Lee, who will take over from Goh Chok Tong as prime minister next week, said measures that have seen wages cut, the state-run pension fund changed and workers forced to learn new skills have been a major reason for Singapore's current economic recovery.

"Why are we having an economic recovery? It's not just because the winds have changed and the outside environmment has improved. It's not just because we are being carried by the rising tide," Lee told a gathering of unions from the financial and services sectors.

"We are doing well because over the past few years we took bitter medicine ... we restructured our economy and it is working."

Faced with growing regional competition, Singapore has taken tough measures to keep the cost of doing business down and boost its attractiveness to foreign investors.

Among a range of steps, the government has introduced a wage structure with a bigger variable component dependent on company profits, reduced employers' contributions to a state-run pension fund and cut company taxes.

Stressing that restructuring is a continuing process, Lee urged workers to upgrade their skills and remain flexible in order to keep their jobs or find new ones in a highly competitive environment.

"We are harvesting the first fruits of restructuring but our work is far from over ... we need to continue to pursue wage restructuring, to make us more flexible and more attractive to investors," he said.

He said even the developed countries of the European Union were adjusting to compete with newer, less developed members, where business costs are cheaper and employees are willing to work longer hours.

Lee was generally optimistic about Singapore's prospects, with the economy officially on track for growth of 5.5-7.5 percent this year after expanding just 1.1 percent in 2003.

"I think the road ahead will have some bumps but it is a road to a promising destination. It will be an interesting and challenging journey for us," he said.

Lee, 52, likened Singapore to a plane being lifted by external and domestic factors.

"Externally, we now have two wings to fly on, namely India and China.

"Domestically, we have two engines to push us forward -- manufacturing and services."

The manufacturing sector, which includes semiconductors and pharmaceuticals, accounts for a quarter of Singapore's annual gross domestic product (GDP) worth 160 billion Singapore dollars (93 billion US).

Lee said Singapore produces one-third of the global output of computer disc drives, hosts six of the top 10 pharmaceutical companies, has 13 wafer fabrication plants and is the third largest refining and petrochemical centre in the world.

For the services sector, Lee said the government plans further growth in tourism, healthcare and the food and beverage segments, in addition to the vibrant financial services industry.

                                                      Home