Benefits for Businesses

Jobs for Singaporeans

(A) Jobs credit

To sustain jobs for Singaporeans, the Government will introduce a Jobs Credit, which will encourage businesses to preserve jobs in the downturn. This is a temporary scheme to help companies through an exceptional downturn. Details of the scheme are as follows:

• Employers will receive a 12 per cent cash grant on the first SG$2,500 of each month's wages for each employee on their CPF payroll.

• The Jobs Credit is for one year, and employers will receive the Jobs Credit in four payments: March, June, September and December 2009.

• For each payment, employers will receive Jobs Credits on the employees that are on their CPF payrolls at the start of the quarter in which the payment is made. The wages paid to these employees in the previous quarter will be the qualifying wages used to calculate the 12 per cent cash credit that employers will receive.

∘ For example, for the first payment to be received at the end of March 2009, businesses will receive Jobs Credit on the employees that are on their payrolls in January 2009. The wages paid to these employees in October to December 2008 will be the qualifying wages used to calculate the 12 per cent cash credit that employers will receive.

(B) Spur for workers and professionals

To help Singaporeans upgrade their skills so that they can stay employed or seek re-employment, the Government launched the Skills Programme for Upgrading and Resilience (SPUR), which provided higher course fee support for companies and individuals and absentee payrolls for companies that send their workers for training.

The Government will make the following enhancements to SPUR to help PMETs re-train:

• Course fee subsidies for PMET-level courses that are eligible for SPUR will be increased from 80 per cent to 90 per cent, the same subsidy level as rank-and-file level courses. This includes all Specialist and Advanced Diplomas offered by the polytechnics.

Benefits for Businesses

Raising Productivity: Skills, Innovation and Economic Restructuring

The Government will commit SG$1.1 billion a year over the next five years in the form of tax benefits, grants and training subsidies to support the national effort to raise productivity.

Details of the relevant Budget measures are given below.

(A) Boosting Skills and Enterprise Productivity through National Effort

(A1) National Productivity and Continuing Education Council (New)

The Government will establish a high-level National Productivity and Continuing Education Council. The Council will be chaired by DPM Teo Chee Hean and include members from the Government, business community and the labour movement. It will:

1. • Galvanise the major national effort to boost skills and enterprise productivity;

2. • Develop a comprehensive system for continuing education and training (CET); and

3. • Oversee the work of the different government agencies and promote close collaboration among the business sector, workers and unions, and the public sector.

More details on the composition of the Council and how it will approach its work will be announced later by DPM Teo.

(B) Investing in People

(B1) Expansion of the Continuing Education and Training (CET) System (Enhanced)

The Government will spend SG$2.5 billion over the next five years on CET.

The Government will build up an outstanding CET system for adults, to complement a first-rate education system for our young. This is our response to the next phase of gains in productivity, which will require us to develop competence in more complex tasks, mastery of skills and depth of expertise in every trade and profession.

(B2) Introduction of Workfare Training Scheme (WTS) (New)

The Government will introduce a three-year Workfare Training Scheme (WTS) to complement the Workfare Income Supplement (WIS) scheme. The WTS will:

1. • Subsidise 90 per cent to 95 per cent of absentee payroll and course fee outlay for employers, when they send their low-wage workers for training;

2. • Provide cash grants, capped at SG$400 per year, when WIS recipients complete their training;

3. • Introduce a structured training programme for those with very low skills, including those who are unemployed.

The events of 2007–9 highlighted several lessons for the policymakers. This chapter focuses on six broad interrelated themes:

1. Decoupling theory a myth

2. Globalization adds vulnerability but also increases efficiency

3. Strong economic fundamentals give more room to handle the crisis

4. Market discipline is necessary

5. Stimulus packages need to be timely and carefully designed

6. Coordinated policy action helps in faster recovery

Decoupling Theory a Myth

Prior to the crisis, there were a lot of discussions on decoupling of emerging and developing economies from the West. In other words, it was believed that even if the advanced economies went into recession, Asia would be affected very marginally and would largely continue with its growth. However, during the economic crisis in a rapidly globalizing world, the decoupling theory has almost lost its credibility. The reduction in growth has not been limited to the advanced economies. The decline from the actual growth rate for 2007 to the growth rate estimated for 2009 is essentially identical for all four groups of countries: 6.3 percentage points for the world on average, 6.1 percentage points for the advanced economies, 6.6 percentage points for the emerging and developing economies, and 7.6 percentage points for those in the Western Hemisphere.

In the case of Singapore, which is a highly open economy, the transmission of the crisis took place through both trade and financial channels. Even though Singapore had very limited exposure to the toxic assets, the economy suffered the consequences of the recession that gripped the advanced economies of the world.

Globalization Adds Vulnerability but Also Increases Efficiency

Globalization of trade (merchandise and services), finance, and labour (demand for labour and flow of remittances) had tied countries together to a much greater extent than they had been earlier. Any crisis that affects a major country or group of countries in the global economy or financial system will have some adverse effects on all other countries.

Date: 12 October 2009

Introduction

1. In April 2009, MAS re-centred the exchange rate policy band downwards to the prevailing level of the SG$NEER, while maintaining the zero per cent appreciation path which was adopted in October 2008. This decision was made against the backdrop of dissipating inflationary pressures and weak growth prospects for the Singapore economy in the midst of the global financial crisis.

2. Since the last policy review, the S$NEER (Figure 1) has fluctuated in the upper half of the policy band. This reflected the broad-based weakness in the US$ since the end of the first quarter, as well as strong capital inflows to the region. The domestic three-month interbank rate has remained at 0.69 per cent over the past six months, amidst low global interest rates.

Outlook for 2009 and 2010

3. Following the sharp contractions in Q4-2008 and Q1-2009, the Singapore economy rebounded strongly by 22 per cent on a quarter-on-quarter seasonally adjusted annualised (q-o-q SAAR) basis in Q2-2009. The easing of global financial conditions and inventory restocking had benefited the domestic financial market and manufacturing activity. According to the Advance Estimates released by the Ministry of Trade and Industry today, Singapore's GDP expanded by a further 14.9 per cent q-o-q SAAR in Q3-2009, with a broad range of industries across both the manufacturing and services sectors registering positive growth. Reflecting the better-than-expected outcome, Singapore's GDP growth forecast for 2009 has been revised upwards to between –2.5 per cent and –2 per cent, from –6 per cent to –4 per cent.

4. Looking ahead, the economy is not expected to sustain the strong pace of expansion seen in Q2- Q3-2009. While prospects for the external economies have improved, final demand in Singapore's key export markets, including for IT products, has yet to recover decisively. Significant challenges remain in the transition to private sector–driven growth as governments prepare to exit from their expansionary policies. Household spending, particularly in the US, continues to be constrained by the weak labour market, sluggish income growth, and lower housing wealth. Businesses also remain cautious in their investment decisions.

ESC Key Recommendations

We must achieve higher productivity growth of 2 to 3 per cent per year, enabling our GDP to grow on average by 3 to 5 per cent per year over the next decade.

Increased productivity is not achieved merely through increased efficiency, but restructuring our economy to provide more room for rapidly growing and innovative enterprises.

7 Key Strategies

1. Growing through skills and innovation

a. High-level national council to oversee and drive efforts to boost productivity and expand CET (Continuing Education and Training) to ensure national level coordination of government agencies and close collaboration between public and private sectors.

b. Encourage enterprise innovation and investments in technology and training, both through broad- based and targeted sectoral approaches.

• Introduce strong economy-wide fiscal incentives for companies to invest in productivity enhancement and innovation.

• Set up a National Productivity Fund to provide grants to support industry-focused and enterprise-level productivity initiatives at the sectoral level.

c. Upskill workers at all levels through enhanced CET system.

• Multiple skills-based progression pathways to complement academic route.

• Reach out to more PMETs.

d. Strengthen support for low-wage workers through enhanced Workfare Income Supplement (WIS) scheme, and additional support for training.

e. Manage our dependence on the foreign workforce by raising foreign worker levies in a gradual and phased manner.

Being a small and open economy, Singapore is susceptible to external shocks, but by the same measure, the city state tends to bounce back faster and stronger than many other regional economies. Thus, following the global economic recovery, Singapore also catapulted itself out of recession in the third quarter of 2009. The economy expanded by 0.6 per cent, the first expansion after three straight quarters of contraction. The growth was driven by expansion in the electronics manufacturing sector and improvements in the trade-related and tourism sectors on the back of a gradual stabilization in global economic conditions.

But this fast turnaround may not be without hiccups. Weak household balance sheets and persistently high unemployment, especially in the United States, might weigh down consumer demand in Singapore's key export markets. Although external demand will continue to grow, it will be at a sluggish pace. Growth momentum in the second half of 2010 may also slow down as the effects of global fiscal stimulus measures and inventory restocking wane. The city state may experience uneven recovery across sectors. According to the Ministry of Trade and Industry of Singapore, the economy is expected to grow by 4.5–6.5 per cent in 2010, after shrinking by 2.0 per cent in 2009.

World Economic Outlook

The global economic recovery seems to be well under way. Businesses and consumers are slowly realizing that worst-case scenarios are almost over and are adjusting their consumption, investment, and hiring behaviour according to a more benign economic behaviour. Most importantly, businesses are no longer cutting on their inventories. The advanced economies, which were hit particularly hard by the financial crises and the collapse in world trade, are showing signs of stabilization, driven mainly by an unprecedented public policy response. The rebound in emerging economies is being led by a resurgence of Asia, fuelled by policy stimulus and a turn in the global destocking activities. This was also reflected in the financial markets as investors’ risk aversion declined, portfolio flows recovered, and stock prices rallied.

After the onset of the global economic crisis in 2008, Singapore had become the first East Asian nation to fall into recession. The year-on-year growth rate had plunged from 7.7 per cent in 2007 to 4.5 per cent in H1-2008 (first half of 2008) and further to –9.5 per cent in Q1-2009 (first quarter of 2009). Although the exposure of Singapore's banks to sub-prime mortgage-linked securities was limited, the recession came mainly through the fall in non-oil exports. This is especially because Singapore has maintained an outward-looking policy over the past decade and has reduced barriers to international trade and investment. Its total trade to GDP ratio of close to 300 per cent is among the highest in the world, thus raising the economy's vulnerability to global economic shocks.

Transmission of Global Crisis to Singapore

There were at least three ways that the global developments were transmitted to the Singapore economy. While the financial sector was affected by the cessation of credit flows, the real economy suffered as the external demand for manufactured goods choked up. In addition, it was the working class that suffered from the worst consequences of the economic recession.

Impact on the Real Sector

Singapore's economy took a severe pounding from global financial sector turmoil and growth slowdown as the country's GDP shrank by an alarming rate of 15.2 per cent and 7.1 per cent quarter-on-quarter (q/q) seasonally adjusted annualized rate (saar) in Q4-2008 and Q1-2009 respectively. Year-on-year, the growth rate fell for three consecutive periods before hitting a low of –9.5 per cent in Q1-2009 (Figure 3.1).

This striking weakness in the Singapore real economy had been largely due to a marked contraction in the manufacturing sector (Figure 3.2). Production was badly depressed on the back of falling global export demand. The two key export destinations, the United States and Europe, grappling with the financial turmoil, still account for more than 33 per cent of the total non-oil exports (Table 3.1).

When I received the manuscript of this book from Ms Sanchita Basu Das, Lead Researcher for Economic Affairs in the ASEAN Studies Centre at the Institute of Southeast Asian Studies, I was, for a brief moment, reminded of the thoughts that ran through my head when I first heard the news of the collapse of Lehman Brothers. I felt at that time that the world was witnessing the beginning of something that may be a lot worse than any of the crises we have been through in our working lives. But nothing prepared me for the quantum of loss that the world suffered, both in financial and human terms.

There have been a lot of books written subsequently on what happened during those tumultuous days, and on the coordinated response of governments in the subsequent months. However, I was happy to see that this particular manuscript focuses on the actions taken specifically by Singapore policymakers to manage the effects of the crisis. Singapore has over the past few decades transformed itself into a major financial centre, a contemporary global city that attracts talents internationally. Yet, being a city that bridges the East and West, Singapore was one of the first in Asia to bear the brunt of the global crisis in 2008.

This book gives an insight into both the global crisis and the experience of Singapore. Aptly titled The Road to Recovery, it has indeed been a journey for the residents of this country, who endured pain and misery in the immediate aftermath of the crisis, but then slowly marched towards a recovery, albeit a fragile one. The directions to this path were of course led by the Singapore Government, who enacted Singapore's most radical budget ever in 2009. At the same time the Monetary Authority of Singapore kept a close watch on the currency to ensure it did not go through the same wild fluctuations that befell the G-10 currencies.

In many respects, Thailand holds a special place in Vietnam's policy toward Southeast Asia. Vietnam and Thailand are major countries of mainland Southeast Asia. The geographical proximity has made Thailand most sensitive to developments in Indochina to which Vietnam attaches a special importance. In addition to this consideration, the relationship between Vietnam and Thailand has always been the barometer of that between Vietnam and ASEAN countries, especially before Vietnam joined the Association. Maisrikrod noted that “regional order in Southeast Asia during most of the 1980s was centred around the Thai-Vietnamese relationship.” Soon after the Vietnam War ended, Vietnam and Thailand established diplomatic relations, in August 1976. Relations between the two countries however fell to the state of hostility as Thailand became the ASEAN front-line state to oppose the so-called “Vietnamese occupation of Cambodia”. Since the end of the Cold War, relations between Vietnam and Thailand have reflected the general trend toward greater regional cooperation. In the 1980s the two countries began to rebuild a rounded relationship, which has been described by the Vietnamese side as “friendly and better than ever before”, and by the Thais as “mutually productive and beneficial” based on “friendship, trust, and mutual respect”.

Many reasons have been provided to explain the positive movement in Vietnamese-Thai relations. This chapter argues that the improvement in relations was a result of a combination of the relaxation of international and regional tensions, a comprehensive course of reforms in Vietnam, and changes in Thailand's foreign policies. Above all, however, the changes in foreign policy priorities in Vietnam helped start a chain reaction that worked toward the betterment of bilateral relations. Furthermore, the regional frameworks in which both countries are involved helped to consolidate this bilateral relationship. Last but not least, increased interactions and greater understanding at the people-to-people level has also contributed to good relations between the two countries. The combination of these factors suggest that the two countries can enjoy conditions for long-lasting friendly relations. Both realist and constructivist approaches should feel comfortable with these factors in providing explanations for the current and future state of relations.

INTRODUCTION

Over the past decade, efforts at promoting closer regionalism in East Asia have been stepped up for various reasons, including: (i) a response to the experience and lessons of the 1997 financial crisis; (ii) the gridlock in the Doha round, success of North American Free Trade Agreement (NAFTA), and expansion of the EU; (iii) the mitigation of political factors that prevented closer co-operation in the past, for example, competition between China and Japan; and (iv) the perception that ASEAN economic integration will not progress far unless other East Asian economies are involved.

One major constraint to this process is the large disparity in economic development in East Asia. Table 1 depicts the situation for fourteen countries of East Asia and the ASEAN member countries including Timor Leste. In terms of per capita income in PPP$, East Asia has the largest disparity when compared to other regional groupings: Latin America, Europe, South Asia, and North Africa. Studies have shown (for example, Venables 2003) that a large disparity in economic development will hinder efforts towards greater economic integration.

This paper examines various policies at the regional and national level that can help narrow the development gap and at the same time increase the chances for effective and meaningful economic integration. At the national level, these policies can be considered as necessary conditions for successful trade liberalization and financial co-operation. Free flow of goods and services is a minimum requirement for ASEAN to function as a single market. On the other hand financial co-operation and integration of financial markets provides a valuable window of opportunity to foment macroeconomic stability and reduce vulnerabilities.

In this context, the following questions will be considered: What are the structural constraints to growth in the Philippines? What institutional and economic reforms, thus far, have been implemented? What factors prompted these reforms? What institutional and economic reforms are needed or lacking?

The Singapore-Indonesia relationship is commonly described as being subject to sharp fluctuations, shifting between periods of tension and relatively close cooperation. A conventional schema would commence with the period of hostility during Indonesia's Konfrontasi (Confrontation) of Malaysia from 1963 to 1966, which also targeted Singapore by virtue of its temporary inclusion in Malaysia from 1963 until 1965. Diplomatic relations improved with the change of regime in Indonesia, when President Sukarno was ousted by Suharto's New Order government in 1966, deteriorated sharply when Singapore executed two Indonesian marines in 1968, and returned to an increasingly close and cooperative footing from 1973 until the end of the New Order in 1998. Under four successive Indonesian Presidents since 1998, relations have been subject to a number of acerbic exchanges and occasionally obstructive policies, interspersed with declarations of cooperative intent and ongoing close relations in many functional areas.

The current state of bilateral relations appears to be somewhat prone to tension, beneath a veneer of official protestations to the contrary. As detailed below, a number of contentious issues remain outstanding, and progress towards resolving them has stalled since 2007. In the Indonesian press and Parliament, disputes with Singapore over seemingly mundane issues have frequently been magnified, and senior Indonesian politicians have accused Singapore of insincerity in its dealings with Indonesia. Singapore, for its part, has remained officially open to cooperation, but has taken a relatively inflexible line on several contentious issues. As noted with regard to Singapore's relations with its neighbours, bilateral issues “are often kept on hold merely to avoid open conflict”.

This chapter examines patterns of cooperation and conflict between Indonesia and Singapore with a view to understanding why the relationship appears prone to recurrent uneasiness and, during certain periods, difficulty in resolving matters of mutual interest. A number of different potential explanatory factors are examined. The first section asks whether Singapore is in a fundamentally vulnerable position with regard to Indonesia due to structural, historical, or demographic factors, and whether this might explain the apparent sensitivities surrounding the bilateral relationship.

INTRODUCTION

Despite the progress in tariff reductions initiated by the World Trade Organization (WTO) over the past twenty years, there still exist a number of trade barriers and other problems needed to be addressed. Besides, there are conflicts among WTO country members in several issues. All these delay the trade liberalization process, which will take a long time for trade to be fully liberalized. As a result, several countries have moved ahead of the WTO by initiating regional and/or bilateral free trade agreements (FTAs).

By end May 2004, more than 200 agreements have been enforced; 80 per cent of these numbers are bilateral agreements. Recently, ASEAN members have been very active in forming bilateral FTAs with non-ASEAN members. For example, Singapore enacted the Japan-Singapore FTA in 2002 and the U.S.-Singapore FTA in 2003; and Singapore has been negotiating with several countries such as Canada, Mexico, and South Korea. Thailand also signed the free trade agreements with Australia and New Zealand in 2004 and 2005, respectively; and it has been initiating FTAs with several countries.

Many concerns have been raised whether it is the most beneficial to each ASEAN member to sign the agreements separately, rather than collectively. Even though a bilateral agreement may broaden market access, reduce trade barriers, increase investment opportunity and strengthen other cooperation between the two countries, it appears that a small country often loses bargaining power over a big country in arranging the agreement. ASEAN, as a group, would have more bargaining powers in negotiating with big FTA partners such as the United States, China, and Japan. Moreover, bilateral FTAs that ASEAN members have engaged in may lead to welfare losses while trade liberalization among ASEAN has yet fully be honoured. These losses are partly caused by in-efficient resource utilization and possible negative terms-of-trade effects, arising from the FTAs.