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March 5, 2009 MM does not rule out GDP shrinking 10% The good news: When US economy improves, S'pore will recover swiftly By Li Xueying MINISTER Mentor Lee Kuan Yew yesterday raised the possibility of Singapore's economy shrinking by as much as 10 per cent this year. This would happen if the country's exports continue to drop at the same speed as they did earlier this year, he predicted. They fell 35 per cent in January. Said Mr Lee: 'If the second quarter shows a further drop of another 30, 40 per cent, it (economic growth) will go down to -10 (per cent).' If so, this would be a performance four times worse than 2001's record low when the economy shrank 2.4 per cent. Prime Minister Lee Hsien Loong said last week the economy could shrink by 8 per cent, a prognosis bleaker than the official forecast of -2 per cent to -5 per cent, if Singapore's exports were to fall by a third. Speaking at a dialogue organised by news agency Thomson Reuters, MM Lee fielded over 20 questions from the audience of largely bankers. Most queries centred on the economy. He leavened the gloom by observing that Singapore will be one of the fastest to recover once the major economies - the United States, Europe, Japan - did. 'There's no running away from it. They must recover before we bounce back,' he said. '(But) when they do recover, we'll bounce back faster than anybody else because...three-and-a-quarter times our GDP is in external trade. So we just got to tough it out.' Another reason for confidence is that Singapore is sited within the growth area that is East Asia. Said Mr Lee: 'Regardless of immediate ups and downs, East Asia is set to grow. That's why all the banks are here, and in Shanghai, Hong Kong, Tokyo, Seoul and India. 'This is a good environment for Singapore to be in. If we were in Mauritius, for instance, depending on Africa and India, I think I'd say it would take a long time to recover. 'But placed here, I have a feeling we might even recover a little bit faster than London, because London expanded too fast, too quickly. There were excesses. And we were not involved in the excesses here. Our banks were not involved.' Singapore's habit of accumulating reserves has also put it in good stead, he added. But when asked to describe 'likely scenarios' - both optimistic and pessimistic - of how the recession would pan out, Mr Lee quipped to laughter: 'I'm not in a speculative mood.' Recovery, he said, 'may be a short-bottomed V, it may be a long-bottomed V, it may be a long L, nobody can tell us what it's going to be at the moment'. The world will have a better idea in about nine months when US President Barack Obama's team would have tried out their policies for a year. 'Then we know how successful they can be with the Congress.' Much will ride on the effectiveness of the Obama policies. Indeed, Mr Lee said the biggest risk that the world faces is the US economy not recovering. 'Without that recovery, I don't see Europe and Japan - whose largest exports go to America - or large parts of Asia bouncing back.' Meanwhile, Singapore has to prepare itself for 'a very different world' that will emerge in the next five to 10 years. He foresaw tougher competition coming especially from China and India, both of which have 'very talented people'. Singapore should avoid competing with them head-on, and instead look for niches 'before the Chinese and the Indians move in', he said. xueying@sph.com.sg Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access ----------- March 5, 2009 Economic policy tied to long-term trends THE financial services sector that has been a key contributor to the economy over the years is undergoing tectonic shifts, but this does not mean Singapore will change its economic policy. Minister Mentor Lee Kuan Yew made this point at the Thomson Reuters dialogue yesterday, saying that economic policy follows long-term trends, and that 'ups and downs' are to be expected. Drawing a comparison with London, another financial industry-reliant city, MM Lee said that the British capital would take a big hit but would bounce back again once trade picks up and financial transactions increase. He also underscored Singapore's commitment to the pharmaceuticals sector, saying that if there was just one industry he would invest in, drugs would be it. 'Whether you are up or down, whether your pockets are bulging with cash or your wallet is empty, you've got to consume, you've got to buy these medicines,' he said. That is why drugmakers such as Proctor & Gamble and Johnson & Johnson have 'stayed up' in value despite the downturn FIONA CHAN Don't expect Asia to pick up the slack PUNDITS who expect Asia to pick up the slack in global consumption should not get their hopes up, said Minister Mentor Lee Kuan Yew yesterday. He said his experience with the Chinese has shown that they will not become free-spenders. Their heritage has taught them to always put something aside for a rainy day. 'They have lived through floods, famines, pestilence, wars, devastation and they know when those things happen, government falls away and you depend on yourself, your clan, your village. So you have to be self-sufficient. You got to put something by,' he said at a dialogue with business leaders organised by Thomson Reuters. MM Lee added that Singapore similarly shied away from free-spending, which is the reason it has been able to accumulate large reserves. The country, he said, set aside half its earnings during good years when there was double-digit growth. 'That's how we got here. We saved for the rainy day and the rains have come,' he said. JEREMY AU YONG Asian monetary fund? Not a bad idea, if... AN ASIAN monetary fund to protect regional economies is not a bad idea but it should not rival or displace the International Monetary Fund (IMF), Minister Mentor Lee Kuan Yew said last night. The idea has been bandied about for years but recent events seem to indicate renewed interest in it. Last month, a move by 13 Asian countries to pool US$120 billion (S$186 billion) of foreign exchange reserves to defend their currencies was seen as an important step towards creating such a fund. Mr Lee said he expected a 'deepening and widening' of financial arrangements within the Asian bloc during the current crisis. He said: 'There will be more cohesiveness within the Asian system. I think that's not a bad thing but it should not displace the over-arching system of the IMF. I do not think another bloc will be a good idea. But a sub-bloc like the Asian Development Bank as part of the World Bank structure, that won't be bad.' JEREMY AU YONG Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access ----------- March 5, 2009 No purpose in holding polls before 2011, says MM By Kor Kian Beng MINISTER Mentor Lee Kuan Yew has downplayed speculation of an early election, saying yesterday that he saw 'no purpose' in holding polls before 2011. But he stressed that the final decision lay with Prime Minister Lee Hsien Loong, who will have to assess the impact of the global financial crisis on the economy and employment situation here. MM Lee, 85, also did not rule himself out from contesting at the next polls. But that would depend on his health and whether PM Lee considered him an asset or a liability, he said. In an interview with the Reuters news agency, he was asked about speculation of an early poll following the Elections Department's announcement that voter registers were updated, and that changes were made to polling district boundaries. Singaporeans last voted in May 2006 and the next election is not due till 2012. He acknowledged there has been 'enormous speculation' but said that PM Lee is 'the only man who's going to decide'. His sense is that much depends on how the financial crisis develops. Much also hinges on whether the Obama administration can get the American economy to 'bounce up a little' by the second half of next year and lead to an easing of the freeze on lending and credits by the end of next year. 'That's one scenario and we'll have to judge by that whether we go for elections or not,' he said. But he noted it was looking like a prolonged U-shaped economic recovery: 'We have to decide whether we go through the long 'U' and prove that we are the people that can deliver; or we may have to take drastic measures and halfway through the long 'U', in 2011, we say, 'let's go'.' When pressed on whether there could be an election before 2011, he said PM Lee is 'feeling the pulse, not of the people here, but of the financial markets and how it would impact on our economy and our employment situation'. Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access --------------- March 5, 2009 GIC assets down 25% from peak UBS, Citi stakes bought too early, says MM, but 'we can tough it out' By Fiona Chan THE investment portfolio managed by the Government of Singapore Investment Corporation (GIC) has lost about 25 per cent of its value from its peak last year, Minister Mentor and GIC chairman Lee Kuan Yew revealed in a Reuters interview yesterday. Putting a figure to GIC's losses for the first time since the financial crisis started, MM Lee also acknowledged that GIC had bought shares in global banks UBS and Citigroup 'too early'. 'We expected the market to go down in equities,' he elaborated at the Thomson Reuters Newsmaker Event after his interview. GIC thus reduced equity holdings by 15 per cent to 16 per cent, making it cash-rich and able to pick up stocks like UBS and Citi when the market fell. 'But we went in too early,' he said. 'That's part of the ride. We can tough it out for 10 years, 15 years.' Last month, the Government disclosed that Temasek Holdings saw net portfolio value drop 31 per cent between March 31 and Nov 30 last year. Senior Minister of State for Finance Lim Hwee Hua said the Government assesses the performances of GIC and Temasek on an 'overall basis' rather than on individual investments. MM Lee said in the Reuters interview that if GIC had not gone into banks and had held on to its equity investments instead, these would also have lost value. Just last week, GIC converted its US$6.88 billion (S$10.6 billion) of preferred shares in Citigroup into common stock at US$3.25 per share. This pared its paper losses on the investment from 80 per cent to 24 per cent, reports said. GIC also invested 11 billion Swiss francs (S$14 billion) in UBS in December 2007, a stake that was diluted when the Swiss government pumped emergency cash into the faltering bank last October. Still, MM Lee said GIC's performance was 'slightly better than Harvard'. Harvard University's endowment fund likely fell about 30 per cent last year, while Yale University's endowments have seen double-digit declines. GIC has 'well over US$100 billion' in investments over several asset classes in more than 40 countries, according to its first-ever annual report released in September last year. The exact value of GIC's portfolio is not publicly known. About 44 per cent of it is in equities, 26 per cent in bonds, and 23 per cent in 'alternative' classes such as real estate and private equity. The rest is in cash. Fund managers yesterday said GIC's performance was reasonable, although its asset mix makes it difficult to draw comparisons with benchmark indices. 'It's tricky to measure GIC's performance but I wouldn't be alarmed by that return,' said Mr Wong Kok Hoi, chairman of APS Asset Management. fiochan@sph.com.sg Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access ----------- March 5, 2009 Cabinet paper tells why Ho Ching quit SINGAPORE'S Cabinet gave in-principle approval for Temasek Holdings chief executive officer Ho Ching to step down last month, Minister Mentor Lee Kuan Yew said yesterday. This followed a Cabinet paper tabled by the Ministry of Finance, Temasek's parent. The paper laid out Ms Ho's reasons for retiring, MM Lee said at the Thomson Reuters Newsmaker Event. 'She thinks it was time,' he said. 'It's got nothing to do with bad investments because when you go in aggressively into the market you must take the knocks when the knocks come.' Temasek said in a surprise announcement last month that Ms Ho, who joined Temasek's board in 2002 and became chief executive in 2004, would step down on Oct 1. As to why the reins were handed over to an expatriate - American Charles Goodyear, former chief executive of BHP Billiton - MM Lee said 'there was nobody inside Temasek equal to the job'. Mr Goodyear has 'a proven record, and we feel he was a better man than what we had within the system', he said. He was also 'somebody exposed to world markets', and Temasek's investments 'covered the world', noted Mr Lee. Whether the new appointment marks a change in Temasek's strategy will depend on how the financial sector evolves, something no one can predict, he added. In response to a question on whether the timing of Ms Ho's retirement was wise given the uncertain economic conditions, MM Lee said that was for Temasek's board to decide. 'Temasek goes in for higher rewards and higher risks,' he said. 'They lead a very dynamic team to keep nimble and move with the market, move faster than the market.' FIONA CHAN Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access |