PRIME MINISTER’S NEW YEAR MESSAGE 1999

1998 has been a difficult year for Singapore, but a traumatic one for many Asian countries. The economic crisis has damaged economies and decimated wealth. It has caused banking and corporate failures, job losses, and great hardship.

In some countries, the crisis has ignited political and social unrest. Their prospects now depend on political developments, and not just on trends of exchange or inflation rates. Without political stability, investments will not come in, and the economies will not grow.

Our close neighbours – Thailand, Malaysia and Indonesia – have been badly hurt. Indonesia has been hit worst. The country is going through wrenching political change. It is sailing in uncharted waters. It is difficult to predict the course of its political transition, let alone the final outcome.

Our own prospects depend on the regional economic climate, and indirectly on political events abroad. These political problems may have unhappy consequences – social disorder, regional instability, and uncontrolled flows of illegal immigrants. These will affect our security and economic recovery.

Growth for the 4^th quarter was again negative, at –1.5% (on a seasonally adjusted quarter-on-quarter basis, the figure is –1.9%). However, for 1998 as a whole, the economy grew by 1.3%. This is not a bad performance, considering the unfavourable environment.

1999 will be another difficult year. Our November economic package has significantly reduced business costs, and strengthened our competitiveness. Despite this package, we cannot avoid some further retrenchments, though much fewer than if we had not reduced costs. The pressure in the electronic sector to reduce prices, and so cut costs to the bone, is still very strong. Furthermore, the US economy may slow down next year, making it hard for us to boost exports despite our stronger competitiveness.

MTI has forecast that the Singapore economy should grow by between minus one per cent and plus one per cent in 1999. But the prospects are very uncertain.

We have become used to high growth since the 1985 recession. This sudden interruption of our high growth is a warning never to take things for granted. Our economy is driven primarily by external demand. The environment has changed swiftly. Contagion has spread from country to country. This can happen again. So we must always be alert to what goes on in our region and the major industrial countries, and respond nimbly to changing conditions.

The crisis has underlined the importance of sound policies and good government. While we have not been spared, our economy has been much less affected than others. Our banks have been prudent. Our private sector has not incurred huge foreign debts. Above all, our society and government are free of corruption, cronyism and nepotism.

Our measured, rational response to the regional crisis has differentiated us from others. Our collective effort to cut costs, and to maintain sound, free market policies, have earned us high ratings from international analysts. This, plus our ability to build a national consensus, will convince many MNCs that Singapore remains a good destination for their investments.

This crisis is a real test of our cohesion. Singaporeans have rallied together behind policies that will help us to get out of difficulties. But the crisis is far from subsiding. Even countries that have made the most progress in restoring their economies, like Thailand and South Korea, still face daunting tasks. They have to put their banks in order, restructure industries, unwind property gluts, and maintain political support for painful austerity measures. How much harder it must be for Indonesia, our largest neighbour with 211 million people.

Fortunately, we are not hostage to the region’s problems. We have adequate reserves. We are upgrading the skills of our people and investing in our future. Our position with international investors has strengthened. Stay united and we will ride out the worst of the crisis.

I wish all Singaporeans a Happy New Year.

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