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Singapore’s gamble paying off

IT IS no accident Singapore will be the fastest growing economy in Asia this year, with GDP expansion on track to exceed nine per cent.

The island republic managed the regional recession more deftly than any of its neighbours. Instead of waiting to be knocked over by the shock waves, the Government took proactive action by slashing corporate costs to maintain competitiveness.

The measures included halving the employer contribution to the Central Provident Fund to 10 per cent, freezing the salaries of top civil servants and encouraging wage cuts and bonus reductions in the private sector.

Together these initiatives carved 15 per cent off the wage bill, the highest component cost of doing business.

Companies also got a tax rebate of 10 per cent and stamp duty on contract notes was suspended. Port duty fees for containers ships were reduced and there was a 10 per cent rebate of landing fees at Changi Airport.

Two years ago Singapore was in textbook recession. The economy shrank 0.7 per cent in the third quarter of 1998. Retail sales and hotel bookings were sick, and the consumer price index fell into negative territory.

The radical economic prescription, which cost S$10 billion, or 7 per cent of GDP, was a bold gamble. It worked.

Today, manufacturing is 11 per cent up. Exports grew 27 per cent in August, with overseas sales of computer chips, tele-communications equipment and other electronics holding up surprisingly well.

Sales are booming in the swish shops along Robinson Road and tourist arrivals are expected to reach a record 7.6 million this year – significantly more visitors than Australia is attracting, despite the Olympics boost.

The service sector, which makes up one third of GDP, is expanding at 8.8 per cent from a year ago. Unemployment has fallen to 2.5 per cent in September to a post-recession low.

Singapore has drawn a bead on Hong Kong’s enviable position as a financial centre and has mounted a big push to attract more fund managers to the growing finance industry.

There are five-year tax holidays for foreign fund management firms. Morgan Stanley Dean Witter Investment Management was the first to take advantage of this.

Singapore has more than 200 money management entities drawing on a well-educated pool of local talent with first class communications skills and fluency in English, Cantonese, and Mandarin.

Singapore overtook Hong Kong in the volume of foreign exchange dealings long ago. It is now closing in on Tokyo for the title of third biggest forex centre in the world behind London and New York.

The Singapore Stock Exchange has merged with the SIMEX futures exchange of Nick Leeson fame. The Australian Stock Exchange recently reached agreement with Singapore to electronically link the two markets and trade each others shares by next year.

Earlier this year the telecommunications industry was partially deregulated and power will go the same way soon.

The all-pervasive government runs what amounts to a command economy for its 3.7 million people. But it is beginning to loosen its corsets.

Singapore is also shedding its snoozeville reputation. The clubs, bars and restaurants, especially in the quay developments, are packed and both residents and visitors can actually have fun.

But there are some challenges ahead.

Critics say the recovery is patchy and small local businesses are not doing as well as the more globally oriented multinational players.

Costs will rise, as the employer pension fund contributions are partially restored to 16 per cent and wage increases go back on the agenda for both the public and private sectors.

The stock market has run out of steam and is down more than 25 per cent this year – although that is common in Asia, as the oil price bites and the repatriation of portfolio money to the US continues.

Most importantly, the dominant electronics industry is clearly vulnerable to a hard landing in North America.

However, Singapore has always punched above its own weight in the business ring and has clearly got itself in good enough shape to take a few knocks in 2001.

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