PRESIDENT'S ADDRESS

The President: Honourable Members, the last five years have been momentous times for Singapore. The Asian Financial Crisis overwhelmed many economies in the region. Singapore was not spared. Our economy slowed down as well. Fortunately we pulled through and recovered quickly. Then in 2001 the US economy slowed, the global electronics industry slumped, and we experienced our most severe recession since independence.

We are now emerging from this recession. But we are not back to the pre-crisis days of steady, high growth. The world has changed. The next few years will present us with the most severe challenges in our nation's history.

EXTERNAL ENVIRONMENT

Tougher Global Competition

Firstly, we face much tougher competition, because of globalisation. Despite problems in the world economy, globalisation has not let up. In many industries, for example electronics and finance, competition is global. This trend is driven by technology, which is advancing faster than ever.

Other Asian economies like Japan, Korea, Taiwan and Hong Kong, are pursuing the same opportunities as we are, growing their IT sectors, investing in life sciences and competing for global talent.

New players are emerging in the world economy. As they strengthen their capabilities, they will attract more investments, and export more sophisticated products. They will increasingly compete with countries ahead of them, including Singapore.

The most important new player is China. China's low costs, abundant talent, and huge domestic market are attracting MNCs to relocate plants to China. Good quality but cheaper Chinese products are flooding world markets. Adapting to China's emergence and economic transformation will pose a major challenge for many Asian countries, including Singapore. South East Asia

Secondly, our own region has been fundamentally altered. For three decades, Southeast Asia was stable, with countries focussing on economic development and peaceful competition. Singapore benefited greatly from this benign environment.

The Asian Financial Crisis changed this. It uncovered serious flaws in the economies which will take time to remedy. Meanwhile, growth will be slower, and investment opportunities will be fewer.

In Indonesia, a country key to the stability of the region, the crisis did not just cause economic damage. It precipitated a collapse of the old order, unleashed tectonic forces in Indonesian society, and set off political changes which are still being worked out.

Also, the spread of narrow, radical interpretations of Islam in the countries around us, influenced by the worldwide tide of Islamic fundamentalism, will have its effect on our multi-racial, multi-religious society.

A troubled region, and an ASEAN preoccupied with internal problems, mean fewer growth opportunities for Singapore in the region. And security problems that arise in the region will inevitably spill over to Singapore.

Global Terrorism

A third significant external development is the war against terrorism. The Taleban and Al Qaeda may have been routed in Afghanistan, but global terrorism is far from defeated. Terrorist cells, linked to global networks, exist in many countries, including in Southeast Asia. The Jemaah Islamiyah terrorist group is a stark reminder that these are not faraway problems, but immediate threats to us here and now.

The danger to us is two-fold. Firstly, we are directly at risk of terrorist attacks, especially by Islamic extremist groups originating elsewhere in the region. Such attacks will cause suspicion and arouse enmity between our races. Secondly, US action against global terrorism may cause repercussions in Muslim countries, and complicate the situation in Southeast Asia.

CHALLENGES FOR SINGAPORE

This is the new environment that we are now in. Our future depends on how we respond to these economic, social and political changes.

Economic Restructuring

We must make basic changes to our economy, to stay competitive in an economically changed world, and continue to prosper. Hence we set up the Economic Review Committee to examine fundamentally all our economic policies, and propose fresh strategies to sustain growth and prosperity.

The Committee is in the midst of its work. But it is clear already that one key priority is to maintain a highly conducive overall business environment. For example, our infrastructure must be first-class but their costs kept competitive, to anchor businesses here and keep Singapore a regional hub. And we must encourage effort and enterprise, as the best way of creating jobs and improving the livelihoods of Singaporeans. Our taxes must be kept as light as possible, to maximise the incentive for businesses and individuals to venture and work hard in the hope of doing well.

Another priority is to strengthen the spirit of entrepreneurship and risk taking among Singaporeans as the basis for Singapore's future competitiveness. We should inculcate in the young a more inquiring and adventurous spirit, and encourage them to think up new ideas and create new opportunities. Developing arts, sports and a stronger civic society are part of the process to bring this about.

Entrepreneurs not only create jobs and wealth. They make our whole economy more dynamic and vibrant, and help us adapt to changed conditions and exploit new opportunities. Strong local enterprises, both start-ups and established companies, will complement the MNCs and add depth to our economy.

We must also identify new areas of growth, especially in services. We have already started liberalising the services industry, notably the telecommunications and financial sectors. We must also upgrade sectors like retail and construction, whose productivity is lagging behind. We cannot afford to shelter inefficient, protected sectors in our economy. All parts of our economy must become competitive and efficient, for that is the only way to create productive, well-paying jobs for our people.

These changes will enable us to sustain growth over the next decade. But the competition is now much tougher, and our income levels are much higher than before. We can no longer expect to grow by 8 to 10%, year after year, as we did before the Asian Financial Crisis, even if we were to work as hard as or harder than before. That phase of our economic development is over. Going forward, if we can make 4 to 6% growth per year, we will be doing well. We must understand and accept this reality.

Social Cohesion

As we upgrade our economy, we must maintain and strengthen our social cohesion. Economic restructuring means adjustments and dislocation. It will not be easy for Singaporeans to cope with the faster pace of change, and the demands for new skills. But we must press on, or risk being overtaken by our competitors.

Our income distribution will stretch out. In the globalised economy, the rewards are greatest for those with the knowledge, skills and enterprise. Those at the top will do very well. But at the lower end, those without skills will have difficulty raising their incomes, or even finding jobs. This is already happening.

We should celebrate Singaporeans who do well. By their success, they will create more jobs, build up our economy, and provide role models for others. But to uplift the whole population, we must redouble our emphasis on education and training. Workers must stay employable, and find new jobs when their old jobs become obsolete. They must make the effort, to undergo retraining and to adapt to the changed job market. We must never allow an underclass to form, left out from growth, deprived of opportunities, and perpetuating poverty and despair from generation to generation.

The Government will help Singaporeans to make the changes, especially those groups who will have difficulty adapting, such as older citizens. We have the programmes and the resources to do so.

We have spread the fruits of Singapore's progress widely, through HDB home ownership, excellent schools, good health care, and asset enhancement schemes. We will continue to do this, to make sure that in the next phase, life improves for all Singaporeans.

Next, we must attract and integrate international talent into our society. Talent is the critical success factor in the knowledge economy. We will continue to develop the abilities and skills of young Singaporeans to the full. Without capable and enterprising Singaporeans, we will not make it in the knowledge economy. But we are too small to produce, by ourselves, all the talent that we need. Even the developed countries are now actively sourcing for international talent, including from our part of the world. We must supplement our own talent with talent from abroad. Only then can we sustain exceptional performance as an economy and a country.

Because of our success in attracting talent, a significant proportion of Singaporeans are first generation immigrants. These people bring with them skills, experience and drive which will enrich and strengthen us. They are, however, different from Singaporeans who have grown up, studied and worked here for many years. Our society must be open and welcoming to newcomers. We must make them feel at home and in time absorb them as one of us. We must not allow resentment and tensions to build up against newcomers. In the globalised economy, a closed and xenophobic society will not prosper.

The third and most critical aspect of social cohesion is reinforcing our racial and religious harmony. We have made steady progress integrating the different races and religions, but the task is never complete. The tendency for different groups, with different customs and religious affinities, to interact and seek comfort amongst themselves will always be present. Given today's heightened religious consciousness, we must move beyond mere tolerance, in order to enhance appreciation and build confidence amongst the different groups. We must re-double our efforts to encourage more mixing and interaction between the communities, and gradually widen the common ground that all Singaporeans share.

The Government will maintain its impartial, secular approach to managing religious diversity. We will protect the minority communities, their cultures and their ways of life. At the same time, all groups must be willing to adjust and compromise, in order to live harmoniously in a multi-racial, multi-religious society.

The Jemaah Islamiyah arrests highlighted the fault lines in our society. Had the group succeeded in setting off multiple bombs in Singapore, it would not only have cost many innocent Singaporean lives. It would have caused distrust and enmity between Muslims and other Singaporeans, and torn our social fabric apart.

The Jemaah Islamiyah group has been broken up, but the problem has not gone away. The virus of terrorism has infected our region. Other groups will form, and at some time, will try again. This is why we must strengthen inter-ethnic relations, for example, by forming Inter-Racial Confidence Circles and Harmony Circles. We must make sure that should such an attack ever occur, leaders of the different communities can work together to contain the damage, re-establish trust and confidence, and prevent further harm to our society.

Political Renewal

In politics, we must remake our policies to fit a new generation of Singaporeans, and adapt our style and approach to stay in tune with the times. No policy is so cast in stone that it can never be changed, whatever the circumstances. Provided we recognise the realities of survival in Southeast Asia, and remember Singapore's fundamental constraints and vulnerabilities, we can widen the out-of-bounds markers in a realistic and practical way.

The life experiences of the new generation are quite different from those of their parents. With the benefit of good education, their options are wider, and their expectations higher. This is natural and positive. Each generation strives to give their children a better life and brighter future.

We must engage young Singaporeans in issues which affect their future. Singaporeans are now better equipped to participate in the national debate, and more ready to discuss sensitive matters in public. We must open up more space for Singaporeans to do so. This is an important way to harness the ideas, idealism and dynamism of the young, while keeping their hearts and minds rooted in Singapore.

However, more vigorous debate should not lead to more fractious and polarised politics. We enjoy a broad and strong national consensus on the direction which the country should take. This consensus is a major advantage over our competitors. We must nurture it by pursuing policies which benefit the majority of Singaporeans, and by enlisting the energies and support of all those who have Singapore's interests at heart, including those who disagree with specific Government policies.

The true test of our nation building is whether Singapore's success endures beyond the founding generation. We have made one successful transition, from the first generation leaders to the second. During the term of this Parliament, we expect to make another political transition. The nucleus of the next generation of political leadership is already in place. Before the next elections in 2007, the core members of the new team must establish themselves, and take Singapore another step forward. CONCLUSION

Singapore is at a turning point. The challenges are formidable, but we are well equipped to tackle them. Our system is transparent, efficient and corruption-free. We have pursued forward-looking, rational and prudent policies. We have invested heavily in our people, and built a stable and cohesive society, an oasis in a turbulent region. Let us remake Singapore together, so that despite the difficulties and dangers, we will continue to thrive and prosper in an uncertain world.

Adjourned accordingly at Eleven Minutes to Nine o'clock pm.