MM Lee Kuan Yew sees a more vibrant cosmopolitan Singapore emerging in five years if it maximises opportunities in this golden period. This is the full text of his speech at the Tanjong Pagar GRC Orchard Fiesta at Civic Plaza, Ngee Ann City Building last Saturday.
EVERY night there is this buzz along Orchard Road. It is because a competent and experienced team of ministers took painful and unpopular measures in the last few years since the Asian financial crisis to get our domestic policies to encourage growth. Tourism is up. Consumers have confidence; restaurants, food courts are thriving; unemployment has remained low at 2.9 per cent with a healthy creation of 49,000 jobs for the first quarter this year. This is on top of a record creation of 176,000 jobs in 2006.
We are into a period of good economic growth and social development. Singapore made 6.6 per cent growth in the last quarter of 2006 and 6.1 per cent in the first quarter of 2007. If there are no wars or oil crises, this golden period can stretch out over many years. Investors from developed economies are pouring money into East and South-east Asia through fund managers who are investing in the stock markets of the region. With 1.3 billion Chinese growing economically at 9-11 per cent a year for the next 10 or more years, their impact is felt worldwide. India, with one billion people, growing between 8-10 per cent a year adds to the magnitude and the speed of this change.
The whole Asian region is getting a lift-up. Singapore is at the junction between the two giants, China and India. We are well placed to benefit because we had already taken the hard and unpopular decisions starting from soon after the Asian financial crisis. We have reduced corporate income tax rate to 18 per cent and personal income tax to 20 per cent to be as attractive as Ireland and Hong Kong. We had reduced employer's CPF contribution rate by 10 per cent soon after the crisis in 1997, and recently we increased employer's contributions by 1.5 per cent after the companies have improved their balance sheet. To make up for the corporate and personal income tax loss, we have raised GST by 2 per cent and given compensatory packages to tide all those affected for 5 or more years. Perhaps, more important, we decided to revise our vision for Singapore's future as a city with a lively night life with more liberal arts and entertainment scene, the building of two integrated resorts and Formula 1 night racing. These initiatives have sparked off a boom in building around the Marina and Sentosa.
We have drawn in many professionals, especially in financial services, which has expanded to its highest ever levels. Many financial institutions have moved their top people and their regional headquarters to Singapore to manage the wealth that is flowing from the Gulf oil states, the US, EU and Japan. Demand for high end office and residential accommodation has increased. Many home owners who sold their condos in en bloc sales have received windfall gains. Some of them in turn are buying upper end HDB executive and 5-room flats, pushing up their values.
We must check this spike in rents for office and residential space or we will lose our competitiveness. We are releasing more land for new office blocks and condos. While they are being built we may have to make available other forms of office spaces such as the transitional office site at Scotts Road and release state-owned properties for office use to help keep rents from spiralling up. We must not allow our rents to shoot up as in Hong Kong. As for residences, URA has assured us that there are more than 42,000 units of private housing being completed in the next 3 years.
'The stock market and currencies could soften if there were a sudden pull out of funds as in 1997/98. But if this was to happen, there will be no crisis as in 1997/98 because no Asian country today is heavily debted in US dollars.'
Will all this money pouring into East Asia lead to another bubble? There is a danger that prices could run-up too rapidly. We need to ensure that our overall cost structure remains competitive. There is high liquidity in the money supply of the US, EU and oil-producing countries. This accounts for the large in-flow of foreign money that has benefited the regional stock exchanges. In the past year, the stock markets of the Asean-5 (Indonesia, Malaysia, the Philippines, Thailand and Singapore) have risen by an average of 48 per cent. Asian currencies have also strengthened against the US dollar. Asian current accounts are in surplus, with their reserves doubling since 2003 to US$2,500 billion. The stock market and currencies could soften if there were a sudden pull out of funds as in 1997/98. But if this was to happen, there will be no crisis as in 1997/98 because no Asian country today is heavily debted in US dollars.
How well an Asean country does during this golden period depends upon how sound it has become for foreign investments. China has been getting the largest inflow, about US$70 billion a year, with India attracting about over US$10 billion a year. Singapore has kept up its FDIs at around S$6-7 billion. Other South-east Asian countries are also getting increasing FDIs although they have not recovered to their pre-Asian crisis levels.
Investors know that Singapore has a government with a strong mandate. Elected in 2006 with nearly five years to go until the next elections due by May 2012. An experienced team of ministers is getting our policies set in the right direction. So we can ride on the growth of China, India and Japan. Vietnam has now become a favourite investment destination in Asean. This is not to say we have solved all our problems like aging and working beyond 62, to make medical costs affordable as costs of new drugs and procedures go up, mitigating the income gap between the higher and lower educated because of globalisation, upgrading and sprucing up our HDB heartlands, better education at all levels, and so on. But as long as we are making solid growth, most problems can be managed.
If we maximise our opportunities in this golden period, in five years we will have a more vibrant cosmopolitan Singapore, not only clean, green and safe, but also a city, fun to work and live in for Singaporeans and for the many foreign professionals and their families.