CUSHIONING THE IMPACT OF THE DOWNTURN (Statement by the Minister for Trade and Industry)

BG George Yong-Boon Yeo: Mr Speaker, Sir, as I said in Parliament on 11th July, the global economy has deteriorated much faster than anticipated. Growth in the US, Japan and EU has slowed sharply. Strong growth during the boom years, especially in the US, led many companies to ramp up production capacity, expecting demand to continue growing. When demand slowed, partly because of the NASDAQ crash, they were caught off-guard, forcing them to cut production and reduce cost. The simultaneous downturns in the US, the EU and Japan now feed negatively into each other.

The global electronics downturn has worsened even more dramatically in the last few months. Worldwide semiconductor sales declined by 24% in May 2001. Global semiconductor sales are expected to fall by 25-30% this year, down sharply from +37% growth last year. The global DRAM industry is expected to plunge by an unprecedented 55% this year, down from +37% last year. The electronics industry is expected to remain weak at least till the end of 2001. . Malaysia is also slowing down, compounding the problems that we face. In Indonesia, political uncertainty has made economic recovery even more difficult but we hope that under President Megawati's leadership, the situation there will improve.

Singapore's Economic Performance

We cannot have a worse alignment of the planets. As a result of the weaker external environment, the Singapore economy deteriorated further in the second quarter. Annualised quarter-on-quarter growth was -10.1% compared with -10.9% in the first quarter. On a year-on-year basis, Singapore's economy slowed sharply to -0.8% in the second quarter from +4.6% and +11.0% growth in the previous two quarters. The slowdown was across all the major sectors, particularly manufacturing where output fell by 11% in May, due largely to the 20% plunge in the electronics industry.

Our export performance has also worsened, in line with weaker export markets. Non-oil domestic exports fell by 16.9% in June and 9.4% in the second quarter of this year.

The labour market is also showing weakness. Retrenchments rose in the first quarter, reflecting the downturn in the global electronics cycle and weaker US growth. We expect it to increase as companies start shedding workers. Several MNCs like Maxtor and Aiwa have already announced job cuts. Many have also moved to a shorter workweek.

In view of the sharp deterioration in economic conditions, we have revised the 2001 growth forecast down to 0.5-1.5 % this year.

Measures to Cushion Impact of the Downturn

Despite almost 10% growth last year, many businesses, especially the smaller ones, have not recovered from the effects of the regional crisis in 1998. We therefore left in place some of the measures introduced in the last package. In this year's Budget, we have reduced corporate and property tax rates to help companies, especially SMEs. To help households and workers, the income tax rates have been lowered. In addition to CPF top-ups, the Government has also granted rebates on personal taxes, service and conservancy charges and rentals. A new "Utilities Save" scheme was introduced to help households pay higher electricity and water bills.

To cushion the effects of the current downturn, the Government has put together a package of additional measures which I will now announce. They are classified into three categories: namely, measures to accelerate the building of economic and social infrastructure; cost-cutting measures to help companies; and measures to help those retrenched and to promote worker retraining.

Further details will be given by the respective agencies over the next few days.

Economic and Social Infrastructure

Given the open nature of our economy, it is difficult to stimulate the economy by generating domestic demand through Government pump-priming. However, there are some projects which the Government can bring forward. Accelerating the building of our economic and social infrastructure will let us take advantage of low tender prices, and will enhance our capabilities over the long-term. Some of these projects include the development of Jurong Island, drainage and sewerage works, road and commuter facilities, and upgrading of IT projects at polytechnics and universities. In total, bringing forward these projects will inject $204 million into the economy in this financial year and $512 million in the next financial year.

Cost-Cutting Measures

Labour Cost

Labour cost is a key component of total business cost. In difficult times, adjusting wages is an important way to save jobs and prevent companies from going under. The Government and the unions have therefore been pushing for flexible wages. We have made good progress in building up the variable wage component over the years, although there is still some way to go. So far, about 30% of unionised companies but only 2.4% of non-unionised companies have implemented a monthly variable component. In this current economic downturn, the variable component that we have built up provides our first buffer. It is far better to cut back on bonuses and perks than to retrench workers. Companies which are not doing well should use this mechanism to pay smaller variable bonuses this year, in line with the NWC recommendations.

Adjusting the CPF contribution rates is a measure of last resort and should never be done lightly. In the 1998 package, the Government cut the employers' CPF contribution by 10 percentage points to help companies reduce costs and to save jobs. It was progressively restored by six percentage points as the economy recovered in the last two years. The Government would like to restore the remaining four percentage points as soon as possible because the CPF is essentially our retirement savings plan. Keeping the CPF contribution rates below the 20% level for too long will mean less savings for our old age.

Under normal circumstances, we would have restored a further increment of employer CPF contributions at the end of this year. However, in the present difficult conditions, the first priority is to save jobs by helping companies to lower costs. The Government has therefore decided not to increase the employer CPF contribution rate at the end of this year. We will review the situation again in the middle of next year. This gives certainty to the first half of next year and translates to a saving of $920 million for employers for the first six months of next year.

Some businessmen have suggested to MTI that the CPF should be cut again. We do not believe that such a major move is justified at this stage. However, if the global economy continues to deteriorate, we may have to consider all possibilities.

Foreign Worker Levy

To hold down business costs further, the Ministry of Manpower will extend the current reduced foreign worker levy rates for another year till June 2002. This will cost the Government revenue of $324 million. Existing controls on the intake of Work Permit holders remain unchanged to ensure that employers do not become over-reliant on foreign workers, especially the lower skilled foreigners. Property Tax Rebate

In the last Budget Statement, the Minister for Finance announced a cut in the property tax rate from 12% to 10% for all commercial, industrial and residential properties. That reduction was to take effect from 1st July this year, when the 25% property tax rebate for commercial and industrial properties ended. The Ministry of Finance has now decided to extend the 25% property tax rebate for commercial and industrial properties for a year from 1st July this year to 30th June next year. As the property tax has been reduced from 12% to 10% on 1st July this year, the effective rate during this period would thus be 7.5% as compared to 9% before this. This will cost the Government $257 million.

Rental Rebate

In January this year, JTC and HDB withdrew part of the rebates given in the 1998 package of measures. In view of the current downturn, we have decided to extend the rental rebates for another year till end June next year and to increase the quantum of rebates.

JTC will grant an additional 10% rental rebate, giving an effective rebate of up to 20%. HDB will give an additional 5% rebate on top of the existing 5% (and another rebate of up to 20% for those paying above market rates) and this will extend for a year.

Similarly, CAAS will offer a 15% basic rental rebate for warehouse, office and concession space in the Airport for a year till the end of June next year. It will also not increase the airport service charge.

HDB, JTC and CAAS will also pass on the savings from the reduction in the property tax rate to their tenants. Other landlords are encouraged to similarly pass on the reduction in property taxes to their tenants.

For market and hawker stallholders, the Ministry of the Environment, HDB and JTC will be giving a 10% rental rebate to their stallholders who are paying market rent. An additional rental rebate of up to 20% will be given if the rebated rent is still higher than the prevailing market rent.

All these rental rebates will take effect from 1st July 2001 for a year and they will cost the Government $272 million.

Transport Cost

To soften the impact on regional trade and travel, the Maritime and Port Authority of Singapore will give 20% port dues concession for container ships and commercial harbour craft. This will save businesses $7 million for the period 1st July this year to 30th June next year.

Access to Finance

Some companies face greater difficulties gaining access to capital for their businesses during this downturn as banks become more cautious. To help local companies, the Singapore Productivity and Standards Board (PSB) will raise the Government's risk sharing of the Local Enterprise Finance Scheme (LEFS) from 50% to 70% for one year from 1st August 2001. In anticipation of the increased demand, we will increase the loan availability under LEFS by $60 million. PSB is also working on a new programme to make it more flexible for banks to lend to SMEs with varying credit risks by covering part of the risk through a loan insurance scheme.

To help medium-sized companies, the coverage of LEFS will also be expanded to cover enterprises with at least 30% local equity, with fixed asset investment of up to $50 million and employment size of not more than 300 workers for service companies. This is significantly higher than the current limit of $15 million in terms of fixed asset investment and 200 workers for service companies. A loan line of $60 million will be set aside for this purpose. Together with the additional $60 million mentioned earlier, the total loan availability under LEFS will be raised by $120 million from $600 million now to $720 million.

Additional grants will also be set aside under the Enhanced Local Enterprise Technical Assistance Scheme (LETAS) to enhance specific programmes which help local companies strengthen their capital structure, trim cost, improve cashflow and streamline operation.

All these measures are for a period of one year. Besides the additional loan line of $120 million, these measures are expected to cost the Government an additional $10 million.

Measures to Help the Unemployed and Promote Worker Retraining

Retrenchments are expected to reach 20,000 this year. Older workers and less educated workers are more vulnerable to retrenchment in a downturn, and Members raised their concern in this House earlier on at Question Time. Many of them face difficulty getting re-employed. To help the retrenched workers, and particularly those in the vulnerable groups, the Ministry of Manpower (MOM) is expanding its employment assistance and training programmes in a major way.

Increased Efforts in Job Matching

In the area of job matching, MOM currently operates a career centre. The centre provides information on labour market trends, advice on job and training opportunities, and employment assistance. Because of the economic downturn, the centre has served twice the number of users in recent months. To reach out to even more workers, MOM will further expand the centre's services and increase the number of access points to these services. It will work with NTUC, self-help groups and other community organisations to make available similar services and information at their locations. MOM has also put in more services on the Internet and expanded its Employment Town website.

From next month, MOM will also be starting a series of community based job fairs to bring together job seekers and employers. And it is targeting to organise an average of one job fair per month for the rest of the year. `People For Jobs' Traineeship Programme

Many retrenched workers will find that the jobs which they are used to will no longer be available in Singapore even after the economy recovers. This is especially so for older and less educated workers previously engaged in the manufacturing sector. To stay employed, some of them will have to switch to other industries, particularly those in the services sector.

Making this change requires openness and flexibility on the part of both workers and employers. Workers will have to make some adjustments and accept different job requirements and work environments. Employers on their part should be more prepared to hire such mid-career workers who are good workers but newcomers to the industry and to help ease them into their new jobs.

To help older workers with low education make this adjustment, MOM is piloting a new programme called the "People for Jobs" Traineeship Programme. The programme is akin to an apprentice programme for mid-career workers.

Under the programme, MOM will provide financial support of up to $3.80 per hour or $600 per month for three months for companies which employ these retrenched workers, and who agree to put in place a mentorship or traineeship arrangement to help settle in these workers. MOM has found several employers who are prepared to take part in the pilot programme. Together, they are able to provide immediately 400 places in the services sector. And these include jobs such as sales and retail assistants, room stewards, telephone operators and housekeepers. MOM hopes to expand this programme rapidly and to increase the number of traineeship places.

Expansion of Skills Redevelopment Programme (SRP)

In the area of skills training, MOM and NTUC operate the SRP to help lower educated workers acquire certifiable skills. Through the SRP, some 54,000 workers have equipped themselves with relevant skills to stay employable. In view of the economic downturn, MOM will further enhance the programme. The list of approved courses will also be significantly expanded to benefit more workers and employers. And we hope to double the number of SRP trainees this year from 20,000 to 40,000 workers. This will cost an additional $28 million. And should there be greater demand, MOM is ready to expand the programme further.

Incentives for Employers

For workers sponsored by employers, SDF funds up to 80% of the course fees incurred for workers less than 40 years old. For workers aged 40 and above, SDF funds up to 100% of the course fees. Currently, many employers sending workers for SRP training have to pay the full fees first and claim for reimbursement only after completion of the courses. With the business downturn, many employers may not be in a position to come up with the cash upfront. MOM is therefore working out an arrangement with PSB and the training providers so that the employers only need to pay the net amount. Details will be announced once they are finalized.

In addition to course fee support, absentee payroll support is also provided to employers to encourage them to send less skilled workers for training. From 1st August this year, the absentee payroll support will be increased from $5.10 to $5.40 per trainee hour for workers less than 40 years old, and from $6.15 to $6.50 per trainee hour for workers older than 40 years. We hope that this will encourage more employers to send their workers for training.

According to NTUC, around 30,000 workers are already, or will be, on temporary layoff or shorter workweek. We should put this slack to good use. Companies that are facing low demand and have consequently implemented shorter workweeks and temporary layoffs should send their workers for SRP training. And during this period of training, workers will receive $3.80 per trainee hour or $600 per month as training allowance. Participating companies, which might otherwise have retrenched their workers, need not top up the training allowance.

With these measures, we hope to persuade employers to use the business slowdown to upgrade the skills of their workers rather than quickly resorting to layoffs. By doing so, they will be more competitive and better prepared when the economy turns around.

Help For Retrenched Workers

Individuals on their own, including those who are unemployed, can also sign up for SRP through surrogate employers like the self-help groups and NTUC. The Government helps to pay for the course fees of these workers, while these surrogate employers provide additional support for low-income earners and those who are unemployed.

Since 1999, 8,000 workers benefited from SRP training under the sponsorship of surrogate employers. To enable the surrogate employers to reach out to more workers, SDF will increase the course fee support given to them. From 1st August this year, SDF will increase its course fee support for trainees aged 40 and above under the surrogate employer scheme from 80% to 100%. In addition, for trainees below 40 years old, the Ministry of Manpower will provide a separate grant from the Lifelong Learning Endowment Fund to surrogate employers to offset part of their cost. These measures will help to encourage the self-help groups and NTUC to reach out to even more individuals.

Unemployed workers who go for SRP training will improve their short and long-term re-employment prospects, but may have financial difficulties during the training period. To help them, the Government provides a training allowance. From 1st August this year, we will raise this training allowance from $3 per hour capped at $500 per month to $3.80 per hour capped at $600 per month, which is the same amount given to workers under employment who have taken time off for training.

Enabling Skills for Less-Educated Workers

A significant number of workers still lack basic skills that are increasingly required at the workplace. Together with its partners, the Ministry of Manpower has introduced two programmes: the National IT Literacy Programme and the community-based CREST programme to help these workers.

The National IT Literacy Programme, jointly developed with IDA, aims to improve the employment prospect of all Singaporeans by equipping them with basic computer and Internet skills. The Ministry of Manpower will invest $8 million for the first year and another $19 million over the next two years to ensure that the training courses are kept affordable for all Singaporeans.

The CREST programme, or Critical Enabling Skills Training, introduced by PSB in November 1998, aims to provide seven cores skills, such as Learning-to-Learn', Literacy' and `Problem Solving and Creativity' to enhance the employability of an individual worker. Presently, only workers sponsored by employers are given funding support through SDF for attending such training. With effect from October this year, the Lifelong Learning Endowment Fund will provide funding support through community self-help groups for individuals without employer support.

These training and training support efforts will cost about $40 million over the next year. However, we should not see budget here as a constraint. We hope that the demand will grow, and the Government is prepared to spend as much as is needed to help more Singaporean workers stay employable. The key is to help them stay employable. The goal is easy to define but hard to achieve. We welcome more ideas on how our workers can be better prepared for global competition.

The economic slowdown is also causing the retrenchment of executives and professionals. As they have skills, many of them will be able to find alternative employment, albeit at lower salaries. Despite the slowdown, the Government is continuing to recruit, for example, teachers and school administrators in the Ministry of Education, and senior officers to serve in many Ministries. The Government cannot become the employer of last resort, but it is on the lookout for good people to strengthen the Ministries and statutory boards.

Professionals will also benefit from EDB's Training and Attachment Programme. EDB is stepping up its efforts to build capabilities in research and development (R&D), product and market development through this programme will be extended to training in local companies. Companies which face constraints in providing training in-house can work with our research institutes and research centres to host such training, fully funded by Government. This programme will help companies to continue training and building capabilities at a time when they are under pressure to cut back on these long-term activities.

Conclusion

In putting together this package, we are grateful for the suggestions made by many organisations and individuals, including members of the Committee on Singapore's Competitiveness, the Singapore Chinese Chamber of Commerce and Industry, the Singapore Confederation of Industries, the Real Estate Developers' Association and the Feedback Unit. The total cost impact of the measures announced in this off-Budget package is estimated at $2.2 billion over one year. This is equivalent to 1.4% of GDP. Though not as large as the package announced at the end of 1998 during the Asian financial crisis, it is a significant package.

While the US economy is currently at a virtual standstill, there are some signs of improvement. There has been a pickup in the leading index, and consumer confidence has held firm in recent months. Federal Reserve Chairman Greenspan sounded a cautious note of optimism in his recent testimony to the US House of Representatives. Although he still saw greater risks on the downside, he also saw signs of a bottoming out of the downturn.

This package will help businesses cope with the crisis. It will also help workers, especially older and less-educated workers, to prepare themselves to retain their jobs or find new jobs. And it will supplement the measures announced in the Budget in February, especially the corporate and personal tax reductions, and the rebates to help lower-income households.

However, we must be realistic. No package of Government spending can neutralise the global downturn, the electronics slump, or the regional problems which are the root causes of the slowdown.

MTI will monitor closely the economic situation in the coming months. If the global situation worsens, we have the resources to do more, and will be ready to do so.

Even as we navigate carefully through this difficult period, we can be confident of Singapore's future. Our medium and long-term prospects are good, provided we do not make major mistakes. The Singapore economy is fundamentally sound, and the confidence of MNCs and investors in our economy remains high. For example, even though foreign investments into the region have declined, Singapore continues to attract major investments from abroad. Major projects announced recently include a 12-inch wafer fab by Taiwan's UMC, a state-of-the-art TFT Liquid Crystal Display plant by Toshiba-Matsushita, a regional distribution centre by Daimler-Chrysler, and a pharmaceutical research centre by Eli Lilly. On the services side, leading B2B companies, eg, E2open and Converge, have set up their Asia-Pacific hubs in Singapore. Autodesk, an established US software company, has also set up its Asia-Pacific headquarters and its R&D operations here.

Manufacturing investment commitments in the first half of this year totalled $5.9 billion, in terms of fixed assets, which is about two-thirds the $9 billion target for the whole of this year. So there is a reasonable chance that we will be able to achieve our target of $9 billion this year. When realised, these commitments are expected to generate $4.3 billion of value added and create about 8,700 jobs. Services commitments reached $800 million in terms of total business spending in the first half of the year, and are expected to generate $750 million in value added and 3,600 jobs when realised. In addition, our current negotiations on Free Trade Agreements with major economies will open new opportunities for our businesses and attract more FDIs into Singapore.

Even though the present slowdown is largely cyclical, we must press on with the restructuring of the Singapore economy. Despite the dot.com crash, the New Economy is for real and we must make use of IT and e-commerce to raise productivity and add value. The entry of China into the WTO will put pressure on wages all over the world, especially at the lower end. Whether we like it or not, because of globalisation, we are competing with hundreds of millions of eager and hungry Chinese and Indian workers for the low-end jobs.

We must therefore scramble up the value ladder quickly. And, to do this, we must liberalise and rationalise many sectors of the economy, for example, in banking, telecommu nications, and power generation and supply. As companies tighten their belts, they should try not to put off longer-term improvement plans. They should build up their capabilities and reposition themselves for the turnaround. Some companies will not be able to do this because of financial difficulties. For them, the cost-cutting measures will provide some help.

Workers should take this opportunity to train and upgrade so that we can switch quickly to new and better jobs. The Government will do everything possible to attract investment, promote enterprise development and help our workers stay employable. We have weathered more serious economic crises before and, provided we respond cohesively and rationally, we have every reason to be confident of overcoming this downturn, and emerging more resilient and competitive than ever.

Mr Speaker, Sir, may I have your permission to distribute a summary [Annex: Cols. 1953-4 - Summary of Cost Impact] of the cost-cutting measures to the House, please? ANNEX - SUMMARY OF COST IMPACT

Mr Speaker: Yes.

BG George Yong-Boon Yeo: Thank you. I will now take questions from hon. Members seeking clarifications on the measures.

Mr Yeo Guat Kwang: Mr Speaker, Sir, I would like to ask the Minister whether the Government has any plans to help the private sector to explore new markets where possible and, should the situation deteriorate further, whether the Government would assure workers that employers will do their part to explore innovative ways to face the challenges and not keep calling for CPF cuts each time they face difficulties. Could the Government take a stronger stand in future towards such requests? Would the Government also consider reviewing the employment pass policy, eg, reducing the number of employment pass for job areas which can be well performed by Singaporeans?

BG George Yong-Boon Yeo: Mr Speaker, Sir, during this period, we should look for all the bright spots that there are on our radar screen. There is one major bright spot which needs repeated emphasis, ie, China. China is expected to grow at 7% over the next five years despite this global economic downturn. Those of us who have been to China are able to sense the organic growth, the self-sustaining growth resulting from the development of its own domestic economy. China will become very big and the earlier we size up the threats and opportunities, the better we will be prepared for it.

I would describe it as a kind of a juggernaut which we see coming down the road, still at first gear, lumbering along, but gradually picking up speed. We can either stand in front of the juggernaut and turn to cardboard or we study it carefully and say, "Look, let us find a good hand-hold, get our skateboard ready, put on our Walkman, and hitch a ride when the juggernaut gathers speed." And we can do this because we have an inside track into China. We have cultural relations, we have good political relations, and China is already our No. 1 investment destination.

So from the viewpoint of the economic agencies, we are now conducting a review to increase our presence in China in a major way. Take tourism as an example. Throughout the last crisis, tourism growth from China increased double digits, and we can expect tourism growth from China to continue increasing in the coming years. As each province opens up, many millions of Chinese will want to travel and we must capture our share of it. There are many areas in which China will offer opportunities, including a reverse flow of investments into Southeast Asia. I have been monitoring the investment trends, and Chinese investment in Singapore has been rising steadily. Still small, but a significant trend, and we should build on it.

In addition, there are other countries like India which we should look at. EDB will be increasing the number of overseas trade delegations and any opportunities that we are alerted to, we would disseminate to the business community as quickly as possible.

Mr Yeo asked about what we can do to encourage employers to take a more generous and liberal attitude towards older workers. This is a major issue for us. It is a structural problem because many of our baby-boomers never had the opportunity and they still have 20 to 30 years of working life ahead of them and they are not well educated. Among them, there is widespread fear that if their number is called, then it is very difficult for them to find re-employment. It is widespread. I have, in my own constituency, grassroots leaders who are in this predicament. I have received letters from others who complain about competition from foreign workers and so on.

At last weekend's Talking Point, Mr Heng Chee How, Mr Stephen Lee and one of the workers retrenched, Mr Anwar, gave a very moving account of their experiences. It requires attitudinal change on the part of all players in our economy. Firstly, among our workers, retrain, at the minimum, learn e-mail. Try, do not say, "Look, I am too old for it." If you cannot even send e-mail and work the computer keyboard, it would be very difficult to be re-employed, and it is not difficult to learn. The key here is a psychological barrier and we must help them to overcome it. We have a whole slew of programmes which we announced earlier to help those who are interested to upgrade themselves.

On the side of employers, Mr Stephen Lee told us that there is already a shift but we should accelerate the shift. It is very important for us. If you study McDonalds, they have done a very good job and we should do a special case study on McDonalds. Many of us are used, when we go to McDonalds, to have aunties and uncles serve us, and that term has acquired a certain affectionate ring to it. When they come to wipe the tables or to collect our trays, people try to minimise their work. So when they can, they will also dispose of their disposables and stack the trays up.

How did McDonalds achieve this? Not by paying these workers very high wages - in fact, if they had to pay them very high wages, they would never have been employed in the first place - but by altering work design. If you look at the keyboard at McDonalds, it is very simple: one fillet-o-fish, one big Mac, you press the button, it is done. You do not require very much training and the workers wear smart uniforms, they go for outings together, they get free meals, they become a little community. If the employers are prepared to make this investment in management, they will find that this investment will more than pay for itself.

I will give you another example. Robinsons, which is well-known for their excellent service, they have got older staff, more stable staff. Many of our departmental stores get into a vicious circle where, to save costs, they hire part-timers. Part-timers are not committed because they see their jobs only as part-time jobs. So if you ask them about a product, they will say, "Can you please look at the label yourself?" When you go to Robinsons, they work a system where, because workers stay there longer, and they have incentivised on commissions as a whole floor, they have a vested interest. Every time they see a customer come in, they have to ensure he stays as long as possible on the floor and not to leave the floor empty-handed. Older workers are more mature, more committed and more responsible and are better for this. For many jobs in the service sector, we do not really require techno-geeks or those who have got very good physical reflexes. They can be put to better use in many sectors. The whole certification programme is, in fact, to help them to do a better job and to provide a better service. Singaporeans are increasingly prepared to pay more for better services. That is why they go to Starbucks.

Because we have been investing in this area, we have made progress. All of us would have noticed how the quality of service of taxi-drivers and bus drivers in the last few years has improved dramatically. It did not come by accident. It came because between NTUC, the taxi companies, PSB and other agencies, they have been pushing it year by year and so we have upgraded ourselves. Let countries around us take the low-end risks but we move up. There is no point in our scolding employers or legislating to force them because this would only pile up their costs and some of them are already suffering. What we can do is, on the part of all parties, help to nudge employers and workers towards a different configuration. In this way, we build up our services sector and build up a greater capacity to absorb older workers in our economy. We need plenty of ideas and I would welcome anyone with any idea from any quarter in Singapore to raise them, either to MTI or our statutory boards, or to PSB, NTUC or any agencies, or to raise them up in this House.

Mr Yeo also asked about employment pass holders. For work permit holders, we have a dependency ratio which ensures that the foreign workers, who are in Singapore, help Singaporeans find employment. In many factories now, the third shift is done by foreign workers. Let us think about this. Without foreign workers anchoring the third shift, there is no first shift and second shift for Singaporeans because no one is going to plonk a factory in Singapore and not operate it 24 hours a day. Without large numbers of foreign workers in Singapore, many Singaporeans would be without jobs. Of course, on the shop floor, in a particular office, there may be a certain friction in the sense that, "Look, why am I laid off? Why is he not laid off? Why is my job given to someone from another country who is working for less?" I can understand this anguish among many Singaporeans and many of them have written to me. But from the viewpoint of the economy, filling in the gaps in our economy allows us to operate a much more complex and sophisticated economy, giving us jobs which we could not otherwise have. If we were not a high-tech centre, and we can only be a high-tech centre if we have large numbers of scientists and researchers working here, many technical jobs would not be available to Singaporeans.

It is for this reason that we have been relatively liberal on employment pass holders. When we encouraged Eli Lilly to come here to set up an R&D centre for the biomedical sciences, they were afraid that when they come here, Singapore is a small city-state, the range of skills that they need would not be available. Why not go to China or Europe where everything is available? I said, "Do not worry. You come here. If you need to bring in workers and expertise from other countries, we will help you." And because of this assurance, they come here. And because they come here, there will be good jobs for Singaporeans. Yes, at the local level, Singaporeans are hurt and we must help them. But the macro picture is extremely important. The key is to ensure that investments continue to flow into Singapore. If they continue to flow into Singapore, we are all right. If EDB reports to me that the pipeline is running out, then I will have to come back to this House quickly.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, first of all, I would like to thank the Minister for Trade and Industry for announcing this set of measures valued at a total of $2.2 billion. I would like to say that I find this set of measures very comprehensive although it was done in a short period of time, since his announcement about the measures earlier this month.

I would like to ask the Minister a few questions, Sir. Singapore is said to be a very export-oriented economy. Some of our detractors have said that Singapore is a very exposed economy. Now, with the downturn, including even the United States, Japan and our regional neighbours, we are possibly going into a further downturn. I would like to ask the Minister that, although now we have a set of measures worth $2.2 billion, in the event of a further drastic downturn, would he be prepared to consider further off-Budget measures. In this downturn, as the Chinese saying goes, we should wei yu chou mou (????), which means to plan and build our huts before the rain comes.

While the $2.2 billion measures are very meaningful, I find something lacking in what the Minister has proposed. Although he has announced several measures, particularly those by MOM to help workers in skills retraining, what I would like to ask the Minister is whether he could be more generous in providing for capital grants for companies in the area of equity human capital development. This is the area where we can build our only resource, which is the human capital. Therefore, could the Government consider giving more grants in helping SMEs when they want to embark on R&D programmes involving, as the Minister has stated, information technology, software development, communications and other areas in the new economy? I think to build up the human capital and to prepare ourselves for this new economy is very important.

The Minister has also mentioned about the possibilities of China.

Mr Speaker: Order. Mr Leong, could I ask you to confine yourself to asking questions?

Mr Leong Horn Kee: Yes, Sir. Could I ask the Minister, since he mentioned that China is a bright spot, what are the plans that his Ministry has in helping local companies to strongly link up with China, in particular, in terms of business missions and training missions? How do we link up with businesses in China so that we could at least latch onto China, which is a growth area, despite the downturn in the other economies?

Sir, finally, a point on CPF cuts. I am also pleased to hear the Minister mentioning about the holding back of the restoration of the 4% CPF cut until a review in the middle of next year. This is very comforting for the local businesses. I also agree with the Minister that there is no need for any drastic CPF cut now.

Mr Speaker: Mr Leong, may I remind you that for Ministerial Statements, you can only ask questions.

Mr Leong Horn Kee: I would like to ask the Minister, in spite of the confidence that he has instilled by mentioning that there will be no further cuts in the CPF for the business sector, whether he is aware that there is a need for more cost-cutting measures for the business sector because operating cost and business cost are, in fact, a major factor in retaining their competitiveness. Could the Minister be more generous again in looking at various Government rates and fees that can be cut so that these businesses will be able to enjoy a more competitive environment because business cost is a factor for them to remain competitive?

Finally, I would like to ask the Minister about the extension of property tax rebate. He did mention about an extension of property tax rebate for commercial and industrial properties. My question is: why is this rebate not also extended to the residential sector as well?

BG George Yong-Boon Yeo: Sir, inevitably, this package will be compared to the $10.5 billion package which we had the last time. Let us go back to the $10.5 billion package and what it consisted of.

Of the $10.5 billion, $7.5 billion consisted of CPF and NWC deductions. In other words, most of that package consisted of a deep wage cut across the board in Singapore. Do we need to do that this time round? So far, the necessity is not obvious. Whatever we do, we cannot give work to the wafer fabs or to the disk-drive factories or to the petrochemical island, or to our pharmaceutical companies. The reason why business is down is not because of high wage cost, but because the global market is down. If we cut wages, I think that may not be a wise thing to do, because there is no need to. In fact, the reason why we have to cut wages so deeply the last time round was because the currencies around us depreciated by about 40-50% while ours depreciated by only 15-20%. So, suddenly, we had to face a margin of 20-25% and therefore we took the 15% wage cut. This time round, when you look at our relative unit labour cost, it is still competitive. So because there is no need to do a major wage cut this time round, the present package should be sufficient. But having said that, I should also say that if things get worse in the future, then we may have to do more and we will consider all possibilities. I can understand the reluctance by all of us, by the unionists, by Singaporeans generally, to resort lightly to a CPF reduction.

On the exposure of Singapore to the global economy, what is the alternative? Ever since we became independent, we knew that our own domestic economy was too small. If we rely only on the regional economy, I think we will be much worse off. In fact, it was because we did not rely on the regional economy in the last crisis that we went through it reasonably well. So we try to buffer ourselves. We have close outriggers which are grounded in ASEAN. We have further outriggers which reach out to Japan, Europe and America. But, unfortunately, when the flows everywhere are down, then we are down. It cannot be helped. Is this a criticism against our economic strategy to globalise our economy? Not at all. In fact, globalisation is the best diversification that we can have for our economy.

Mr Leong asked about what else we should do on China. I mentioned earlier that we have good links with China which we should build on. Recently, the Senior Minister was in Suzhou. President Jiang Zemin and Vice Premier Li Lanqing were there for the ceremony to mark the conclusion of the first phase and the opening of subsequent phases. When I was in Shanghai for the APEC meeting, at a cocktail, one Chinese Vice Minister came up to me and said, "You know, Suzhou attracted more investments this year than Shanghai." I could not believe my ears - Suzhou had more investments than Shanghai! Later on, when I went to Suzhou, they confirmed it. Think about it. All of us know about Shanghai. Few people realise that Suzhou has done so well, and the flagship of Suzhou is our industrial park. So if you read internal Chinese literature, Singapore's standing in China is very high. Our passport is held in high regard. We are known to be trusted. So we should build upon this. The trouble is, because the situation in China is changing so fast, for many of us, in our minds, we have not pressed the "Refresh" button on China. And for China, you must press the "Refresh" button every six months to make sure that you have an updated picture. With the Olympic Games and with the opening of the western region, there will be many new possibilities.

In MTI now, we are conducting a major review of our China policy, and we are bringing in our Ministries. One idea, which we are working seriously on, is this. We are now sending many of our scholars to the West. When they come back, we will send them for a one-year bond-free attachment to China. They will be fully paid, they do a job, they get attached either to a company or an institute, improve their Mandarin, know what China is like at the basement level, build up deep knowledge in MTI and all the statutory boards. Then after a few years, we have a few hundred such officers, and I think we should extend it to the other Ministries as well, we will build up a deep inside knowledge of China. Then whatever happens there, we will know how to position ourselves.

China is a big market. I was talking to David Abel, my counterpart in Myanmar. When I was in Kunming, I ate turtles which were imported from Myanmar. He said, "Ah, turtles, we export lots to Yunnan." But Yunnan has been importing so many snakes, especially the poisonous variety, from Myanmar that the rat problem in Myanmar is getting out of control. So he told the Chinese, "Look, can you please slow down your eating of Myanmar snakes?" The Chinese market will open all kinds of possibilities, and we must get into it early, know what is happening, position ourselves, make use of the strengths and the assets that we have.

Mr Leong also asked whether we will provide grants for companies to upgrade human resources, R&D and so on. In fact, we are doing a lot - EDB, PSB, NSTB. We have a whole range which is available. Recently, I announced on behalf of NSTB a post-graduate programme, $500 million for five years, to promote post-graduate training so that we have the knowledge workers to power the knowledge economy. And if Mr Leong has any particular ideas which are additional to what we already have, MTI will be very happy to hear of them.

Sir, I hope I have answered all his questions.

An hon. Member: What about property tax on residential properties?

BG George Yong-Boon Yeo: I am sorry. Let me read out the section to Members again. This was carefully vetted by the Finance Minister. It says, "The MOF has now decided to extend the 25% property tax rebate for commercial and industrial properties for a year from 1st July this year to 30th June next year, . and the effective rate during this period would thus be 7.5% as compared with 9% before this."

Dr Wang Kai Yuen (Bukit Timah): Sir, I would like to ask the Minister whether his Ministry might have under-estimated the severity of the recession facing us this time. Of course, if we look at Chairman Greenspan's estimate, he is cautiously optimistic. But the US economy is a very wide economy, unlike the Singapore economy which is really based on IT and high-tech. If the Minister has studied the order book versus built ratio, for many of the high-tech companies, this is one of the worst recessions in their history. And when I was coming to Parliament today, I heard on the BBC that ABB of Sweden has cut 8,000 workers. This has just been announced and is based on this order-book-built ratio. My wife and I work for US multi-national companies and both of these companies have complete capital freeze for the next six months. This means it is zero. Both these big US multi-national companies are not spending any dollars on capital equipment. I think, to me, the recession facing us, in particular, in the high-tech sector, is quite severe. I thought perhaps in the package announced by the Minister, there might be an under-estimation of the severity of the challenges facing us.

BG George Yong-Boon Yeo: Mr Speaker, Sir, I would like to assure Dr Wang that we are not making light of the economic situation at all. In fact, Business Times two weeks ago printed an analysis by Stephen Roach from Morgan Stanley. He is sometimes called the "Resident Bear" in the investment community. He wrote a carefully reasoned piece that in fact the whole world has already entered into a recession. Of course, among private analysts, there is a range of views and he represents one end of it. We cannot be sure. We read Greenspan very carefully and he said that he is beginning to see "the market structuring a bottom." They are very carefully chosen words. He is beginning to see the market structuring a bottom. In other words, he has not yet seen a bottom, but maybe there is a bottom forming.

Two days later, the National Economic Advisor, Larry Lindsey, said that the US economy is at a virtual standstill but with the tax cut and the interest cut, next year there should be growth. Paul O'Neil, US Treasurer, declares that he is an optimist, and next year it will be at least 3%. Among Federal Reserve Governors, they said US growth this year will be between 1.25% and 2%. This means that for the second half they expect maybe 1-2% growth. Therefore, an upturn at the end of the year. Of course, you may say that these being officials, they have got to err on the optimistic side in order not to talk down the market. But, at the same time, these are very serious people with access to reams and reams of comprehensive data. So I do not think we should lightly second guess them. What we have done is this. Look, yes, on the scale between optimism and pessimism, we are on the pessimistic side. But we cannot be completely pessimistic at this point in time. If we use up all our ammunition now, there will be little left later. So hold back the 155s, hold back the F16 strikes, but do all that is necessary, given the situation now. If we need to do more later, if you are right in your gloomy prognostication, then we will do more.

Dr Vasoo: Sir, can I ask the Minister that in the light that the manufacturing sector is employing a large number of manpower, what steps are being taken to deal with the hollowing out effects of the manufacturing sector, because this has long-term implications for our manpower deployment? Second, I want to know that if the downturn gets worse, what plans will be put in place to reduce the livelihood problems of workers affected by prolonged unemployment. Third, why can we not be more generous in our training allowance? We are only giving $600 training allowance which is not enough to meet the meals and transport costs of these workers. It requires more than $3 a day to get to the training places. I am curious to know whether the Ministry could be a bit more generous in providing incentives to train older workers.

BG George Yong-Boon Yeo: Sir, this problem of hollowing out is a very serious one, and the challenge here is China. In Taiwan now, from Taichung southwards, for the last six months, there has been disinvestment and unemployment is climbing rapidly. The mood is grey. Hordes of Taiwanese companies have been shifting operations to the mainland. Years ago, George Perot talked about a great hissing sound because of NAFTA. I think Taiwan is hearing a great hissing sound now from mainland China.

We anticipated this. We have been telling our people that the only way for us to earn high wages is to keep on upgrading, which means going up the value chain, product design, value adding services, knowledge intensity, R&D, high-tech. Two months ago, I went to Delphi. Delphi is the auto electronic spinoff from General Motors. They used to make car radios. But after a while, they decided that car radios were not a product they were good at, because we were too expensive here in Singapore and there were tariff barriers to surmount. But they have been thriving and still growing. Making what? They now make small electronic sensors for motorcar air bags. You may use this sensor only once in 10 years and when you need it, it had better work. Otherwise, you may die. So when it comes to very high value added products, we are trusted, we are reliable, we are able to create a system discipline. They make the little electronic components that are now in every spark plug. I did not realise this.

When I was in engineering school years ago, for me, a spark plug was just a physical device and if the gap was too big, you just hammered it to the right gap, and it was okay. Now you open the car, you cannot tinker with your carburetor, your spark plug, because they are all electronic. These components for spark plugs, for carburetors, for air bags are high value added. Delphi sells to auto companies all over the world, and their products are shipped by air. This is the only way for our manufacturing to go where we weigh value not by kilogrammes but by knowledge intensity that goes into every little piece. Capacitors which are so small that they look like grains of sand.

You visit our wafer fab, each is a $2 billion investment, does not occupy a lot of land, but the knowledge, the system that is in it is fantastic, and you cannot just plonk it somewhere in the jungle and expect it to work. You need people, you need a certain discipline, you need a culture of learning, of upgrading and group effort. So this is the way we are going to solve the hollowing out problem.

Dr Vasoo also asked: can we do more for the livelihood of the unemployed? We are beginning to see increases in unemployment. It is not yet a serious problem. If we need to provide direct income support, should the retrenchment situation become much worse, I believe we will do so. We have many safety nets in place at the national level, by civic organisations and grassroots organisations. Children will always be looked after. There are scholarships available, book grants available. We make sure that there is a safety net should things get worse for everyone. That is the Government's commitment to the people of Singapore, and we have the resources to do it.

As to whether we should increase allowances, well, these are allowances and they are not a replacement for salaries. Our fear is while doing all these things, we must not provide a disguised dole. Someone asked earlier whether we should not have an unemployment insurance for more educated workers in Singapore. It starts with the best of intentions, but it has led to long-term structural unemployment in many countries. Because a point comes when it is not worth your while to work, and it is better to declare yourself unemployed or under-employed and collect something. So we are very mindful of that. But if we have got to do more later, we will consider whether some adjustments can be made.

Mr Inderjit Singh: Sir, my question to the Minister is on the issue of reading of the economy, as Dr Wang has brought up. There seems to be at least a six-month, if not longer, lag in the way that the Government is reading the economy as compared to how the rest of the private sector is reading it, and this has been shown a number of times in the past few years. In fact, it was just a month ago when the Minister mentioned that there was no need for off-Budget measures, and here we are - the off-Budget measures.

So my question to the Minister is: are the leading indicators that we are using to read the economy good enough this time round, given the rate at which the economy has dropped from +10% to -10%, which is a 20% swing? So my fear is that we may not be reading it well enough. We also heard the Minister mentioning a recovery by the end of this year, and I think this is far from what many other people are saying about a recovery in the second half of next year or even the end of next year. So my fear is: are we through these measures administering the wrong medicine at the wrong time?

On the third issue on the China strategy, while I know that the Ministry is trying to derive a China strategy that may be a long-term strategy, in my opinion, with impending WTO, with Olympic games coming to China in 2008, in the short term there are tremendous opportunities, especially in the infrastructure area. Could we, maybe through a package deal of investments between SMEs and GLCs, quickly make our way into China to see whether we can tap on some of the near-term opportunities that are available?

My final question is that while we are worried about the fire-fighting that is going on, about the drop in economy, we should not lose sight of the long-term gains that we can get in a knowledge economy, and many of us have asked this before but we have not seen any contribution. I am asking this question on how we can help entrepreneurs and start-ups survive, and even in a worse situation when all the financial institutions, including the VCs whom the Government had funded in the last few years, are being very reluctant to actually pump in any money into start-ups and new ventures even though there may be ideas and they may be viable companies. So the idea of a lifeline fund, and I believe the Minister knows what I am talking about. I hope that while we may fire fight, let us see whether we can do something for the long term through policies like encouraging start-ups and entrepreneurs.

BG George Yong-Boon Yeo: Mr Speaker, Sir, I would like to thank Mr Inderjit Singh for his helpful comments and questions.

We construct a number of scenarios. One of them is the one which Stephen Roach proposed: It is as bleak and as dark as we can make it. Even if it comes to that, we will survive, and we will get out of it, and we will emerge stronger. But should some other scenarios eventuate, then it is important that in administering the medicine, we do not overdo it, because there is a price to be paid when we over-medicate. It is a question of balance. And what we have done is, at this point in time, given the situation, we do this first. If we do not have to do more, that is marvellous. If we have to do more, we will do more. That is the position that we are taking. So there is no attempt to gloss over the current difficulties. In fact, the assessment is a very realistic one.

This morning, I spoke to the Mexican Economic Minister who is on a one-day visit here. He was quite worried. He is 90% dependent on the US economy for exports, and one-third of the Mexican GNP is derived from the US. So he feels the chill immediately. We were exchanging notes and he said he was going to the US after that and he had arranged a series of calls with economic agencies there in order to get a first-hand feel of the situation.

The most important leading indicator is not the one that we construct for Singapore. It is the one that is constructed for the US economy, and that leading indicator in the last few months had tended a little upwards, which is why we are not sure whether that doomsday scenario will in fact eventuate. We will wait and see. We hope that our pessimism is unfounded. But if it is founded, then we will do more. That is the position that we are taking.

On China, on the possibility of SMEs and GLCs working together, we should encourage it but we should not force it. Every time we have a trade delegation going to China, and I will be leading one to the western region next month, we bring along GLCs and SMEs together, including Muslim businessmen this time, because some of them will find the Muslim market in China of interest to them.

As to helping start-up companies, particularly in high-tech, with a lifeline, as I have explained to Mr Singh earlier, we are doing it but not as a handout, and it will be disastrous for our own reputation if we just hand out money to people who cannot be saved. But if they are good investments, we are open to the possibilities. We remain committed to TIF. In fact, we will be increasing the quantum of TIF. We maintain our links to all the top venture capital funds in Silicon Valley and other parts of the world. And our commitment to the promotion of technopreneurship in Singapore is a long-term one, and the dot-com crash has not reduced our enthusiasm for it.

Mr Kenneth Chen Koon Lap (Hong Kah): Mr Speaker, Sir, so far we have been highlighting the IT and manufacturing downturn. The building construction has been going through a downturn since the last Asian crisis. The very recent recession is more or less a final knockout blow. Would the Minister consider accelerating some of the infrastructural projects and perhaps some of the Government's building programmes, so that at least they can provide a little bit of smelling salt to revive this poor chap who has been knocked out?

BG George Yong-Boon Yeo: Mr Speaker, Sir, the real estate developers have been in communication with MTI. I have met a number of them personally to hear their concerns and their views of the real estate market in Singapore. It is a very important part of the domestic economy. It is one market which we have some control over and therefore one which we should watch carefully the development of. We are accelerating infrastructural projects. I mentioned Jurong Island, polytechnics and universities, sewerage works, drainage, roads, tunnels, and so on. If we over-accelerate, we may end up doing things which are unnecessary and wasting money. Worse, we may do things in a rush we should not have done. So this acceleration package which I talked about earlier is the best that we can do at this stage, given the amount of time that we have. In the coming months, if there are other possibilities of bringing forward infrastructural projects, we will certainly consider doing those things.

As to the property market, it will find its own balance. It is not as if transactions have stopped. But at the right prices, transactions continue. And from time to time, you hear of projects which are reasonably priced which clear reasonably well. So I listened to real estate developers very carefully, but also know where they are coming from, and from MTI's perspective, our responsibility is not just to them but also to home buyers and to Singaporeans generally.

Mr Thomas Thomas (Nominated Member): Mr Speaker, Sir, first, I would agree with the Minister's approach that while looking at the difficulties that are presently before us, we should not lose sight that the middle and long-term prospects are not bleak but relatively good. And in preparing for it, I think we should also look at some of the lessons that we have learned from the last Asian currency crisis. Most of the problems then had been with the CPF and wage cuts and we are helping workers to adjust. I am quite enlightened about Government still continuing with recruitment. I would like to ask whether the Government will also recruit older workers.

The other point is on the wage levels which we are talking about, especially with the lower income workers. You can say that there will be pressures to bring wages down, but there is also a problem of having, as Singaporeans, certain living standards and our own cost of living to maintain, and living standards have been down. If we allow freely the wage pressures to go down, it would mean lowering our living standards which is not good for all Singaporeans. Therefore, how are we going to do that and build social cohesion?

The other element is that during the economic crisis ---

Mr Speaker: Mr Thomas, are you making a speech?

Mr Thomas Thomas: No, I am asking questions.

Mr Speaker: Ask your questions now.

Mr Thomas Thomas: One is whether Government will recruit; two is how do we prevent wages for lower income dropping too low such that they cannot maintain their living standards? And the third question is this. In the last economic crisis, we heard about executives and people who, instead of being retrenched, were terminated and they had a lot of hardship because they lost their jobs and they had no retrenchment benefit, and there was some abuse of the system. What would the Government do about that? The other point is this.

Mr Speaker: Mr Thomas, can you be direct and ask your question? Because we have a lot of other Members waiting to ask their questions.

Mr Thomas Thomas: Sure.

Mr Speaker: Do you have any more questions?

Mr Thomas Thomas: One more. The last one is on the Singapore dollar. During this crisis we have a weakening Singapore dollar. The CPF has already been cut. How do we protect the value of the CPF?

BG George Yong-Boon Yeo: Mr Speaker, Sir, on the employment of older workers, I assure Mr Thomas that the Government will not be a laggard in this area. On the importance of social cohesion at a time like this, I think many of us were very appreciative of NTUC's announcement yesterday to lower prices for low income groups and to help children of retrenched workers. I think that package touched a lot of people. And, where we can, all of us, in our own way, should help. In this way, the crisis bonds us more closely together and grassroots here will play a critical role. The role played by the NTUC in the restructuring of Singapore economy is an enormously important one. There are many things that we take for granted in Singapore which other countries cannot do, not because they do not have the knowledge, but because they face opposition.

A few months ago, when a Japanese Minister visited us, he asked to visit PSA, and he wants PSA to take a stake in one of the Japanese ports. And he lamented that, when he was a young man, Yokohama was one of the world's great ports, but now Singapore and Hong Kong have surged so far ahead of Yokohama. He wants to turn things around. He cannot, not because the Japanese do not have the knowledge, but because the unions block change.

There are two ways to adjust to change. One, you put friction, slow it down so that the pain is less. But the result is when the change comes, the pain will be much greater. Or you say, "OK, these are the hot spots. Let's lubricate. Let's be a bit more tolerant, send workers for training, give allowances, help the unemployed." That is our way. And we have been able to achieve this only because in many of the programmes which we announced earlier, we have been able to work very closely with the NTUC. So the NTUC, in terms of attracting investments to Singapore, is really one of our most important weapons, and the point of our social cohesion is a very important one. And if there is abuse by employers in the way they treat workers or retrench workers, I say, "We come down like a ton of bricks on them because there is a social contract." These are the rules. We all work together because these rules apply to all of us. If you are not required to, then we bite our tongue and say, "Yes, that is your prerogative." But if you breach the rules, then I say, "MOM will go after them." And if we know of such cases, I say, "Let's blow the whistle."

On the value of the Singapore dollar, we manage the Singapore dollar in order to preserve the value of the currency. We do not fool around with it in order to alter wage level. And that is the reason why we have been able to maintain the value of the CPF, and that is a policy.

Mr Simon Tay: Mr Speaker, I would like to ask the Minister questions in three areas. First, the overall strategy. I agree that globalisation is the only way to go. But does the Minister think our economy is as robust as it should be? In 1998, we seemed to be one of the last one to enter the recession and now we seem to be one of the first. Is that a misperception?

Secondly, pump priming. With these measures, will the Government be in deficit? And if it is going to be projecting a deficit, will it actually achieve one? Because, again, in the past, we projected a deficit, but we did not achieve it. Perhaps, we under spent. In respect of the pump priming of infrastructure projects, I agree it is not a question of quantum, but actually achieving it. And in this respect, the role of the PWD, which we talked about earlier in this House, has to be really looked at, with the moratorium of five years.

The third area is the Government's help for the individuals. Sir, I would like to ask the Minister again about the training allowance brought up by my colleague, the MP for Tanjong Pagar GRC Dr Vasoo. If this is the training allowance for programmes which we believe truly provide training, why does the Minister believe that it might be a "disguised dole" or is in danger of being so? And if it is a true training programme, why should our allowance be $600 which is not a living wage? And in connection with individuals again, the question of keeping enough savings in the CPF and keeping costs down low for the company to survive is very real. Can I then ask the Minister, if we do generate budget surpluses, whether we anticipate a larger top-up in order to meet the shortfall?

BG George Yong-Boon Yeo: Mr Speaker, Sir, much as I would like to answer many of Mr Simon Tay's questions, I cannot do so because they are really the prerogative of the Finance Minister. You know it is very easy to achieve a budget deficit. In most countries, they achieve it without difficulty. And I do not think we should set that as a target at all. If we need to spend on a particular programme because we are in difficulty, if it improves our capacity, we will do so, but not in order to spend money for its own sake. I think that will be a disaster. The reason why we have survived previous crises and emerged stronger from each of them is because we have been disciplined, and we should continue to be so. And if we do not make major mistakes this time round, we will not emerge worse off. I think it is important not to lose sight of the importance of that disciplined response to problems.

Mr Simon Tay asked whether the allowance can become a dole and, if it is not a dole, why can it not be increased. But one shades off into the other. And if you put yourself into the mind of the individual, beyond a point, he will attend any course because it pays him well. So we have got to be mindful. There is a trade-off. There is an optimal point to be struck and we should strike it carefully, and not blithely take the position that the more the better. It need not be. It can lead to a lot of other problems, maybe not for the individual himself, but for other people.

Mr Simon Tay: Mr Speaker, I do not think the Minister has answered my questions on the CPF top-up and the robustness of the economy.

BG George Yong-Boon Yeo: On direct income support, as I said earlier, if we need to do more, because of widespread unemployment, we will do so. That I am sure will be announced either during the Budget or earlier or later if the situation warrants it.

On the robustness of the economy, it is a big question. Our economy is quite diversified, both in terms of the balance between services and manufacturing, within manufacturing itself, and in our geographical dependence. Our strategy has always been not to be completely dependent upon one market or one country. And that is one reason why, when negotiating all these free trade agreements, we make sure that we have broadband economic connectivity with all parts of the world. What is unfortunate is that all the planets are now in the wrong alignment simultaneously.

If you do a regression analysis of the Singapore economy with the key variables, although the variables are connected, these three variables stand out - the US economy, the semiconductor cycle, Malaysia and Indonesia. The US economy is down, semiconductor is down, Malaysia and Indonesia are not in the best position. Maybe, and this is a prayer, with the opening of a new chapter in Indonesia under President Megawati, one planet has moved out of this misalignment. We had a meeting in MTI yesterday, we are quietly hopeful. Indonesia is a major trading partner of Singapore. It brings opportunities to many little businessmen all over the island. If Indonesia can restore political stability, the rupiah, as it is, makes Indonesia highly competitive even vis-a-vis China. And if they can establish free trade zones in various parts of the archipelago and create conditions which assure businessmen of stability, I think they can take off. And I was cheered that the US, the EU, Japan, the IMF, have all come up with strong statements in support of President Megawati. We would do our part, but we are small. We can only play a catalytic role. If the situation in Indonesia does improve, that is one bright spot for Singapore.

Mr Speaker: I think we will continue with more questions after the tea break. I suspend the Sitting and will take the Chair again at 3.45 pm.

Sitting accordingly suspended at 3.25 pm until 3.45 pm. Sitting resumed at 3.45 pm