Expect slowdown over several quarters, more job losses: Finance Minister

SINGAPORE will suffer an economic slowdown lasting “several quarters” and unemployment is expected to rise, Finance Minister Tharman Shanmugaratnam warned yesterday at a dialogue with community leaders and residents in Toa Payoh East.

What had begun as a financial crisis in the United States last year has now spiralled into a global economic crisis to which Singapore is exposed, even after the United States government approved a US$700-billion ($1-trillion) rescue package to bail out America’s banks and financial institutions, he noted.

Responding to a resident who had sought his thoughts on the bailout, Mr Shanmugaratnam said that while it was a step forward that the US Congress supported the plan, “I think the consensus is that more will have to be done”.

The real problem facing the US financial system is the shortage of capital in the banks there because the value of their assets has been sharply eroded, he said. America’s next President and his team will have to work out a “comprehensive” solution to its financial problems, he added.

The year ahead will be “difficult” and “things will get worse before they get better”, Mr Shanmugaratnam warned.

The Ministry of Trade and Industry will announce preliminary estimates for third-quarter gross domestic product this Friday, and the Monetary Authority of Singapore (MAS) may also announce a monetary policy update then, said Mr Shanmugaratnam, who is also a board member of the MAS.

Despite the grey skies, there are bright spots on thehorizon, the minister said. Singapore’s diversified economy will enjoy continued growth in sectors such as offshore and marine, private banking and wealth management, as well as in certain areas of manufacturing. Confidence in Singapore is still high, and “our property market is not as overvalued as that in many other countries”, he said.

Last year’s budget surplus will also benefit Singaporeans, he told the 300-strong audience.

“Frankly, it was just as well that we decided not to spend all the surplus that we earned last year,” he said.

“This shows the merits of thinking not just short-term, but medium- to long-term and not spending all your resources immediately.”

Mr Shanmugaratnam assured residents that Singapore’s regulations over local banks, offshore banks and insurance companies were sound, but acknowledged that it was natural for Singaporeans to be nervous amid the global uncertainty.

“There’s no risk and no reason whatsoever to have a run on our banks,” he assured.

On calls to expand the insurance coverage of bank deposits from the current $20,000 ceiling, Mr Shanmugaratnam said that would mean higher costs because the cost of deposit insurance would ultimately be borne by the customer. He added that deposit insurance was the last step in the process, not the first.

“The first step is, the banks have to be well-regulated and I can assure you that our Singapore banks are well-regulated,” he said.

“Our regulations are stricter compared to Ireland, the US, in fact compared to many developed countries. We have always been old-fashioned in our regulatory approach.”

Still, he agreed with grassroots leader Peter Ngo that the credit card system might need more oversight. Mr Ngo, 70, the chairman of listed company E3 Holdings, said he knew someone earning $10,000 a month who had been granted a total of $160,000 in credit facilities by eight different banks. With share prices plunging and economic prospects worsening, more people may resort to borrowing from one bank to repay another, causing future problems as the debt spiralled out of control.

Financial experts suggested to Today how consumers might be better protected.

Former NTUC Income chief executive Tan Kin Lian suggested that the MAS require all banks to provide data on credit cards taken by each person and for a central database to be set up. Save for the rich, each person should be limited to two credit cards with a total limit of two months’ salary, said Mr Tan, a consultant who also blogs about financial and insurance matters at tankinlian.blogspot.com. As it stands, the Consumer Credit Bureau allows banks to check a potential client’s credit and payment history before issuing new cards or unsecured loans

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, said that instead of leaving consumer education to banks and the Consumers Association of Singapore, parties like financial service trade associations and Credit Counselling Singapore could be roped in. A compulsory debt restructuring scheme — for which a consultation paper was issued last year — would also help in preventing bankruptcy, he said.

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