Singapore has taken the unprecedented step of using a small portion of the past reserves to tackle the recession, but this is in no way 'breaking the piggy bank', said Senior Minister Goh Chok Tong on Sunday.
In his speech at Marine Parade's Chinese New Year celebration lunch, SM Goh said "to break the piggy bank is to allow all the notes and coins to spill out, with no controls over how much is spent."
"We are not doing that. Our reserves must continue to be protected," he said.
"We must continue to exercise great discipline and not dip into our reserves at the first sign of difficulties. We should tap it only as a last resort and when there are compelling reasons," he added.
SM Goh said he is in favour of putting up three "No" signs when drawing the reserves.
"First, no use of the reserves to support social assistance programmes. As a general principle, the Government must continue to fund such programmes out of revenues raised in the current term of government, not past reserves.
"Second, no draw for permanent programmes. Permanent programmes like Workfare and ComCare, no matter how meritorious, should be funded by current revenues and reserves.
"Third, no draw except under dire circumstances when one-off extraordinary measures are required to ward off catastrophe or prevent irreparable damage to the economy."
During his speech at Roland club, SM Goh also recounted how Singapore dealt with recessions in the past, and the lessons learnt from it.
"The first one was in 1964, soon after we joined Malaysia. I remember this well because I had just started work in the Economic Planning Unit. It was a severe recession and there was high unemployment. The older amongst you here may remember that Singapore was banking on the common market with Malaysia to grow our economy. That, however, did not materialise. To make matters worse, we had to deal with domestic political turbulence, communal tension and racial riots. Tense relations with the central government in Kuala Lumpur, and Konfrontasi by Soekarno compounded our problems. Singapore's trade fell sharply, reaching the lowest level in a decade. After we left Malaysia in 1965, our Government decided that Singapore could not depend on the region as a hinterland. The solution was to leapfrog the region and make the world our market and hinterland. Against the conventional wisdom at the time, we attracted multi-national companies to set up factories here and we exported to the whole world. By implementing such an export-led industrialisation strategy, we grew strongly for the following two decades."
"The next recession was in 1985. The seeds were sowed a few years before, in 1979, when we instituted a high-wage policy to compel employers to use labour more efficiently. I had just assumed office as Minister for Trade and Industry. We decided that it made no sense for Singapore to grow on the backs of low-skilled, lowly paid workers. We wanted to upgrade the skills of workers and move up the value chain so that our people could earn more. With a favourable external climate and full domestic employment then, it was timely to restructure our economy from labour-intensive industries to higher value-added production. So the National Wages Council recommended high wage increases and we upped the CPF contribution rate to 50%. The economy began to transform itself. The high-wage policy was meant to last only 3 years but we could not put a brake to it as the demand for labour remained high. Soon, our wage increases outstripped productivity increases. Wage costs became too high and our exports became uncompetitive. Growth fell to -1.4% in 1985."
"Since wage costs were the main cause of the recession, we cut the employer CPF contribution rate by 15%. Taxes and fees were also cut to further reduce costs. But more than cost cutting, we also invested in our future. We upgraded our workforce through higher education and skills training. We introduced fiscal incentives to attract higher value-added industries. The measures worked. We arrested the recession and growth quickly resumed."
"After another decade of strong growth came a succession of economic crises, beginning with the Asian Financial Crisis in 1997 and followed by the dot-com bust in 2001 and the SARS attack in 2003. The collapse of the Thai Baht in 1997 triggered steep devaluations in the Rupiah and the Korean Won and led to a crisis of confidence in the region. The East Asian miracle unravelled. Foreign investors and fund managers pulled out their investments from Asia. The Singapore dollar fell by some 15% and our stock market plunged by half. Several countries resorted to IMF help. With IMF intervention and tough governmental measures, confidence was eventually restored in the affected countries. Singapore did not need IMF or other external help because of our strong reserves, prudent budgets and sound economy. Nevertheless, we seized the opportunity to adjust our costs, liberalise our financial sector and reform the economy. Within a year, our growth resumed."
"Then the internet bubble burst. The dot-com bust in 2000/2001 exposed our dependence on the electronics sector. This sector contributed close to two-thirds of Singapore's non-oil domestic exports then. We responded by diversifying our manufacturing base from electronics to other high value-added sectors like petrochemicals and pharmaceuticals. We signed free trade agreements with our major trading partners. We also promoted entrepreneurship and promising local enterprises. We grew rapidly. Other than for one quarter in 2003 when SARS scared the hell out of us, our growth was uninterrupted until this year."
- SM Goh said three lessons could be learnt from the past crises, and he encouraged the upgrading of knowledge and skills during this difficult period.
"First, we must remain united and resilient in the face of crises. In past recessions, no matter how bitter the medicine, workers and employers swallowed them and worked hand-in-hand with the Government to tackle our common challenges. The whole population rallied together to pull the economy out of recession. Likewise, we must now confront our problems together, endure short-term pain, and plan for the long term. This year's Budget has prescribed the right medicine but the pain will not go away immediately. The financial sector in the US and Europe is in deep trouble. The IMF has forecast zero growth for the world economy this year. The International Labour Organisation expects some 51 million jobs to be lost. Global demand for goods and services has shrunk. We can do very little to increase demand for our exports. But we can help companies cut costs and save jobs. Together, we can make the "Resilience Package" work. Companies should only retrench staff as a last resort and landlords should pass on the property tax rebates to their tenants. Banks, both local and foreign, should overcome their risk-aversion and continue to lend as in normal times. Otherwise the credit crunch will choke many sound businesses and stifle new enterprises."
"Second, we will help you cope with the bad times. We will extend a special helping hand to those amongst us who are most affected by the slump, and cushion the impact on the most vulnerable. This is not to be done by the Government alone but also by the family and the community. Family members who are better off should help out other members of the extended family who may need help. Similarly, each community, like our Marine Parade community, should reach out to the needy and those badly hit by the downturn. But we must do this in a way that does not entrench a crutch mentality or erode our ethos of hard work and sacrifice.
"Third, do not be demoralized by the current recession but look beyond it. The global recession will end and we will bounce back. So invest in our future. Upgrade our knowledge and skills and remake ourselves to ride the upswing which will surely come. You will notice that we are revamping our primary school education and pouring in billions of dollars into your education and training even though these do not directly help to solve our short-term economic problems. This is to build up our capabilities for the future."