Asian financial crisis, 1997-1998
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The Asian financial crisis started in Thailand with the
collapse of the Thai baht in July 1997 and quickly spread to
the rest of the region. What began as a currency crisis soon
affected the wider economy and led to economic downturns in
several countries. Singapore was not directly hit but suffered
the spillover effects of the economic slowdown among its
regional neighbours and fell into recession in the second half
of 1998. Realising that stimulating domestic demand was not a
viable option in a downturn caused by external circumstances,
the Singapore government implemented various measures to help
ease the cost burden on businesses and individuals.
Background
Just before the Thai baht collapsed in July 1997, it had been
the target of intense speculative attacks. For a while, the
Thai government managed to defend the currency, which had been
pegged to the United States (US) dollar. However on 2 July
1997, it announced that it would no longer intervene and would
allow the baht to float. The sharp depreciation of the baht
against the US dollar began that same day.
This immediately triggered a panic among investors, and other
regional currencies such as the Philippine peso, Indonesian
rupiah and Malaysian ringgit also began to experience selling
pressure. Soon, foreign investors lost confidence in not only
the currencies but in those economies that had what they saw as
weak fundamentals. In countries most affected by the crisis,
banks and other companies collapsed or had to be rescued and
many others were forced to downsize, resulting in massive
unemployment. In Indonesia, the crisis even led to the
resignation of then president Suharto.
Impact on Singapore's Economy
Given its close economic linkages with other Asian
countries, Singapore could not escape the effects of the
financial crisis facing its regional neighbours despite strong
economic fundamentals. Overall, the Singapore economy
contracted by 1.4% in 1998 in terms of real gross domestic
product (GDP). This was the first decline in real GDP since the
1985 recession and came after an average growth of 14% per
annum from 1986 to 1997. The impact on Singapore was indirect
but wide-ranging.
Many companies went out of business, leaving their workers
without a job. To survive, other companies cut cost by
retrenching staff, suspending new recruitment and reducing
wages. In the last quarter of 1997, 4,280 workers were
retrenched, more than three times higher compared to the
previous quarter. The situation worsened in 1998, with
quarterly retrenchments averaging about 7,300. Company closures
and downsizing also translated into lower demand for
commercial, industrial and residential properties, which put
downward pressure on property prices and rentals. Stock prices
fell and this had a negative wealth effect which further
weakened consumer sentiment.
Because Singapore's petrochemical industry catered mainly
to Asia, the regional economic slowdown meant lower demand for
Singapore's oil domestic exports, which fell sharply by
15.3% in 1998. Non-oil domestic exports still grew, but at a
slower rate of 0.9%. As manufacturers had to contend with
weaker demand in both regional and local markets, the
manufacturing sector contracted slightly by 0.6% in 1998.
The financial services sector, on the other hand, was one of
the worst hit industries and registered a sharp contraction of
7.4% in 1998. Reflecting the poor economic outlook for
Singapore and the erosion of confidence in the regional
economies, banks curbed their local and offshore lending
activities and generally lent less to both companies and
individuals.
Also badly affected were the wholesale and retail trade sector
and the hotels and restaurants sector, which contracted by 4.1%
and 7.5% respectively in 1998. Faced with uncertain job and
financial prospects, people generally became more cautious
about their spending, especially on big-ticket and
non-essential items. In addition, visitor arrivals fell sharply
due to the economic slowdown in the regional markets, where
most of Singapore's visitors come from, and the
strengthening of the Singapore dollar against various regional
currencies. With weaker domestic spending and fewer foreign
visitors, retail sales (excluding motor vehicle sales) fell
8.6% in volume and 9.2% in value in 1998. Food and beverage
outlets likewise reported a drop in business. Hotels saw a
significant decline in their average occupancy rates and
resorted to lowering room rates to boost occupancies, leading
to a 19.4% drop in their room revenue in 1998.
Singapore Government's Response
The Singapore government implemented a host of
measures in 1998 with two key objectives: lower business costs
and provide relief to individuals and households. Some of these
were in place until 1999 and some till 2000.
The Budget 1998 did not include strong measures to counter the
effects of the regional financial crisis as the economy was
still growing well at the time that it was announced in
February 1998. However, it did have measures to help lower
business costs, such as a 15% property tax rebate for
commercial and industrial properties, property tax exemption of
up to five years for land under development, and the removal of
stamp duty on all instruments except for those which relate to
stock and shares, and immovable properties. Individuals and
households also received help, including a 5% personal income
tax rebate, and rebates on the service and conservancy charges
and rentals on Housing and Development Board flats.
Subsequently, regional economic conditions deteriorated and the
outlook for Singapore worsened. In response, the government
announced a package of off-budget measures in June 1998 worth
S$2 billion. To cut business costs, the package included an
additional 40% property tax rebate for commercial and
industrial properties, reduced rents and rental rebates on
various government properties and lower telecommunications
tariffs. It also provided specific measures to mitigate the
effects of the economic slowdown on the property market. For
example, government land sales were suspended and successful
tenderers of government land were allowed to dispose of these
land parcels.
Then in November 1998, as Singapore slipped into recession, the
government announced another package mainly aimed at further
reducing costs for businesses. A major component was a
10-percentage-point cut in the employers' Central Provident
Fund contribution rate. Other key measures included a 10%
corporate tax rebate, a 5-8% wage reduction, and cuts in a wide
range of government rentals, rates and fees.
Recovery in 1999
By early 1999, the Singapore economy was already
showing signs of recovering. In the first quarter of 1999, the
economy returned to positive growth, powered by a strong
rebound in the manufacturing sector. Retrenchments during the
quarter also declined. The recovery was sustained through the
year and overall GDP for the whole of 1999 grew by 7.2%, much
higher than the government's initial forecast of between
-1% and +1%.
Author
Valerie Chew
References
Aggarwal, N. (1998, March 5). Absence of tax cuts disappoints
business sector. The Straits Times. Retrieved June 5,
2009, from Factiva database.
Economic survey of Singapore, first quarter 2002.
(2002). Singapore: Ministry of Trade and Industry.
(Call no.: RSING 330.95957 ESS)
Economic survey of Singapore, 1997. (1998). Singapore:
Ministry of Trade and Industry.
(Call no.: RSING 330.95957 ESS)
Economic survey of Singapore, 1998. (1999). Singapore:
Ministry of Trade and Industry.
(Call no.: RSING 330.95957 ESS)
Fernandez, W. (1999, May 20). Recession over but it's not
time to rejoice. The Straits Times. Retrieved June 5,
2009, from Factiva database.
Ministry of Finance. (2004). Budget speech 1998.
Retrieved June 5, 2009, from
http://www.mof.gov.sg/budget_1998/index.html
Ministry of Manpower. (2009). Employment. Retrieved
June 5, 2009, from
http://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics/Employment.html
Ministry of Manpower. (2009). Retrenchment and
redundancy. Retrieved June 5, 2009, from
http://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics/Retrenchment_and_Redundancy.html
Singapore annual report on tourism statistics 2000.
(2001). Singapore: Singapore Tourism Board.
(Call no.: RCLOS 338.47915957 SARTS-[AR])
Singapore Department of Statistics. (2009). GDP at 2000
market prices. Retrieved June 5, 2009, from
http://www.singstat.gov.sg/stats/themes/economy/hist/gdp1.html
Tan, G. (2000). The Asian currency crisis. Singapore:
Times Academic Press.
(Call no.: RSING 332.095 TAN)
Further Readings
Berg, A. (1999, October). The Asia crisis: Causes,
policy responses, and outcomes. Retrieved June 3, 2009,
from International Monetary Fund website:
http://www.imf.org/external/pubs/ft/wp/1999/wp99138.pdf
Henderson, C. (c1998). Asia falling?: Making sense of the
Asian currency crisis and its aftermath. Singapore:
McGraw-Hill.
(Call no.: RSING 332.456095 HEN)
Ngiam, K. J. (2000). Coping with the Asian financial
crisis: The Singapore experience. Singapore: Institute of
Southeast Asian Studies.
(Call no.: RSING 332.4095957 NGI)
The information in this article is valid as at 2009 and correct
as far as we are able to ascertain from our sources. It is not
intended to be an exhaustive or complete history of the
subject. Please contact the Library for further reading
materials on the topic.
Subject
Politics and Government
Events
Financial crises--Asia
Asia--Economic conditions
Business, finance and industry>>Finance