REGIONAL ECONOMIC CRISIS (Measures to minimise possible fallout)

Mr Zainul Abidin Rasheed asked the Minister for Finance, in facing the regional economic crisis and the recession predicted in Japan, what are Singapore's immediate concerns and what measures the Government will take to minimise their possible fallout.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, may I have your permission to take Questions 1 to 6 together as they are related?

Mr Speaker: Yes.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, Mr Tay Beng Chuan and Dr Lee Tsao Yuan have asked about the impact of the recent developments in Indonesia on the Singapore economy. Mr Tay and Mr Zainul Abidin also wanted to know how the economic conditions of Japan and other Asian countries would affect Singapore. The effects of the financial turmoil and developments in Indonesia have yet to be fully played out. The current outlook for the external environment is therefore mixed. While the US and EU economic growth remains healthy, the Asian economies have come under severe downward pressure. In Japan, there are signs of a substantial slowdown but it will be ameliorated to some extent by their recent fiscal stimulus package. The economic situation in Thailand and South Korea appears to have stabilised somewhat. But developments in Indonesia have increased volatility over the short-term. The overall picture is still one of uncertainty.

Dr Lee has also asked about the specific impact of the financial turmoil on the economic forecast. MTI's GDP growth forecast of 2.5-4.5% for 1998 has factored in the regional financial turmoil, and its impact on the growth prospects of our neighbouring countries. But as developments, especially in Indonesia, have yet to stabilise, nobody can be certain about the full impact of the financial crisis on our economy at this point in time. However, as the Singapore economy is fairly well diversified, we are unlikely to slip into negative growth this year as growth will be supported by the relatively healthy performance in the US and EU economies.

Mr Tay, Dr Lee, Mr Chng Hee Kok, Mr Zainul Abidin and Mrs Yu-Foo Yee Shoon have all asked about the implementation of off-Budget measures. As I have mentioned during the Budget debate, the Government will implement further measures if economic growth slows down significantly. The Government is monitoring the economy very closely. In the first quarter of 1998, economic growth has slowed to 5.6%. Growth in the second quarter is expected to moderate further as impact from the regional financial turmoil filters through the economy. Non-oil domestic exports have declined by 1.6% in April. Preliminary data showed it continued to drop by 6% in May. We will soon know how sharply the second quarter GDP growth has declined. We will then decide if we should proceed with additional measures to help the economy.

Mr Low Thia Khiang (Hougang): Sir, the Minister for Finance, in his answer, said that the Government will only consider implementing off-Budget measures if the economy slows down significantly. May I know from the Minister what does he mean by "significant slowdown"? What percentage is he looking at?

Dr Richard Hu Tsu Tau: A "significant slowdown" would mean that it would be down to negative growth, for example.

Mr Low Thia Khiang: Is it for one quarter?

Dr Richard Hu Tsu Tau: The standard definition of a recession is two consecutive quarters of negative growth.

Dr Lee Tsao Yuan (Nominated Member): Sir, may I ask the Minister when will the second quarter results be known since the Minister did say that off-Budget measures will be decided only when the second quarter results are known?

Dr Richard Hu Tsu Tau: We will not know the full second quarter results until some time in July, but we do not expect to have to wait quite that long. I think by the middle of this month or towards the latter part of the month, we will know the full May results and that might give us sufficient indication of the forward trend. The Deputy Prime Minister and Minister for Defence, Dr Tony Tan, already indicated that we might do something before the full second quarter results are known.

Mr Zainul Abidin Rasheed (Cheng San): Mr Speaker, Sir, may I ask the Minister whether the number of those retrenched would be considered as one of the significant factors before more off-Budget measures will be introduced?

Dr Richard Hu Tsu Tau: Yes, of course, that would be a significant indication. In fact, that reflects the economy.

Mr Chng Hee Kok (East Coast): Sir, will the Minister explain what is the time frame by which measures will be effective the moment they are implemented? In other words, how long will all these measures that he has in mind, if implemented, take effect?

Dr Richard Hu Tsu Tau: It depends on the nature of the measures. A rebate, for example, will take place immediately. Infrastructure spending will take some time to filter through, again, depending on the type of spending which takes place. A tax cut will not take place until next year. So there is a whole package of measures we can consider, some of which are going to be effective immediately, and some are medium and longer term.

Mr Chng Hee Kok: Taking into account the period when historical data is known and the measures which the Minister has taken into account in his basket of measures which he will implement when the economy slows down significantly, there will be a certain period of time for measures to take effect.

Dr Richard Hu Tsu Tau: I am not quite sure what he means. But if we do something, for example - I am not promising this - towards the end of June or July, as I mentioned, if we announce the rebates they would take place immediately other than the time for processing. As for the other measures, it depends on the nature of the actual cuts and the programmes. So I cannot give him a precise figure. But I am sure the Member realises that we went through this experience in 1985/86 and it did not take us very long to recover although the circumstances, I would admit, between now and 1985/86 are completely different.

Dr Lee Tsao Yuan: Sir, with regard to the impact of the recent turmoil in Indonesia, surely the Minister will agree that that impact would be negative in terms of the impact on the Singapore economy. To the extent that the growth forecast of 2.5-4.5% was made earlier on this year and the situation in Indonesia has since deteriorated, surely that would mean that the growth forecast for Singapore, even if it remains within 2.5-4.5%, would actually hover around the lower end of the range or that the forecast range would be lower than 2.5-4.5%. Would the Minister agree?

Dr Richard Hu Tsu Tau: I cannot disagree with her arguments.

Mr Zainul Abidin Rasheed: Sir, since we have already got indications that the number of those to be retrenched would be more than the number retrenched in 1985 when we had very strong measures introduced, would it not be better to introduce the measures now rather than wait for the second quarter results where we may end up with a position of too little, too late?

Dr Richard Hu Tsu Tau: These are all estimates of what the retrenchments might be. I am not certain that in fact it will actually turn out to be more than in 1985/86. I think the most important thing to remember is that we should not over-react to monthly changes in statistics. We have to ensure that whatever measures we take are consistent with sound principles. The last thing we want to do is for the Government to micro-manage the economy, ie, when you see one sector falling, suddenly you have to apply measures to correct the whole economy. We will take whatever measure is necessary and I am not suggesting that we should wait months or years for something to happen. All indications are that it will be sooner than later.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I want to ask the Minister about the growth forecast of 2.5-4.5%. We are looking at the weak regional growth now. Malaysia has announced a negative growth, so did Hong Kong. Thailand and Indonesia would not be much better. On that basis, how can we expect the Singapore economy to be on a positive note? If so, would he now implement the measures sooner than later?

Dr Richard Hu Tsu Tau: Even if it should turn out to be at the lower end of our range, that is not a recession. By international standards, 2.5-3% is excellent performance. It is only when you look against the whole background of Singapore's growth of 7-8% in the past few years that you think it is a disaster. In fact, without the exceptional circumstances of the last few years, 7-8%, in Singapore's state of present GDP, is unsustainable. We have said this many times. In fact, our medium term forecast for non-inflationary growth is 4-6%.

Mr Leong Horn Kee: Sir, if you consider the business sector, it has actually gone into negative growth this year. If that is the case, would the Ministry look into some measures to be introduced as quickly as possible?

Dr Richard Hu Tsu Tau: Which negative growth are you talking about?

Mr Leong Horn Kee: GDP growth.

Dr Richard Hu Tsu Tau: No, we will not wait for GDP growth to go negative before we do something. If the trend is clearly going to head in that direction, we will try to do something. This is what we have assured the House.

Dr S. Vasoo (Tanjong Pagar): Sir, in short, why are we not responding quickly?

Dr Richard Hu Tsu Tau: I have just tried to explain why. We would like to look at the May figures before we react. Surely, it is not too long to wait for a few weeks.

Mr Jeyaretnam: May I ask the Minister two questions? They are not related. First of all, the question of US$5 billion loan to Indonesia.

Mr Speaker: Mr Jeyaretnam, your question is not related to the Question on the Order Paper. I will not allow you to ask that question. Could you ask questions related to the Question under discussion?

Mr Jeyaretnam: Mr Speaker, Sir, I thought we were discussing the economy and I want to know whether the Government has considered reviewing its decision to grant the US$5 billion loan in view of the present situation in Indonesia. Is that not part of it?

Mr Speaker: Mr Jeyaretnam, there is a Question related to this topic later on in the Order Paper. Could you wait for that Question to be raised?

Mr Jeyaretnam: All right, Sir. Then may I ask the Minister about the other question, and that is, the off-Budget measures. May I know whether there are any measures in the pipeline to protect the workers? Has the Government heard of reports that companies in Woodlands are getting rid of Singaporeans and taking on board Malaysians because they find them cheaper?

Dr Richard Hu Tsu Tau: I suggest that when the Member hears of these rumours, please document them and we will look into them individually. As far as Government's action to help the workers, it is going to be a comprehensive package, including what we have said before, that one of the most important things that we need to do is to ensure that our workers will be able to cope with new jobs. So training and retraining is going to be a major focus.

Mr Jeyaretnam: May I ask the Minister whether the Government is monitoring retrenchment of workers by Singapore companies? Is the Government monitoring or just turning a blind eye?

Dr Richard Hu Tsu Tau: I think that is a very silly question. Surely, you do not expect the Government to be so negligent as not to monitor unemployment.

Mr Jeyaretnam: Then tell us how you are monitoring it.

Dr Richard Hu Tsu Tau: Please address your question to the Minister for Manpower.

Mr Lim Swee Say (Tanjong Pagar): Sir, may I ask the Minister for Finance, as and when off-Budget measures are introduced, besides addressing the issue of lowering the cost of doing business in Singapore and stimulating the economy through infrastructure projects, whether he will consider introducing some new measures to encourage companies to build new capabilities during this slowdown?

Dr Richard Hu Tsu Tau: I am aware of the Member's sentiments. It has appeared in the press and we will certainly take it into consideration. I will discuss with my colleague.