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Jan 22, 2009 | 21:22 GMT

3 mins read

Singapore: Trying for 'Resilience' During a Recession

ROSLAN RAHMAN/AFP/Getty Images
The Singaporean Finance Ministry has announced a $13.7 billion "Resilience Package" containing tax cuts, tax rebates and subsidies for businesses and consumers, as well as new infrastructure projects. The stimulus comes as preliminary gross domestic product (GDP) statistics reveal a 3.7 percent contraction for the fourth quarter of 2008 (an annualized 16.9 percent contraction in seasonally adjusted terms), and as the Finance Ministry announces that the GDP may have shrunk by a total of 1.2 percent in 2008. Singapore is fully integrated into international trade and is an extremely flexible market economy, making it sensitive to changes worldwide. Located on the busiest waterway in the world, the Strait of Malacca at the tip of the Malay Peninsula, the country has become a vital transshipment hub for most trade crossing from the Indian Ocean to the Pacific. Singapore's close ties with the international system made it the first Asian country to formally slide into recession in October 2008, after registering two quarters of negative growth. The city was hit particularly hard by the credit crunch and financial crisis, both because it is a financial center and because it saw trade grind to a halt as the means of financing it dried up. Then recession sank in and a period of low global demand ensued, snuffing out even more trade. Overall the economy is estimated to have grown by only 1.2 percent in 2008, down from 7.7 percent for 2007, according to the Ministry of Trade and Industry, which claims the rate of contraction in 2009 could be between 2 and 5 percent. The stimulus package announced Jan. 22 will add to Singapore's budget deficit for fiscal year 2009 (beginning April 1), potentially driving it as high as 3.5 percent of GDP. With an economy built entirely around exports and re-exports (valued at a whopping 231 percent of GDP), Singapore cannot possibly hoist itself out of recession through government spending alone — it needs international hustle and bustle to return. Domestic consumers simply cannot pick up the slack left by vanished global trade. Prime Minister Lee Hsien Loong plans to pay for about a fourth of the new spending through foreign currency reserves, but even with about $165 billion in reserves remaining to spend, Singapore will have to rely on big economies like the United States, Japan and China, to revive and thus restore the flow of shipments that gives Singapore its usual economic vibrancy.

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