies and individuals has increased from 142 in 1993 to 316 in 1996, an average annual growth rate of 31%. This is not bad. The number of patents granted as a result of R&D work carried out in Singapore has also risen from 20 in 1992 to 91 in 1996.

Our research institutes and centres, which form part of the knowledge infrastructure that supports industry, have also been doing well. To date, they have participated in 1,000 joint projects with industry, developed 150 new products and processes and signed 76 licensing agreements for technology development. And some of them have gained a certain international reputation. Although there may be instances of specific R&D projects not doing well, this is to be expected. If all projects are successes, it means that we are not taking enough risks. Nevertheless, I fully agree with Dr Wang Kai Yuen that we should conduct regular reviews critically to monitor the effectiveness of our investment in R&D.

Singapore's policy on international and regional R&D collaboration is to focus on areas which will help to build a strong base of technological capabilities in Singapore. We have been very active. We have bilateral activities with 15 countries including China, India, Israel, Germany, Canada, the US, Japan and the Netherlands. Activities cover projects in areas such as biotech, advanced materials, IT, environmental technology and advanced manufacturing systems. Technology brokerage events are also co-organised with overseas partners to establish and build on networks and linkages that will maximize market access opportunities for Singapore-based companies.

Two days ago, I opened a new facility in Singapore set up by Genset from France. They are a very interesting company. For some time now, there has been a French team consisting of very brilliant scientists whose objective is to completely map the human genome, which means to map the entire DNA coding of human beings. With computers, it can be done and it is being done. This company sees enormous possibilities in health care therapies, in drugs, in solving many of the medical problems which are genetic in nature. It is a small facility. And what they produce at the end of the day, in a test tube, is a little drop of electrolyte, a single strand of DNA artificially synthesised from the four amino acids. This is a new game. What biotech means here is the creation of life. If you put this strand of DNA into the primordial soup, it replicates itself. Of course, this would eventually pose enormous moral problems for human beings, but the genie is already out of the bottle. Either we get into this game ourselves or others will get into it and we will be left behind.

These are some of the areas which NSTB is trying very hard to promote. The CEO of Genset told me that he had full confidence in Singapore. He did not even visit our facility before he decided to plonk it there. And when he came to see it for himself, it was beyond his expectations. In other words, we have a certain reputation in the world. We should safeguard it and build upon it, multiply our networks and get into this game. Because it is this game which will maintain a high standard of living for Singaporeans, young and old, in the next century.

We are also active in the multi-lateral arena including the ASEAN Committee for Science and Technology, the Asia-Pacific Economic Cooperation Forum, the Association for Scientific Cooperation in Asia and the Asia-Europe Meeting. What we have to do in the end, like for high-tech entrepreneurship, is to create an environment in Singapore which attracts talented people from all over the world to come here. If we have to depend upon local talent to staff all our laboratories in Singapore, we must surely fail. If you visit any of our research institutes, a very high proportion of the scientists and engineers there are non-Singaporeans. What we have to do is to create reputation, create a total working environment, which makes it attractive for them to come here. And as part of this move, we are master planning a Science Habitat in the vicinity of the Science Park and the universities in the Ayer Rajah area, an ambience with watering holes which brain workers will find attractive, and well served by schools, public transportation and other facilities.

Silicon Valley is, of course, much bigger than the whole of Singapore. It is sprawling. It has got highways and connected by cars. But there are not all that many watering holes in Silicon Valley. In Silicon Valley, there is a feeling of a small community. If you are a person who matters, everyone knows you and you are recognised, even by the waiter. What we need to do in Singapore is to create one aspect of us which is like that, where there are watering holes, where people will retire in the evening for a drink, just to talk, to meet. We can have electronic mail, but there is nothing to substitute for a handshake and a chat over a glass of beer. And this is part of the human aspects of a scientific community, which we must try to create in Singapore.

Finally, Dr Tan Boon Wan and Dr Toh See Kiat spoke on electronic commerce. All of us know that with the growth of the Internet, electronic commerce will explode in the coming years. For it to realise its full potential, there must be money. Cyberspace will not be sustained by window shoppers, by Net surfers. In the end, cyberspace will only be sustained by electronic commerce, by people investing in it and making money out of it.

In order for cyberspace to develop like that, we need contracts. We need protection of property. We need the enforcement of contracts. We need arbitration. In other words, we need the whole panoply of facilities which are to be found in the real world and they must be replicated in cyberspace. Right now, it is a Wild West, anything goes. But eventually, like the Wild West, it will be settled. I do not think for a long time to come, we are going to find a world government in cyberspace. But jurisdictions will eventually creep in. Banks, credit card companies, bookshops, haberdashers, they will all jump into cyberspace. Today, many of us are familiar with amazon.com. It is a very easy way to order books, quite cheap, very generous return policy. It is very convenient, the largest bookshop in the world. Or you can buy your shirts from Lands End. If you are not happy with it, you can return it to a post office in Singapore. This will grow. But in order for it to grow, you need, like in the real world, trust networks, which means a way by which transactions are secured, that someone else will not see your credit card number. And that you are whom you claim you are. Therefore, identification is important. We need electronic signatures. We need public keys, private keys. Then in the event of disputes, whose jurisdiction? And, of course, we have to keep the taxes light, because trade goes to where the taxes are lightest.

So our approach towards electronic commerce is a total one, not just to create the bandwidth. Bandwidth is the least of the problems. But if we can create many trust networks in Singapore, with good arbitrators, with good jurisdictions, then electronic commerce will flourish around us. And we will find eventually in cyberspace, cyber hubs which are electronic cities, each a collection of trust networks, where if I want to buy a lottery ticket or I want to make a contract, I say, "OK, I choose this jurisdiction." I may have to pay, because it is worth paying for good government.

So what are we trying to do in Singapore? We are doing many things. We are providing infrastructural services such as on-line secure payment with credit cards and the setting up of Net Trust which issues digital certificates for electronic identification.

Last year, for the first time in the world, the first secured electronic transaction was carried out in Singapore by Visa. It is still a little cumbersome, a little complicated, but as these things get debugged, as people get used to it, more and more companies will do a part of their business in cyberspace, and we must position ourselves for it. We are promoting it. The agency that is pushing this is NCB. We have a National Information Technology Committee chaired by Admiral Teo Chee Hean. The adviser is DPM BG Lee. And agencies representing all Ministries are on it, because there are many aspects to consider.

We have this thing called the Electronic Commerce Hotbed, which is to try and encourage those in the private sector to make use of electronic commerce. Of course, Government agencies are also jumping in. We are using these Government agencies to spearhead the effort and to get people used to it. Of course, information technology is changing so fast that it is hard for us to catch up. Every 10 years, there is a generational gap. We must accept this. Young people will swim in this new environment. Old people will be frightened off. But even if our grandparents are not comfortable in this technology, they should at least have enough knowledge and enough wisdom to want their grandchildren to be familiar with it. And so we now find in Singapore many old people who instinctively know that it is very important for their young charges to be taught the computer. And, as you know, whether it is schools, whether it is the financial sector, whether it is Singapore One, whether it is marketing ourselves to Bill Gates or to Netscape or whatever, we are positioning ourselves in Singapore for the electronic age. And we are also providing a conducive legal and policy framework to facilitate electronic commerce. We are preparing a new Electronic Transactions Bill which will be tabled in this House to include things like what is a public key. What does it mean to be legally identified in electronic transactions? What are electronic notaries? Many of these things have got to be defined in clearer detail because the present laws do not quite cover the new technology. 5.15 pm

We also need to legislate to prevent computer misuse, to protect privacy and to protect intellectual property. The key is that people must trust the system in Singapore. If they trust the system in Singapore, if they are confident that their properties will be protected, that there is a way to resolve disputes, a way to collect monies, a way to enforce, then we will flourish. As part of this, we are funding R&D, conducting market surveys, and developing our local capabilities. We have schemes in place, which local companies, including SMEs can tap for their ventures. Funding for consultancy, equipment, manpower and training is available under the Cluster Development Fund and the Innovations Development Scheme administered by NCB. Funding for R&D is available as well under schemes managed by the National Science and Technology Board.

But we should go beyond the specialists. We must bring in members of the public. NCB has been working with other Government agencies and industry players to raise public awareness and acceptance of e-commerce. For example, together with the Singapore Tourism Board, they organised a "Shop on the Net" event in July 1997, the first electronic sales in Singapore. E-commerce promotion is also being carried out through Singapore One clubs at various community centres and through regular road shows held in shopping malls. In addition, broad based e-commerce training and awareness programmes are being carried out for companies.

The approved cyber trading scheme is part of this total effort to position Singapore as a hub for e-commerce. I do not think that cyberspace will be completely tax free, which is what the Americans want. I do not think it will be completely tax free because services are being provided and these services have to be paid for. In the end, what we will see in cyberspace will be competing jurisdictions, each levying fees or taxes at levels which have to compete with each other, according to the level of services they provide. Our job is to tax lightly and the approved cyber trading scheme is precisely to ensure that normal taxation rates do not apply for certain categories.

We are also working with other agencies in the world, like electronic commerce committees in the OECD, the European Community, the US and the World Intellectual Properties Organisation (WIPO). It is a complex field. It is evolving so fast that it is very hard to keep up.

Dr Toh See Kiat asked why do we not create a Ministry for Cyberspace or a Cyber Ministry. It is not so simple because, if we think about it, IT will pervade every aspect of our life in Singapore. Every entity which exists in the real world must eventually find a reflection in cyberspace. You do not need one Ministry in cyberspace. You need every Ministry to be represented, which is why Dr Toh's proposal is not realistic. What we are trying to do is to encourage every Ministry to anticipate the new technology and to help promote it, and all agencies and all Ministries. Many of them already allow and encourage members of the public who need to apply for permits or whatever to deal electronically through the PC.

Mr Choo Wee Khiang: Sir, I have to bring myself back to SESDAQ. Earlier on, the Minister mentioned about SESDAQ. I just want to know what is the role of MTI in promoting SESDAQ and how many companies has it helped to push them on to SESDAQ. Can he give us an assessment about our SESDAQ because it has been around for quite a number of years and how successful have we been?

BG George Yong-Boon Yeo: The idea of the second board is to enable companies which need high-risk funds to raise them. This means that, on the second board, the criteria are less stringent than on the main board. This was the way NASDAQ in the US was conceived. We started it in Singapore. The rules and the environment may be somewhat too rigid. So SESDAQ has had some success, but we need to do much more to make it an avenue for high tech-firms to raise funds through SESDAQ. It is, of course regulated by MAS. MTI is only interested to the extent that we are trying to promote high-tech companies in Singapore and to help them raise higher risk funds more readily here.

Mr Choo Wee Khiang: How successful have we been in promoting fund raising and supporting such high-tech and high-risk companies in the SESDAQ market? Do you have any figures to substantiate?

BG George Yong-Boon Yeo: No, I do not have the numbers here.

Mr Choo Wee Khiang: May I know from the Minister what are the roles that he has in mind in promoting SESDAQ and promoting companies with high-tech and high-risk?

BG George Yong-Boon Yeo: I thought I have discussed this in some detail in connection with high tech enterpreneurship in Singapore, which has got to be financed, and that the characteristic of this market is different from that of the normal market. We need specialists, different laws and regulations governing bankruptcies and disclosures, in order to facilitate this particular sector. Investing in high-tech is quite different from investing in, say, a sector like real estate. Our traditional skills are in the traditional areas. This is a new area for us and we have got to tweak our rules and regulations to nurture its growth.

Mr Choo Wee Khiang: Sir, I just want to know whether we are ready for it. Is the SESDAQ ready for such high-tech and high-risk ventures?

BG George Yong-Boon Yeo: Sir, I thought I have already said that SESDAQ had some success but we need to do much more to make it more successful. Even then, we are not sure how successful it can be because, as in the Israeli example, they do not even try to create their own second board. They just make use of NASDAQ. But then, again, they have very strong Jewish connections in New York city, which we do not have.

Mr Choo Wee Khiang: Sir, I do understand what the Minister said that we are successful to a certain extent. But I just want to know whether MTI has anything in mind to promote such companies in future. Does he have anything concrete?

The Chairman: I think we will ask Mr Inderjit Singh to ask his question first, before the Minister replies.

Mr Inderjit Singh: I am glad to hear that there is some review that is going to take place on the SESDAQ rules. I hope that with this review, this will encourage more successes and more high-tech companies to be set up here and to be listed. I would like to ask Minister, while we are reviewing the SESDAQ rules, can we also look at the possibility of allowing shares to be traded in a kind of grey market. This exists in some countries where the moment the company is registered, you actually allow shares to be traded in a grey market. In fact, the values of the shares are listed in the newspapers. It is perfectly above board for shares to be traded. So there is a kind of a grey market even before you go to the SESDAQ level.

BG George Yong-Boon Yeo: I am not quite sure what Mr Singh means. It does not sound quite legitimate. If Mr Singh has a specific proposal, I would forward it to the Committee which is now reviewing the rules of SESDAQ.

Mr Zainul Abidin Rasheed: Sir, by way of clarification, can I ask the Minister whether he has any response to this problem which I raised earlier about the hardware, meaning psychological barriers which people may have in turning to IT? So before we come to the cyber age, what more does he plan to do and does he see the role of the grassroots organisations towards overcoming this initial block by many people in Singapore?

BG George Yong-Boon Yeo: The most important thing is to get our students on to it. All of us know that we are starting our kids on computers even from kindergarten, from K1. There is a big project by the Education Ministry to provide one computer for every two school students. But there is also the problem of training the teachers and of getting parents and grandparents to be familiar so that they can guide their charges along. We are trying to do different things in a fun way so that this psychological barrier can be broken. It is not easy. Till today, there are still not an inconsiderable number of Singaporeans who fear the ATM. We should try, but it is also in the nature of human beings to be conservative. But we must make sure that those who are young and do not have this psychological barrier are fully raised in this milieu.

Dr Toh See Kiat: Sir, the Minister has said in this House that the ECH Committee has made some recommendations. I think in an earlier reply to Dr Lee's question, there were some sketches of what the ECH Committee has recommended. What I had asked for was whether the Ministry would be willing to consider publishing the full report so that the investors and members of the public can understand where they can position themselves if they want to innovate in this area.

BG George Yong-Boon Yeo: The NCB and the Committee of the NITC are in constant contact with players in the industry. So they are aware. From time to time, information will be disclosed to members of the public. We have got to promote what we are doing, not just locally, but also internationally. The NITC has a programme to market Singapore's IT efforts in a big way later this year or next year.

The Chairman: One more question. I think we should spread the excess time to other Ministries.

Dr Toh See Kiat: Just to follow up on the Minister's point on consortia that have been formed. The Minister says that the funding from the Ministry does go to the consortia. But the consortia that he mentioned are largely NUS, NTU, government-led and initiated. I did ask the Minister in my speech whether the Ministry would fund a private consortium if such a need do arise.

BG George Yong-Boon Yeo: I think we would, if we are in agreement with the objectives and we are confident that its output will be worthwhile.

The Senior Parliamentary Secretary to the Minister for Trade and Industry (Mr Tang Guan Seng): Sir, on behalf of my Minister, I will respond to the points made by other Members, including the point made by Mr Zainul Abidin, which I will reply in greater detail.

I will first address the point made by Dr Toh See Kiat. He requested that the Government introduce a Fair Trading Act to protect the interests of the consumers. He also mentioned of cases where companies resorted to scare and cheating tactics. First of all, I would like to thank the Member for bringing up these cases because this is the best way to educate the consumers. Before I go into it further, I would like to explain the basic approach of the Government on consumer protection, ie, our approach has always been market-based with minimal government regulation. I think we should let the consumer decide what product they want to buy. The Government will only intervene where there are safety, health or moral issues or where there is a market failure.

Dr Toh mentioned about newspaper advertisements which were misleading to the consumers. We did look into this problem but we feel that it is practically quite difficult to address this issue. Basically, it is not easy to prove which advertisement is misleading or false and also the advertiser can prove it by bringing up only one case. So it is not easy for the Government to pass legislation to ban this type of advertisement. But if Dr Toh has suggestions to make, we would be very pleased to consider them. 5.30 pm

As a consumer watchdog, the Consumers Association of Singapore (CASE) can help safeguard the interests of consumers by educating them. The Government is of the view that most of the provisions in the New Zealand Fair Trading Act have equivalent provisions in our Consumer Protection Act. That is why the Government feels that there is no need to introduce a Fair Trading Act in Singapore. But I am happy to learn that CASE is preparing a proposal which will be submitted to the Ministry in a few months' time. We will look into this seriously.

Dr Toh and Mr Goh Choon Kang mentioned about cases involving soft commodity traders cheating the members of the public. I would like to inform the Members that the Government is aware of such cases. A Committee, in fact, was formed last year to look into this problem. But, currently, rubber and coffee are the only commodities regulated under the Commodities Futures Act and Regulations. The Government is now studying whether it is also possible to extend the Act to cover the other commodities. However, no regulatory system can guarantee returns for investors in the futures market, nor can regulations protect investors from making losses. Investors must therefore be discerning in responding to advertising claims and should stay away from dubious investment schemes which promise unrealistically high returns.

Dr Toh has also talked about the problem of the millennium bug. He would like to know whether the private sector is ready to cope with this problem. I would like to take this opportunity to inform the Member that the National Computer Board launched a Year 2000 Conversion Campaign in November 1996 to raise awareness of the problem and to drive conversion of the Government's systems. The Government has targeted to complete conversion of all affected IT systems by the end of this year. Ministries, departments and statutory boards have completed detailed impact analysis and have begun to convert their systems. The public sector conversion programme is on schedule and all agencies are expected to meet the end of this year target. Testing and fine-tuning can then be carried out next year.

As for the private sector, NCB has also implemented a number of initiatives to increase the awareness of the private sector and the general public. NCB has supported and participated in talks conducted for various industrial sectors. It has set up a Year 2000 Website. These provide useful avenues to discuss the issues, to share experiences and to seek help.

I would like to emphasise that it is in the interest of the companies to tackle the Year 2000 issue seriously. There are a number of well qualified IT firms in Singapore which are able to provide solutions to this problem. For small and medium-sized enterprises that face difficulties, they can approach NCB for financial assistance under the Local Enterprise Computerisation Programme. SMEs can seek assistance to help defray part of the cost of consultancy services.

Dr Toh has also asked about what happens to the financial sector. For the financial sector, the Monetary Authority of Singapore (MAS) issued circulars in May 1997 and October 1997 to all banks and financial institutions outlining measures they should take to address the Year 2000 problem. All banks and financial institutions are required to complete their Year 2000 conversion and testing processes by the end of this year. This is to allow sufficient time for any rectification required. MAS is presently conducting a survey to assess the status of financial institutions' preparedness for the Year 2000 problem. Our local institutions are on track in their preparations. Most of the larger foreign financial institutions have established global programmes to tackle the problem. MAS will liaise with financial institutions that have difficulties in tackling the problem.

Just now Mr Zainul Abidin brought up the issue of promoting IT culture at the grassroots level. I would like to give some more details.

Sir, one major thrust in IT2000 Plan is to promote an IT culture amongst our people so that Singapore will become one of the most IT-literate countries in the world. To achieve this objective, NCB has adopted a two-pronged approach of creating IT awareness and increasing IT's usage among Singaporeans. NCB's efforts since 1995 have met with much success. There are a number of initiatives which are launched by NCB. Let me cite a few examples here: (1) 13 computer road shows have been held; (2) A four-part infortainment programme was televised in 1996, and, in fact, for this year, there will be another series of IT TV programmes over Channel 5 and Channel 8. Another programme launched by NCB is to set up computer playgrounds. So far, six computer playgrounds have been set up that reach out to children. For the members of the public, now they can even go to community centres and community clubs to have access to computers. Of course, this is only under a pilot project. There are only two CCs involved. If this is proven to be successful, it can be implemented in other CCs.

In the coming months, more programmes will be put in place to reach out to more people. These include a permanent IT exhibition to be staged at the Singapore Science Centre from May this year. It will be a fun and interactive exhibition that will showcase the benefits of IT in all aspects of our lives - at work, in school, at home and in our recreation pursuits.

Another programme is a travelling IT coach. This is in partnership with NTUC and industrial partners. And this is to promote IT literacy training and skills upgrading to workers in the factories. NCB also will be setting up more Singapore One clubs in community centres and selected libraries. And NCB will be holding more IT awareness seminars for members of the public, together with the People's Association.

On the questions raised by Mrs Lim Hwee Hua and Mr Rai on the promotion of the tourism industry, Sir, although we had 7.2 million visitors last year, it was a dip of 1.3% compared to 1996. With the continued weakness in the regional economy and the likely return of the haze, the Singapore Tourism Board expects a further drop in tourist arrivals this year by about 10%. Mrs Lim also raised the haze problems which will be affecting the arrival of tourists. The Ministry of the Environment is working closely with regional counterparts to minimise the problem or to prevent a repeat of the haze situation last year. I think the Minister for the Environment will be elaborating on these measures.

Sir, the expected drop in tourist arrivals will reduce STB's projected cess revenue for this year, and consequently its resources available for tourist promotion. However, in view of the need to maintain Singapore's presence in key tourist markets and to compete effectively against regional destinations, STB will sustain the previous level of marketing effort.

Sir, there is a need to rationalise our promotional efforts and focus on markets which show greater potential for growth. STB has made a strategic shift to intensify its marketing efforts in markets like the US, Europe, Australia, Taiwan, India and China. However, STB will remain engaged in markets that are expected to under-perform as a result of the regional financial crisis, so that we are in a position to attract travellers from these countries when they recover from the economic difficulties.

To achieve better results, STB will work closely with industrial players. It will continue to promote key tourism events like the Great Singapore Sale, Singapore Food Festival, etc. In addition, STB will leverage on our rich cultural heritage to attract visitors to Singapore. For instance, STB has packaged various year-end festivals into a three-month long programme called Celebration Singapore. This programme will feature various ethnic festival light-ups as well as the popular Chingay procession.

As part of the Tourism 21 blueprint, STB will also develop the culturally and historically rich areas around Chinatown, into a themed tourism product. Within this thematic zone, various cultural activities, like Chinese opera, will be staged. I can assure the Members that STB will continue to monitor developments in the regional market and will come in with additional measures to assist the industry, if necessary.

Sir, Mr Leong Horn Kee is concerned about the performance of the retail industry. The problems faced by the retail sector stems from both structural and cyclical factors. These include keen competition for the consumer dollars, slower visitor arrivals and spending by Singaporeans in regional economies as a result of the relatively stronger Singapore dollar. Private consumption expenditure may also be affected this year as Singaporeans tighten their belts, following more moderate growth.

The Government has put in place several assistance measures to overcome the retail sector's cyclical and structural difficulties.

Firstly, to help retailers affected by the drop in regional tourists, STB is intensifying its efforts in markets which are relatively unaffected, such as I mentioned just now ---

The Chairman: Order. I think we might run the risk of getting out of time again. So can you try to condense your reply?

Mr Tang Guan Seng: All right. The markets which are relatively unaffected are USA, Europe, Australia, Taiwan and China. And SIA and STB, in fact, will jointly promote these markets, especially in Europe and US.

Secondly, in view of the anticipated softer demand, the Government has, in fact, substantially moderated the supply of commercial space under this year's Government land sales. Thirdly, the Government is pursuing various programmes to raise overall structural competitiveness of retailers by enhancing retail infrastructure, assisting in the upgrading of operations and facilitating staff training. For the more domestically oriented retail sector, the Government has several assistance schemes. I will cite a few examples, like encouraging retailers to join franchises or form economic groupings and to use information technology to help small shops improve shop management through the ShopNet and BookNet schemes. 5.45 pm

As for the recently announced property tax rebate, the Minister for Finance had already mentioned in his Budget speech that HDB, JTC and other Government agencies owning properties will pass on most of the property tax rebate to their tenants and we also want to encourage the private sector to do likewise.

Mr Leong Horn Kee: It has been a long day for MTI. I just want to thank the two Ministers and also the Senior Parliamentary Secretary for their very detailed and deliberate answers, especially from Minister George Yeo for his very expansive discourse on cyberspace and IT technology. If we ever form the Ministry of IT or Cyberspace, I think you will know who will be the best choice as Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman: Amendment No. (2), Mr Rai.

Mr Shriniwas Rai: Sir, in view of the fact that other Members have spoken on the matter, I do not think I want to speak.

The Chairman: Amendment No. (3), Dr Toh See Kiat.

Dr Toh See Kiat: Sir, I beg to move,

That the sum to be allocated for Head W of the Development Estimates be reduced by $10 in respect of Code WK 5200.

Sir, just a quick point on the approved cybertrader scheme. The scheme presently gives tax incentives to international players that do offshore trade. I believe that this scheme is good but I think we could do more, for example, to help local companies, especially start-up companies, to do e-commerce so that Singapore can become an e-commerce hub. This is important because from the Silicon Valley experience which General Yeo has mentioned, we see that a lot of brave young men and women, some might say brash young men and women, are the ones that start these companies. But they do not have the money. I think we can do more for them in terms of tax incentives too. That is what I want to say.

With your indulgence, Sir, since we do have time, can I go back to my earlier topic?

The Chairman: No.

BG George Yong-Boon Yeo: Sir, I do not think we should confuse our objectives. The purpose of the approved cybertrading scheme is to encourage international operators to hub in Singapore. Dr Toh is asking for schemes to help local high-tech entrepreneurs. I think specific problems there should be addressed specifically, and not use what is intended for different purposes to meet this particular purpose.

Dr Toh See Kiat: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The sum of $330,008,110 for Head W ordered to stand part of the Main Estimates.

The sum of $3,400,650,000 for Head W ordered to stand part of the Development Estimates.

Head O -

The Chairman: Head O - Ministry of Foreign Affairs. Dr Ong.

Dr Ong Chit Chung (Bukit Timah): Sir, I beg to move,

That the total sum to be allocated for Head O of the Main Estimates be reduced by $100.

Sir, in just over a year, we will be in the 21st century. That does not make us centenarians of course, but at least we can say we cross the century line, and will soon witness the dawn of a new era. But if the past year is anything to go by, there is not much to look forward to by the series of bad news and more bad news. No one has foreseen that in the last lap of this century, it will be such a tortuous one with currency turmoil and unprecedented economic downturn for the region. South Korea, Thailand, Malaysia and Indonesia, amongst others, are much affected by the economic downturn. And so are we. It is a new and indeed unfamiliar phenomenon which all in the region are trying to fathom and cope.

Sir, this economic downturn is bound to alter the power configuration and rewrite the strategic equation in the region. It will not be incremental changes, but fundamental shifts in paradigm, realignment and relationship. In the midst of these shifts, I would like to ask the Minister for his reading of the situation, and how a small country like Singapore can position itself overcome the odds and survive and prosper.

What may I ask are the roles of the United States, the People's Republic of China and Japan in this new scenario? Will the Americans retain their strategic and economic interests in the region? I hope they will. I would like to ask the Minister whether we will continue to offer the Americans access to our naval facilities in Singapore. Will the Japanese expand their economic role? What impact will the PRC have on this region?

I also like to ask the Minister what positive role can Singapore play in this region. How can we contribute to regional stability, and what will be the role of ASEAN in the midst of these changes, especially in the ASEAN Regional Forum?

Mr Zainul Abidin Rasheed: Sir, Singapore has for a long time preferred quiet diplomacy, sensitive to its size and other countries' sensitivities, particularly, our ASEAN neighbours. But we know that in our own quiet ways, Singapore's Foreign Ministry has done much and achieved a lot relative to its size. However, in areas where we need to be vocal, for example, on Indochina in the 1970s, the question of strategic balance of power and the interest of small states, we have made our presence felt.

Our diplomats have done Singapore proud. Prof. Tommy Koh is one outstanding example. Earlier this week, we read about Australia complimenting our Prime Minister, Mr Goh Chok Tong, for his role to alleviate the problems brought about by the regional currency and economic turmoil. We also read about how and why the American President and other international financial agencies sought the views and advice of our Singapore leaders on the same issue.

While I agree that the full ramifications of the economic turmoil are yet to unfold, let us not underestimate the role Singapore can play and the favourable position in which we can take advantage of to play a constructive role. We must, however, continue to be sensitive as not to be misunderstood as exploiting their plight and hardship. But within those boundaries of sensitivity, we should look for those opportunities to play that constructive role that is mutually beneficial. In the process, we should also strengthen our base and position, vis-a-vis our trading and business partners.

The offer of the $5 billion credit backing to Indonesia is one example of an initiative that has gained us enhanced goodwill. Although the proposal is now on hold, it was a gesture which was well-appreciated and considered timely. Singapore's strong reserves and potential as an investor will be looked upon as a source for help. The MFA therefore can help identify more such opportunities to enhance Singapore's active foreign policy through economic imperatives. The Malaysian Minister for Trade and Industry will be in Singapore on Monday to woo our investors. I expect similar missions and efforts from other countries in the region to do likewise.

I see tremendous potential for Singapore to exercise diplomacy and enhance foreign relations through our economic strength and I hope MFA will continue to take advantage of such opportunities. After all, Sir, our economic muscle can be put to bear as an equalising balm for enhanced international and regional relations.

The Chairman: Dr Wang is not here. Mr Ravindran.

Mr Ravindran: I am not speaking, Sir.

The Chairman: Dr Ong.

Dr Ong Chit Chung: Sir, last year was a non-vintage year, if I may say so, in Singapore-Malaysia relations. It was indeed a difficult passage and a very rough patch in our relationship.

This year we are off to a better start. Leaders and officials of both countries have met on a number of occasions. I sincerely hope that this good trend will generate goodwill and it will yield good dividends. But it is yet too early to tell whether it will be a good year. Nevertheless, we hope for the best and wish that both countries will enjoy prosperity together as good neighbours in a win-win situation.

We are glad that the Prime Ministers of Malaysia and Singapore met in Kuala Lumpur on 16th February of this year and a joint communique was issued. This communique covered, amongst others, economic cooperation, the Malayan Railway land in Singapore and Pedra Branca. Most significant of all, Malaysia agreed to continue the supply of water to Singapore beyond the expiry of the 1961 Agreement in the year 2011 and the 1962 Agreement in the year 2061 as well as the 1990 Agreement connected with it, on terms and conditions to be mutually agreed between the two governments. This understanding is to be confirmed in an agreement within 60 days.

I would therefore like to ask the Minister to give us an update of Singapore-Malaysia relationship and also to comment on the prospect for the future.

Mr Sin Boon Ann: Sir, in the Budget debate last year, much attention was paid to Singapore-Malaysia relations. If Members will recall, that was a very difficult and trying period in our relations with the Malaysians. However, leaders of the two countries recognise that Singapore and Malaysia have their destinies closely intertwined. At the end of the day, we recognise that in the final analysis, the future well-being of the two countries is to a large extent dependent on each other.

One year has since passed and much has taken place. Events in recent months have affected both countries although not by the same extent. Invariably, we recognise that closer cooperation between Singapore and Malaysia need not always be a win-lose situation. But in many cases, we only win one. I am happy to note that over last year, relations between Singapore and Malaysia have improved substantially. The Prime Ministers of both countries have met and in a joint communique announced that they are looking at possibilities of closer business cooperation. And I am also happy to note that the Malaysians have assured us that they will not cut our water supply at the end of the present term of the Agreements.

Sir, I would like to ask the Minister to give this House an update of the bilateral ties between Singapore and Malaysia.

The Chairman: Dr Wang is not here. Mr Chiam.

Mr Chiam See Tong: Sir, despite the fact that there is an announcement that the new water agreement will be signed between Singapore and Malaysia in 60 days' time, I still believe that the bottom line in the relationship between Singapore and Malaysia is water.

6.00 pm

Malaysia has the water, we do not. I believe the main object of Singapore-Malaysia relationship is to obtain water supply for Singapore on a permanent basis. It is true that we can get our water supply from other sources such as from Indonesia and from desalination plants. But there are hazards and the cost is much higher to get water from Indonesia and from the desalination plants. I believe the best way to ensure the continuous flow of water from Malaysia to Singapore is to have a very close relationship with Malaysia. I believe the closest relationship we can have with Malaysia is to form an economic union with Malaysia. This is not a new idea. Singapore formed a political union, which included an economic union, with Malaysia in 1963, but it failed. An economic union is not a political union. In a political union, Singapore has to give up its sovereignty. But in an economic union, our sovereignty is still intact.

I am not proposing an economic union so that Singapore can get richer. If we have this intention in mind, I do not think that the Malaysians would want to have such a union. The economic union must be for the mutual benefit of both countries. Eventually, we hope that Malaysia can be as rich as us, so that the element of envy, now harboured by many Malaysians, can be removed once and for all. I believe only then that Singapore can ensure of a permanent supply of water without paying too high a price for it.

Mr Hawazi Daipi (Sembawang): Sir, when we met in this House for the budget debate in July last year, we debated the relations between Singapore and Malaysia. Both countries were still smarting from a few months of bad patch in our bilateral relations. It has since improved. Since the end of last year, Prime Minister Goh Chok Tong has met his Malaysian counterpart, Dr Mahathir Mohamed, four times. There have been meetings among Ministers and officials, military exercises and games among government officials.

Recently, the second link between Singapore and Johor was opened. It was opened to traffic not long after we faced problems, and probably the longest period of traffic jam problem on the Causeway at the end of last year, arising from the implementation of a new Malaysian customs check on lorries. I hope we can truly put such a problem behind us and will not let it recur because any hiccup in bilateral relations such as the one manifested by the Causeway jam, it is the people, the businessmen and the ordinary citizens who are affected.

Sir, we have been saying that we would like to see a long-term relationship with Malaysia that is based on mutual respect, mutual benefit and reciprocity. We have to hope for the best and work towards it. Although, realistically, being close neighbours, problems may emerge from time to time. Both sides must continue to work hard to strengthen our bilateral relations, and grab every opportunity to strengthen our close bilateral ties while pursuing our respective national interests.

It is interesting to note the remark made by a Malaysian Deputy Minister that the regional economic turmoil has brought both countries closer together. Like Mr Sin Boon Ann, I would like to ask the Minister to update Members on the progress that has been made in our bilateral ties with Malaysia, in particular, how are we cooperating with Malaysia to jointly tackle problems arising from the current regional financial and economic crisis.

Dr Ong Chit Chung: Sir, Singapore-Indonesia relations have been close and warm ever since President Suharto came into office. We all know that President Suharto is indeed a friend of Singapore. Indonesia has played a pivotal role in ASEAN and President Suharto has a moderating and positive influence on the region.

Sir, at the moment, Indonesia is beset with economic problems and subject to wide currency fluctuations. Singapore has been quick in responding to Indonesia's needs with financial packages and wishing all the best for Indonesia. We know that whatever happens to Indonesia, it will have an impact on us in Singapore. We want a successful and prosperous Indonesia with a prosper-thy-neighbour approach, with Indonesia and Singapore working closely within ASEAN, to bring about stability and prosperity in our own region. I would therefore like to ask the Minister for his reading of the situation in Indonesia and the region, and how best we can help Indonesia to overcome these problems. And how all these will have an impact on the bilateral relationship between Singapore and Indonesia and also on the region.

Mr Sin Boon Ann: Sir, the recent financial crisis has taught a number of lessons. In an increasingly interdependent world, what affects our neighbours may have an impact on us. Singaporeans must realise this. We should not just confine ourselves to the well-being of our country without, at the same time, being concerned for what is happening in the other countries in the region. Because the countries in the region are so closely tied together, we must recognise that regional well-being is as important as national welfare.

In a region that is caught up with the turmoil of events, investors' confidence would, to some extent, be affected. This lack of confidence may at some point of time affect us locally. Unless we do our part to restore regional confidence, we are not essentially helping ourselves because regional confidence is closely linked to our economic well-being as well.

Indonesia's problems must be resolved by Indonesians themselves. However, we must understand that the impact of their sovereign decisions would be largely felt by all in the region, not just financially and economically but socially as well. We can only hope that in the name of national resilience, the Indonesians will work quickly towards strengthening their internal unity and solving their problems. We must recognise that at this moment in time, there is a need for regional solidarity within ASEAN. As a small country, we must do our part in helping our neighbours as much as we can. We certainly hope that confidence can return soon to Indonesia and to this region after the election and once reforms have been implemented according to plans.

There is truly an urgency for Indonesians to reunite and to get back to work to put their economy together, so as to boost internal and external confidence for recovery. I have every confidence that the Indonesian people will overcome this difficulty and forge ahead.

Sir, I would like to ask the Minister whether the Government is contemplating further measures to help the Indonesians at this moment.

The Minister for Foreign Affairs (Prof. S. Jayakumar): Sir, may I suggest that we allow the other Members to speak on their amendments.

The Chairman: All right. Dr Ong.

Dr Ong Chit Chung: Sir, last year, Cambodia almost became a part of ASEAN, but it was not to be. By a twist of fate, Cambodia's membership in ASEAN was held back. Much has happened since then in Cambodia. I would like to ask the Minister whether the situation in Cambodia has stabilised, and whether ASEAN will review and consider Cambodia for admission into ASEAN. And whether Singapore businessmen have a significant presence in Cambodia, and how such presence can be nurtured and promoted for mutual benefit.

Sir, can I go on to my next topic?

The Chairman: Yes.

Dr Ong Chit Chung: Thank you, Sir.

In the post-World War II era, we often talk about US-Europe and US-Asia Pacific relationships but, surprisingly, less of the Asia-Europe relationship, though many countries in the region have strong ties with their former colonial masters in Europe. This missing link or gap was closed with the inauguration of the Asia- Europe Meeting (ASEM) in Bangkok in March 1996. This ASEM was very much a Singapore initiative with our Prime Minister, Mr Goh Chok Tong, as the driving force behind it. Since then, ASEM has sprouted forth a host of other entities, like the Asia-Europe Business Forum, Asia-Europe Business Conference and the most promising of all, the Asia-Europe Foundation. I would like to ask the Minister whether this flurry of meetings and conferences is a passing fad and phenomenon, or will they blaze the trail for the fruitful relationship between Europe and Asia in the long run. Are the Europeans seriously, may I ask, interested in playing a meaningful role in Asia and in engaging Asia?

Mr R. Ravindran (Bukit Timah): Sir, the Asia-Europe Meeting was an initiative of our Prime Minister. The first meeting in Bangkok was a success, and the next meeting will be held in the United Kingdom next month.

Sir, Europe and Asia are important to each other. Europe has huge financial and economic interests in Asia. In 1996, the EU exported US$123 billion worth of goods and services to East Asia, more than the United States. The involvement of European banks in Asia amounted to more than US$350 billion, even greater than that of the US and Japanese banks added together. Similarly, Asia's exports to Europe have increased over the years. Many Asian countries have also invested large sums in Europe. However, the recent economic turmoil in Asia has made many people in Europe sanguine. The economic problems have affected the Europeans to some extent. It clearly shows that in the new interconnected global economy, every one will be affected by regional economic problems.

Sir, my concern is whether Europe will continue to take a greater interest in Asia, in particular, in Southeast Asian nations. We need to assure that the Asian ship is still buoyant and steady. We must ensure that Europe places great importance in Asia and continues to increase its links.

To their credit, some of the European countries have extended help to Asia through the IMF and on a bilateral basis. I think they could do more both on a multi-lateral and bilateral basis. I hope more countries in Europe can be persuaded to participate in the trade financing scheme proposed by our Prime Minister for Indonesia. I urge the Ministry to ensure that the Asian economic crisis is put on top of the upcoming ASEM II meeting in London. I would also urge the Ministry to ensure that the environmental problem in the region is put on the top priority list for discussion.

Sir, the recent depreciation of the Asian currencies has also meant cheaper exports from these ASEAN countries. I hope the Ministry will urge the Europeans to keep their markets open to cheaper products from the affected Asian economies, and not impose barriers. It is equally important that Europe be urged to increase its investment in Asia to speed up the recovery process.

Sir, I hope the Ministry will work hard to ensure that ASEM II comes out with concrete ideas and programmes to help Asia out of its economic problems.

Dr Ong Chit Chung: Sir, despite much criticism and doubts and there are many, the United Nations have expanded and fulfilled to a significant extent its role as a recognised world-wide forum for countries, big and small. It has weathered many storms and crises, the most recent of which is the Gulf crisis. The United Nations certainly do not meet all our expectations, but there is none to replace it in the post-cold war world. As a small country, Singapore certainly finds it very useful to be represented at the United Nations. We are indeed bidding for a seat on the UN Security Council for the year 2001. A seat on the UN Security Council, I believe, would give us, especially our diplomats, an excellent opportunity to learn and appreciate the workings of the UN Security Council. 6.15 pm

I would therefore like to ask the Minister on the latest in our campaign for such a seat on the UN Security Council and what do other nations think of Singapore's role in the UN and its affiliated bodies. Will it mean that we will play a more active role in the UN?

Dr Tan Boon Wan: Sir, a financial tornado has built up and ripped through the region, causing untold damage to the economies and the lives of the people. The region is still counting the cost and the storm has not fully subsided. Much uncertainty remains and further damage could still occur.

Singapore is very prudent. We have an honest, hardworking and rational system. Our economic fundamentals are sound by any standard. We have sufficient reserve to cover our currency many times over, yet we are affected by the regional economic and financial crisis. The sad aspect of the crisis is that it was unnecessary. It was not that we lack the knowledge of the genesis of such financial tornadoes and can therefore claim to be surprised by the event. The writing was on the wall for a long time. The painful experience of the burst of the Japanese property bubble remains clear in our mind and the effects of it remain till today. We have seen it happen also in Mexico, just a few short years ago.

The world is growing smaller, more inter-linked. As neighbours, what can we do to share our concerns, especially in matters that affect us? Do we have the means or the mechanisms to convey our concerns without being accused of interfering, without incurring their wrath, without being scolded? If no such mechanisms exist, then is it time that they be created? Unless something is done urgently, otherwise every few years we will find our follies repeated with much pain, suffering and anguish to our people.

The Chairman: Mr Rai, you can take your two amendment together.

Mr Shriniwas Rai: Much obliged, Sir. Singapore being a small country, we cannot have the luxury of having a very heavy diplomatic establishment. But the least we could do is to have friends all over the world and I would urge the Minister to consider maintaining new diplomatic relations, say, with countries with which we do not have so far. This would at least be an opening for us to go into these countries when the opportunity arises. Many of these countries, especially in Latin America, are potential opportunities for us. The example of Mexico is very clear to us how we have in a short while built up the relationship. I think it is in the interest of Singapore, like Switzerland, to have as many friends all over the world. And when we should apply for the United Nations' seat in the Security Council, at least we will have support from the other countries as well.

Another matter which I would like to touch on is Roving Ambassador or non-resident Ambassador. As I have said earlier, we do not have a very rich history of foreign relations. We just started from 1965. But it is a credit to the Minister and his officials that we have at least maintained diplomatic ties. If we cannot afford to have an ambassador resident in that country, at least we try to have ambassadors who are non-resident in countries like Sri Lanka, Pakistan, Iran and Latin American countries. I would urge the business community and senior professionals who can afford it to opt, when approached by the Government, to represent Singapore. This is the least they could do for the country. Of course, the Government cannot afford to pay them an allowance which probably they will get elsewhere. Nevertheless, it is an honour and prestige to represent one's country. So I would urge the Minister to persuade as many people as possible to represent Singapore and also to see whether in those countries where we have non-resident ambassadors there is a need now to upgrade them to resident ambassadors.

Prof. Jayakumar: Sir, I thank the Members who have spoken. I hope they will forgive me if I respond not necessarily in the order in which the points have been raised, but it does not reflect in any way on the importance of the points. But I think it may be more convenient for me to respond in this manner so as not to risk being cut by the "guillotine" in the midst of my developing answers on some other topics.

I propose therefore to start by responding to Dr Ong Chit Chung who asked my views on the changing strategic situation in Asia. Sir, since July 1997, which was when we discussed foreign affairs in the Committee of Supply last, I would say that the situation in our Asia-Pacific region has been marred and marked by the regional financial crisis which has really exacted a very heavy toll on most Southeast Asian countries. Having said that, let me add that not all the news has been bad in the sense that there have been some positive developments on other fronts.

The triangular relationships, for example, between the United States, China and Japan, have stabilised and show some signs of improvement. Over the last six months, we have, in fact, witnessed high level exchanges amongst leaders of these three major powers and also visits to and from Russia. For example, when we look at the United States-China relations, President Jiang's visit to the United States in October/November last year was a first in 12 years by a Chinese Head of State and is regarded as signalling the normalisation and enhancement of United States and China relations. Both sides, of course, do seem to have important differences, but they seem willing to engage one another and thus provide a more predictable and stable relationship for themselves, which in turn augurs well for this region.

As for China-Japan relations, here also, we have to note the exchanges of visits by Prime Minister Hashimoto to China in September 1997 and Premier Li Peng to Japan in November 1997, which have together stabilised Sino-Japan relations.

As for US-Japan relations, the other side of the triangle, United States-Japan relationship does continue to remain the most stable among the regional powers. Although there will be from time to time economic friction, both sides have shown that they can continue to cooperate closely, particularly in the context of the Security Alliance Understanding.

As for Russia, we have to note that there have also been high profile exchanges of visits involving Russia. For example, President Yeltsin visited China in November, Premier Li Peng visited Russia and Prime Minister Hashimoto visited Russia in November 1997. We are told that the Summit between President Yeltsin and President Jiang is scheduled for later this year.

As the strategic triangle of United States, China and Japan continues, in our view, to be the foundation of stability in the Asia-Pacific region, I think Members will appreciate that it is in Singapore's interest to see that the three major powers and players are constructively engaged and their relationship strengthened. This will ensure a stable and peaceful balance of power in the region.

What are the other encouraging signs in the strategic environment? They include the revision of the US-Japan Defence Guidelines which has reaffirmed the United States' commitment to the security in the region. Second,, cross-straits relations appear to have stabilised and with some positive signs that both sides are preparing for the resumption of dialogue in the near future. Third, prospects in the Korean Peninsula appear to have improved with the DPRK agreeing to take part in the Four-Party talks. The preliminary meeting was held in Geneva in December 1997 and is to be followed up by a second preliminary meeting in March 1998 in Geneva. Fourth, in the South China Sea territorial disputes, always a cause of concern in the sense that it is a potential flash point, we are glad that there has been no escalation of tensions since we last discussed that matter in this House. Fifth, I would add that the successful demarcation of the Eastern China-Russia border declared during President Yeltsin's visit in November 1997 is a factor that has helped the general stability in the region.

Dr Ong Chit Chung asked: will the United States retain its strategic and economic interest? Will we continue to be helpful in affording access to the United States? I think we can say that the United States has historically played an important strategic role in Asia-Pacific, including Southeast Asia. The United States also has an extensive network of trade and investment linkages in the region. We are confident that the United States will continue to remain engaged in the region. I say so because, in our discussions with the United States' leaders and their public pronouncements, they have recently reiterated their strong commitment to the presence in the region which, Dr Ong and other Members would have noted, also included visits by key Cabinet members from the Clinton administration, including Defence Secretary, William Cohen and Commerce Secretary, William Daley. Singapore's position has always been to welcome and encourage United States' involvement and presence in this region. Within the extent of our resources, Members also know that we have facilitated this and we will continue to do what we can to be helpful to the United States to maintain its presence in the Asia-Pacific region.

Having painted this situation of positive factors in the broad strategic situation, let me hasten to add that we cannot be lulled into complacency. The benign, even positive, security and geo-political environment can deteriorate very quickly. Witness what happened last year with the unforeseen events in Cambodia. The economic crisis which descended on the region is another strong reminder to flag this issue.

As to how this will affect the political equilibrium in the region, a question which Dr Ong posed, I would say a lot would depend on how the Asian countries perceive the help rendered by the western countries. If the United States, the EU and other players continue to be involved to assist in a positive way, and the region is able to emerge through the crisis, and they recognise the assistance and help and the signals of confidence given by these countries, the political equilibrium will, I believe, remain unchanged. Relations may even be stronger. Everyone will benefit. However, if they cannot get off the current turmoil, and they conclude that the help given by the west is inadequate then, of course, there could be a reassessment and perceptions may change. But I would say, in response to Dr Ong's specific question that things are still fluid, and I would also say that it is too early to say whether the political equilibrium will be affected. At the end of the day, what is the lesson to be learnt for Singapore? I would say the lesson for us is that we really have to be prepared for sudden strategic shifts. As a small country, we will have to remain alert, nimble and sufficiently agile to be able to adjust to changing trends and turbulent times in the region. 6.30 pm

If I have your permission, Sir, I would now like to respond to Dr Ong Chit Chung's comments and questions on Cambodia.

In response to his comments, I would say that since we last discussed in this House last year, the developments in Cambodia include, firstly, progress in the preparations for the elections scheduled in July this year; secondly, the return of opposition National Assembly members to Cambodia; and, thirdly, the declaration of ceasefire. But here also the situation remains rather fluid and unpredictable. The ongoing disputes concerning the question of Prince Ranariddh remains unresolved. This may cast a shadow over efforts of the Cambodian government to create conditions that will be conducive to free and fair elections. And I think it remains to be seen whether the recent initiative of Japan would be successful in breaking the impasse. Meanwhile, ASEAN and the international community continue to call on the Cambodian government to ensure that all parties and personalities would be permitted to contest in the elections.

As Members know, ASEAN has really tried sincerely to contribute to the resurrection of political stability in Cambodia and, more recently, because nine members meeting frequently is not really practical, we have established the ASEAN troika. And through the troika we have been liaising with the Cambodian parties involved in the Cambodian situation. I must say that Mr Hun Sen's sharp criticisms of ASEAN and of individual ASEAN countries have once again raised some questions about his attitude and receptiveness on the role of ASEAN. For example, on 13th January 1998, he was quoted in the Cambodian Daily as saying, and I quote, "I am not a member of ASEAN. I need no troika delegation at all. Please, all ASEAN countries, be aware of this." In the same report, Mr Hun Sen also referred to Indonesia, Thailand and Myanmar in rather unflattering terms. Such statements, to say the least, have puzzled some in ASEAN. But despite these negative statements, ASEAN continues to uphold the principle that countries should not bring about a change of government through violent means, and the policy of non-interference in the domestic affairs of another country is also upheld by ASEAN.

The admission of Cambodia into ASEAN will therefore be considered only after free and fair elections are held and when circumstances in Cambodia enable the country to fully assume the rights and duties of ASEAN's membership.

To encourage the conduct of free and fair elections this July in Cambodia, the UN has agreed, in principle, to coordinate international observers at the elections. We in Singapore have not received any formal requests from the United Nations, although I understand it has informally asked a number of countries, including ASEAN members, to contribute electoral monitors. We have to carefully consider whether to send electoral monitors within our limited resources when the UN or the Cambodian government makes an official request.

May I respond now, Sir, to the comments made by Dr Ong and others on the Asia-Europe Meeting. As Members will recall, before the Asia-Europe I (ASEM I), Asia-Europe relations lacked a multilateral and regularly held forum. There was only the ASEAN-EU Dialogue. ASEAN-EU Dialogue is a bloc-to-bloc, organisation to organisation dialogue. And apart from the UN, there is no other forum for Asian and European heads of government to meet regularly, say, once in two years. Asia-Europe Meeting (ASEM) now affords the opportunity for these leaders to meet and discuss issues of common concern. ASEM II meeting in London, in the first week of April, will take place, as was pointed out, against a backdrop of the financial crisis in Asia. The EMU which is scheduled for implementation in January 1999, and the eastward expansion, will absorb much of EU's energies and attention for some time to come. We know that. ASEM II will have to discuss among other issues how we can devise ways and means to sustain and advance the ASEM process and to keep the Europeans interested in the process, and interested in Asia.

The major issue, yes, is the financial crisis, and Singapore hopes that ASEM II will come out with a strong statement of confidence in Asia's efforts to deal with the financial crisis. We believe that Europe can send a strong political signal to the rest of the world, a signal that it continues to have confidence in Asia's economic potential and is ready to help with the financial crisis. At the same time, it is also in the interest of the affected Asian countries to reaffirm their commitment to implement the difficult and necessary reforms. Through their engagement in ASEM, I believe Asia and Europe can also send a strong message that despite each other's internal preoccupations - Europe has its preoccupation and Asia has our own preoccupations - both regions remain outward looking and are strongly committed to multilateral trade and investment liberalisation. I believe such a signal strongly sent would help to boost market confidence in the region and, in that respect, I hope that European ASEM members will support the ASEM partners' proposals for a separate statement of the financial crisis. In fact, the Asian side has proposed to the Europeans that instead of the normal Chairman's statement, which will be issued, there ought to be a separate statement addressing only the financial crisis. We hope that the Europeans will agree to this.

As to sustaining the ASEM process, we think it should be sustained and advanced. Dr Ong Chit Chung asked whether all this flurry of activities is a passing phenomenon or the beginning of a fruitful relationship. I believe that the ASEM process should be seen in the long term perspective. And I do not think it is a passing phenomenon. Certainly from my discussions with Foreign Ministers on both sides, there is a clear appreciation that this relationship has tremendous potential. Apart from the leaders' meeting, the ASEM Foreign Ministers have met; the Finance Ministers have met; and the Economic Ministers have also their own meetings. In other words, it has become a multi-faceted process, not just a flash in a pan meeting of Heads of Government, and nothing else happens in two years. And Dr Ong Chit Chung will know that important projects have emerged such as the Asia-Europe Foundation which has taken place. The process is not just limited to the politicians. Because the private sector has also met, business forums have taken place. Under ASEM, there have been meetings of journalists and editors. So it cuts across many areas.

In response to Dr Ong Chit Chung's questions as to whether the Europeans are really interested, I have no doubt and I believe the Europeans are interested and continue to have an interest in a meaningful role in Asia. I believe they are committed to building the bilateral and multilateral relations with Asia, despite their preoccupation with internal matters, like the EMU, EU expansion, unemployment, and other economic problems. I think Europe still perceives Asia to be a region of potential, notwithstanding the financial crisis. The Europeans' commitment to ASEM, therefore, will be a clear manifestation of their interest to develop a mutually beneficial relationship with Asia.

I was asked by Mr Ravindran whether the financial crisis will be given priority. Indeed, I think the expectation on both sides is, yes, it will have high priority. As to whether other matters like environmental matters will be discussed, I believe it is also on the agenda and is flagged as one of the issues where Asia and Europe can cooperate.

I now would like your permission, Sir, to respond to Dr Ong Chit Chung's comments on the United Nations. He is right that the lack of resources, on the part of Singapore, limits our representations in many places in the world. Our participation in the UN, therefore, gives us an opportunity to have contact with and profile ourselves to other parts of the world. Together with our participation in the UN, the Group of 77, the Non-Aligned Group, it helps to maintain our links with many other countries, and it touches on the points raised by Mr Shriniwas Rai, with whom we do not have diplomatic missions or consular missions in their countries or they do not have diplomatic missions in our country.

As we are a small country, we have been rather selective on the issues in which we have concentrated our efforts to profile Singapore as a responsible member at the UN. There are issues in which we have selected on the basis of whether we can make a contribution in that particular topic. The Law of the Sea is a clear example of where we were able to contribute. Not much publicised, we also have our legal experts on organisations like United Nations' Commission of International Trade Law where they have made a very good contribution.

He had asked: how do other countries think about us. I think it would be rather self-serving for me to make complimentary remarks about our own diplomats. But let me say with some humility that over the past 30 years, because of hard work and commitment put in by our excellent diplomats at the UN, we have gained a certain reputation for responsible and constructive contributions. And I hope that we will be able to maintain that reputation at the UN.

To demonstrate our support for the UN, we have stepped up our involvement in activities which are consistent with our interests and which will enable us to gain as much political mileage as possible. For example, in May 1997, Singapore was one of a handful of seven countries to sign a Memorandum of Understanding with the United Nations on standby arrangements. This is the provision of observers, officers, medical personnel, as well as helicopters and transport craft standby arrangement, on standby for UN peacekeeping operations. I think it is a modest contribution, but a contribution that is noted.

We have also sent, as I said, high calibre delegates to the various UN committees. Other than the Law of the Sea Conference, we played a constructive leadership role in the UN Conference on Environment and Development, and we continue to play a key role in ongoing discussions in the UN, such as on UN reform, particularly on the expansion of the UN Security Council.

The Chairman: Order. It is 6.45 pm.

Thereupon Mr Deputy Speaker left the Chair of the Committee and took the Chair of the House.

Prof. Jayakumar: Mr Deputy Speaker, Sir, I beg to report that the Committee of Supply has made further progress on the Main and Development Estimates for the financial year 1998/1999, and ask leave to sit again tomorrow.

Mr Deputy Speaker: So be it.