1998, the year of the tiger was bad. Provided there are no further shocks to the world economy, the year of the rabbit could be better. If a Latin American crisis, or another LTCM type debacle, were to cause the US stock market to drop precipitately, the American economy will slow sharply, and there will be trouble for the world. Otherwise for 1999 we can expect the US to make 2�% growth, the EU 2.2%. This will enable Singapore to get by between minus 1% to plus 1%. By next year, the year 2000, we should be able to resume growth at between 2-4%. The badly hit economies of the region have bottomed out. They cannot get worse, except for Indonesia where the troubles are political. Korea, Thailand are on the mend. Malaysia has closed their foreign exchange market and is reporting higher foreign reserves with better trade surpluses, although the bad debts in the banks and corporate sector have not been completely resolved.

Most important for Singapore international investors, the big fund managers who managed billions of dollars worth of pension funds, no longer treat East Asia as one group. They recognise each country is different, and differentiate one from the other. They have clearly marked out Singapore as separate and distinct, because of the way we have handled our problems in the crisis and have been open and transparent on the position of our banks, companies and economy. People in Singapore are united and have faced up to reality. Our banks and companies have disclosed losses and made provisions for them. Our economy has no hidden traps. We have no bubble, except for the property sector. We should have stopped the over-building earlier, in 1995 instead of 1996. That would have been better for our economy.

The calm and rational way we have dealt with our problems has been noted by the fund managers. Their confidence in Singapore has increased. This is an important plus for the future. We have not tried unorthodox methods, we have not changed the rules of the game when the markets turned against us. We have not tried to buck the market forces. Instead we rode the waves.

The vote of confidence in us can be seen in the growing numbers of MNCs which are siting their regional HQs in Singapore. These include Matsushita Electronics, Dredging International, General Motors, Microsoft, Dow Chemicals and Gemplus. Banque National de Paris, a top French bank, has sited its regional coordinating office here.

The MNCs are trimming their operations in the region and concentrating their resources in fewer locations. They are not leaving the region. They are waiting for its recovery. Many are basing themselves in Singapore as a vantage point from which to re-enter the different countries of the region as and when they recover. Our job is to help them keep costs down, stay profitable and expand their business.

We are also getting new direct investments. Last year we had $7.8 billion, a considerable achievement, nearly as much as the $8.5 billion the year before, 1997. I am confident this year, we would be able to reach nearly as much as we did last year, because of the confidence international investors have in Singapore. One problem we have is that the new investments require better educated, better skilled workers. We are losing assembly-line jobs as they are relocated in lower cost neighbouring countries. We will face structural unemployment. It is not that we are not creating the jobs, but that the retrenched workers may not be able to do the jobs now being created, because they were not educated enough 15-20 years ago. Before unemployment hits them they have to learn new skills. Under the Skills Redevelopment Programme, the government funds 80% of the cost of training, while employers, self-help groups or NTUC will fund most of the remaining 20%. Workers pay nothing or at most a nominal sum. They can retrain at weekends or after office hours. If they train full-time, they can continue to get most of their salary, which will be paid by the government and their employers.

Our region is still in a state of disarray. As the internal situations of the crisis-hit countries worsened, there have been more accusations and threats against Singapore. When countries are under pressure, their leaders say and do things that they normally would not. We must expect more of this. As the elections in Indonesia heat up, tensions and tempers will rise. We have been blamed for things that have nothing to do with us.

We must carefully consider whether our relations will get better or worse if we try to placate them for the sake of peace and quiet. In the 1960s Indonesia underwent an even greater period of turmoil. Hundreds of thousands of their people were killed. During Konfrontasi, two Indonesian marines let off a bomb at the Hongkong & Shanghai Bank branch in Orchard Road, killing two Singaporeans. They were arrested, tried and convicted of murder. The Indonesian government asked us to pardon the two. We wanted good relations. But we had to leave everyone in no doubt about Singapore�s absolute commitment to the rule of law, and our intention to conduct relations with the world on the basis of mutual respect and equality.

We had no choice but to hang the marines in 1968. Organised demonstrators rioted and damaged our embassy in Jakarta. Relations remained difficult for several years. Eventually, calm returned to Indonesia when the new Indonesian president, General Soeharto, established his authority. Then in the 1970s we began to establish a stable long-term relationship with Indonesia on the basis of trust and confidence between two independent countries. That understanding served both countries well. We were able to embark on many areas of cooperation for mutual benefit. That stable relationship lasted three decades until May last year when President Soeharto resigned.

Singapore seeks rational and stable relations with Indonesia, on an equal basis as two sovereign countries. We have to be patient. Indonesia is holding elections this year. We look forward to working with whoever is elected as President for good long-term relations. Until the political uncertainties are resolved in Indonesia, we should stay out of their way. Our only involvement has been in humanitarian relief.

Because of the stressful situation in the whole region, even in prosperous and successful Hong Kong, their press have accused Singapore of wanting to do Hong Kong in. This is absurd. We have been supportive since 1984, when confidence in Hong Kong�s future after the British lease ran out, was first shaken. A successful Hong Kong is a multiplier for Singapore�s economy and an extension of our capacity to do business in China and North East Asia. We have learnt from Hong Kong�s example and are liberalising our financial sector, step by step. But we have to do this to keep pace with New York, London, Tokyo, Frankfurt and Hong Kong, not to do Hong Kong in.

Hong Kong�s bad luck was to run into this storm before its newly installed chief executive, his advisers and policy secretaries have had time to "run in" their new political system. They are faced with two problems all at once, one economic, the other political. Because the new secretaries suddenly found themselves in the middle of a crisis, stress levels have gone up. The Hong Kong media have attacked them for their economic problems. Their media have also, for good measure, accused Singapore of stamping on Hong Kong when it is down. The western media on the other hand played up the competition between Hong Kong and Singapore, accentuating the rivalry in order to prod Hong Kong towards more free-market policies that they favour. We did not contribute to this media blitz.

When I met Chief Executive C H Tung in Davos, we had a fruitful exchange for an hour and were able to put these differences to rest. I found him optimistic about Hong Kong�s prospects, confident that Hong Kong would overcome its present difficulties.

Singapore will not denigrate Hong Kong or aggravate its problems. We mean Hong Kong well, and will continue to be helpful wherever we can. In the nature of the relationship, Hong Kong and Singapore will always both co-operate and compete. The success of one is a spur to the greater success of the other.

This crisis will pass. We have to manage this period of strain with once confident, but at present, testy neighbours. Most of all, we have to concentrate on resolving our own slowdown, and improve our competitive position when the rebound comes, as it will.