CUSHIONING THE IMPACT OF THE DOWNTURN

[Mr Speaker in the Chair]

Debate resumed.

Mrs Lim Hwee Hua (Marine Parade): Mr Speaker, Sir, I have a question on the robustness of our economic strategy. Sir, going by the retrenchment trends during the previous and current crises, it would appear that the manufacturing sector, particularly electronics, is more vulnerable to regional cost and global demand factors than, say, the services sector. I would therefore like to ask the Minister, firstly, if there is a need to revisit the strategy of building the economy on the twin pillars of manufacturing and services, and, secondly, what really is our ability to diversify away from the huge reliance on electronics.

BG George Yong-Boon Yeo: Mr Speaker, Sir, we continue to hold strongly the view that we must keep manufacturing as an important part of our economy and to have both manufacturing and services as twin engines of our growth. In the last economic crisis, without manufacturing, we would have been in deep trouble. This time round, both are down. Next time round, it may be the other way. So it is hard to say. The fact that we have both, gives us more diversification. But, of course, the world is changing, IT is changing the nature of industry. Within manufacturing, within electronics itself, we have to diversify and move into more knowledge-intensive activities the best way we can.

And that is one reason why we are making very major investments in the bio-medical sciences. It will take many years before that sector bears fruit but, if we do not do the work now, there will be no harvest later. Our hope is to make that the fourth pillar of manufacturing in Singapore, after electronics, engineering and petrochemicals.

Mr Heng Chiang Meng (Cheng San): Mr Speaker, Sir, whilst I agree with the approach taken by the Government, especially when I personally think that the economy may well recover in the second half of next year, I would like to ask the Minister whether he could take steps to rectify the situation on the ground, of which I am very deeply concerned.

Sir, if you could bear with me, I would like to use an example to illustrate.

Mr Speaker: Can you get directly to your question?

Mr Heng Chiang Meng: Yes, Sir. I will put what I want to say in a question form, Sir.

Sir, would the Minister look at situations where, like the self-employed, because they need to renew their business licences to continue their business, are not allowed to do so because they have not contributed to the CPF and, because they are not allowed to do so, they are threatened with the cancellation of licences and, therefore, their livelihood will be destroyed.

I would like to ask the Minister whether he can look at this situation as well as right across all Government agencies, bodies, departments and ministries where such regulations may be present to cause further hardship to those already suffering financial hardship.

BG George Yong-Boon Yeo: Mr Speaker, Sir, there are genuine cases and we should handle them in a sympathetic way. As an MP myself, I have received such cases and there are, among them, some really genuine ones which we should support. So I will convey his particular request on the CPF to the Ministry of Manpower and, on the more general point of reviewing our rules and regulations, to make them more business-friendly, this is an on-going exercise. And whatever views or problems that businessmen face, please raise them either to me directly or to this House.

Mr Chng Hee Kok (East Coast): Mr Speaker, Sir, this downturn seems to have caught everybody by surprise. Just only about three months ago, we thought the economy was going to expand quite nicely this year. The question I want to ask the Minister is: how is it that our econometric model can be off the mark so quickly? Is it a model that we can use, for example, to take economic decisions on what is going to happen further down the road? If not, are we just going to base our decisions on US leading indicators, like Mexico? In other words, how good is our forecasting?

The second point I want to ask the Minister is: despite the bright spot of China entering the World Trade Organisation, there is concern among the business circle, those I talk to, that getting the Olympic Games to be staged in Beijing is likely to soak up or suck in a lot of investments away from Asia. What is the Minister's assessment of this, Sir?

BG George Yong-Boon Yeo: Mr Speaker, Sir, the first point about the accuracy of econometric modelling, the model is only as good as we understand the world and we must have good inputs. Globalisation has reduced inventory cycles so that when there is a shock in one part of the world, it transmits very quickly to other parts. Old assumptions no longer hold true. Last year, because of the Nasdaq crash, Christmas sales in the US were down. By November/December, it was felt by purchasers, it was felt by the airfreight companies. By January, Federal Express cut back on employment because they saw the economy turning down. In Singapore, we had a wafer fab which still had full order books in February and they rushed to complete it. And they broke a record from "Sand to Silicon in 16 months", but by the time they opened the fab, the order book had fallen out, to their regret. And this is because the transmission is now almost direct, that when orders are placed, they are placed not only with those who supply the items, the same orders are sent to the supplier's supplier's suppliers. And the result is inventory buffers have come down sharply and there is much less buffer in the economic system as a whole, which is why shocks get transmitted very quickly. The good thing is: if we can come down so quickly, we can also climb up quickly. That is the obverse of this conclusion.

It is a problem. Last year, we kept on reviewing our economic forecast upwards; this year, we kept on reviewing it downwards. I do not think we can do any better, because this is a global problem.

Mr Chng Hee Kok: Sir, the Minister has not responded to my second point about China, on the Olympic Games.

BG George Yong-Boon Yeo: Mr Speaker, Sir, I do not quite know enough about this to give a considered reply to Mr Chng.

Mr Lew Syn Pau (Kreta Ayer): Mr Speaker, Sir, one of the greatest problems SMEs are facing in this downturn is the sudden decline in orders and decline in revenue and, as a result, some SMEs are not able to get enough cash flow to service the interest. I wonder whether the Government can actually do something to help these companies in the short term service their interest or even some other working capital problems.

BG George Yong-Boon Yeo: Mr Speaker, Sir, when times get more difficult, it is natural that interest rates go up for higher-risk loans, and some companies face difficulties getting financing for working capital. The assessment of such risks cannot be done by the Government, cannot be done by PSB. It can only be done by banks and by lenders. Whether or not we can tweak LEFS in such a way as to provide some assistance is something that we can consider, but I need to get my staff to study it more carefully before agreeing to the proposal.

Mr S. Iswaran (West Coast): Mr Speaker, Sir, may I ask the Minister two questions. The first is: the package is silent on measures to help the unemployed or retrenched to service home mortgages, unlike the schemes available in 1998. I would like to know whether the Government has plans to provide such schemes in light of the fact that about 20,000 are expected to be retrenched this year.

The second question, Sir, is on the calibration of the Government's response. In 1998, the growth was 0.5% and the Government came out with a $10 billion package. Even netting off the CPF wage cut aspect, it was still about $2.5 billion. This time round, our forecast is 0.5% to 1.5%. So the low end is in a similar range to 1998 and, as the Minister says, it is structuring a bottom. So we have not seen the bottom yet. The package of $2.2 billion, in fact, includes some carry-through measures from the last cycle. So the question really is: why is the Government being somewhat more restrained this time in its package when compared to the situation in 1998?

BG George Yong-Boon Yeo: Mr Speaker, Sir, as I said earlier, the retrenchment problem is still not widespread. There is widespread fear because of growing retrenchment, but the retrenchment itself is not yet widespread. We can sense this at our meet-the-people sessions - the number of hardship cases that we are seeing. If it does become widespread, which means that our darker scenario is the more accurate one, then we may need a package of income support for those who are in distress. But we have not reached that point yet.

Mr Iswaran: Sir, the Minister has not answered my second question on calibration of response.

BG George Yong-Boon Yeo: Mr Speaker, Sir, I thought I answered that we have to calibrate our response to the actual situation. If this turns out to be a relatively short downturn and at the end of this year or early next year the global economy turns up again, then these measures which Mr Iswaran talks about ought not to be necessary. But if it is more prolonged, which is entirely possible, then we will have to do more. And some of what we do will have to be in the form of direct income support to individuals.

Mr Goh Choon Kang: Mr Speaker, Sir, in the area of tourism, which I think can help our retail sector, my question is: why are we satisfied with just double-digit growth? I think there are a lot more Chinese tourists out there who are interested to come to Singapore. So what are the plans that are being put in place to attract more of them to come here, to stay longer, to spend more and also to buy more branded goods, eg, jewellery, watches, etc?

I would also like to know whether the Ministry has plans to weed out those unscrupulous tour agents and shopkeepers.

BG George Yong-Boon Yeo: Mr Speaker, Sir, Mr Goh is right that tourism is one sector which we should give particular promotion to during this period. And tourism arrivals from China and India will put food on the table for many families in Singapore. Therefore, this is an area which we should try to do more on. It is likely that Singapore Tourism Board will open more offices in China to exploit the rapid growth in Chinese tourism beyond China. They already have a very large domestic tourism, but as each province builds up its middle-class, the desire to travel is very great, and many of them like to come to Singapore. And we should welcome them. For historical reasons, because we were afraid that some of these tourists may in fact turn out to be illegal migrants, we have put all kinds of controls in order to ensure adequate safeguards. We have relaxed some two years ago, and MTI is now taking the issue up to MHA again to see whether we can relax it further, to make visa applications easier.

On the point about the consumption of Chinese tourists, many of them come here on package tours which are very cheap. Then, when they come here, instead of being brought to see cultural sites, they are brought to shop and they are made to pay high prices because these are the only shops they are brought to. We have been collecting statistics. They are high spenders, especially in jewellery items. On the Chinese side, they have been wanting us to help them weed out these zero-cost package tours, which are really an abuse, and we are working with them but it is not quite easy, because that is the way the market is operating. If people want such tours, they will get such tours, one way or the other. It is like going to Las Vegas.

Mr Speaker: Order. General George Yeo, could you give way to the Leader of the House to move a procedural motion before 4 o'clock?