Singapore's blueprint for survival

The measures put forward yesterday by the government-appointed Committee on Singapore's Competitiveness (CSC) include a big cut in salaries, which should slash manufacturers' costs by an average 15 per cent and produce combined corporate savings of S$10 billion a year.

Trade and Industry Minister Lee Yock Suan, who chaired the CSC, said: "It is not easy to go through this process of wage reduction.

"But it is better to see a 15 per cent cut in wages than to see many more Singaporeans lose their jobs."

Latest jobless figures out this week showed unemployment rising to 4.5 per cent, its highest level since the mid-1980s after years of virtually full employment.

National Trades Union Congress deputy secretary-general Lim Swee Say said: "This is something the labour movement is very worried about.

"The priority of the labour movement is to limit unemployment as much as possible."

Government ministers and company directors are expected to lead by example by cutting their own packages first.

Earlier this week, the government confirmed Singapore had entered its first technical recession in 13 years. (An economy is considered to be in a recession when it registers two consecutive quarters of negative growth.)

Central to the proposed action plan is a recommended 15 per cent cut in wages, including halving the monthly amount employers are duty-bound to pay into workers' retirement provident funds.

Employers' Central Provident Fund contributions would be cut from 20 to 10 per cent of their workers' monthly salaries, which should produce an average effective pay package cut of about 8.2 per cent.

Companies would be expected to make up the difference through directly cutting monthly salaries and bonuses.

Other recommended cost-cutting measures contained in the blueprint include lowering corporate and personal income taxes or increasing rebates; reducing utility charges; suspending stamp duties on share deals; reducing foreign workers levies; cutting government land and factory rental charges; cutting vehicle costs and extending property tax rebates.

Singapore Prime Minister Goh Chok Tong said in a written preface to the report he would "ask the relevant ministries to follow up promptly on these recommendations".

Deputy Prime Minister Lee Hsien Loong will outline the government's response when parliament reconvenes on November 23-24.

George Yeo, second minister for Trade and Industry and CSC vice-chairman, said: "Anything we have to do to stem loss of business we will do.

"In any crisis, there are losers and winners. We intend to be a net winner in this crisis."

Mr Lee said the budget was likely to go into deficit next year to allow additional pump-priming, including further accelerating state infrastructure and construction projects.

Investors were celebrating in advance yesterday, sending Singapore's key stock index up 5.5 per cent in recognition of the impact the measures will have on firms' bottom lines.

DBS Bank chief economist Friedrich Wu said: "I don't think these measures will bring Singapore out of recession, because Singapore's economy is driven by external demand.

"What they are hoping to do is save jobs and help companies tide over for the next few quarters."

SG Securities head of economics Neil Saker said: "I doubt whether these measures will have any immediate impact on the economy, but it does increase Singapore's attractiveness as an investment location."

Singapore's international competitiveness has significantly deteriorated as a result of large currency depreciations among many of its foreign export-hungry competitors during the region's 1.5-year-long crisis.

This cost-cutting package eases pressure on the government to allow further depreciation of the Singapore dollar to restore the republic's competitiveness.

Analysts warned one downside could be negative impact on consumer spending and mortgage repayments.