Mission Unenviable: Mend Singapore's Economy
Tharman Shanmugaratnam has always rolled with the punches. In 1994, his promising career as chief economist at the Monetary Authority of Singapore, the central bank, seemed finished when he was accused under the Official Secrets Act of leaking quarterly economic projections to a journalist and an outside economist. He fought in court but was convicted and fined. Then he was moved to the Education Ministry. All the while, Shanmugaratnam insisted he wasn't bitter. Wise decision. In 1997, his experience was needed again when speculators assaulted Asia's currencies. Summoned back to the MAS, he supervised the successful defense of the Singapore dollar.
Now, Shanmugaratnam, 45, is preparing for an even more taxing challenge. The Cambridge-educated economist is expected to join the cabinet of Prime Minister Goh Chok Tong after the People's Action Party returns to power in Nov. 4 legislative elections. He will coordinate strategy for pulling Singapore out of its worst slump in three decades. The main tasks will be to administer a $6.3 billion economic stimulus package and build the city-state's first social welfare program, to help some 20,000 unemployed. "He'll play a crucial role, like an economics guru," says government advisor Toh Mun Heng of the National University of Singapore.
DIRE FORECAST. It's an unenviable assignment. In most previous downturns, Singapore bounced back quickly and strongly. But after weathering the Asia crisis and posting sizzling 10% growth last year, the island's economy has contracted for 10 months and is likely to finish the year down 3%, according to Standard & Poor's. Distressingly, Singapore depends heavily on its role as a trading and financial hub for Southeast Asia and as an exporter of high-tech electronics. Prospects for next year remain bleak on both fronts, for reasons beyond Singapore's control. "We should assume for now it's going to be a long recession," says Shanmugaratnam. "Fundamentally, it's a question of how we tide ourselves over." It also could fall on Shanmugaratnam to brace the public for the unpleasant truth that the economy may not return to its old blistering growth; when recovery comes, Singaporeans may have to settle for 5% annual growth at best.
Shanmugaratnam's first priority will be to create jobs. In a land where full employment was long taken for granted, the jobless rate now is 3.8% and could hit 5% next year. The government stimulus package, equal to 7% of gross domestic product, will include help for local businesses, accelerated public works, and job training. Needy Singaporeans without jobs will get $110 a month for at least three months. This is the first time Singapore has ever resorted to public welfare. "There are elements of a safety net emerging," says Lim Jit Soon, Salomon Smith Barney's Singapore research director.
Shanmugaratnam also will likely get involved in the flagging effort to force the dominant state-linked conglomerates to restructure and become global competitors. That's a tricky brief: Though the government wants to reduce its stake in manufacturing, which accounts for 25% of the economy, it still wants to retain a major production base. One reason: Many workers are middle-aged and cannot be easily retrained.
First, Shanmugaratnam must get elected to Parliament, although he is expected to beat his opponent handily. A specific ministerial post hasn't been announced, but economic policy czar Lee Hsien Loong says Shanmugaratnam will be on "the A Team."
His performance during the 1997 economic crisis is one reason Shanmugaratnam is held in such regard. During the four years he ran the MAS, he removed a 49% foreign shareholding limit on insurance companies in Singapore, ended the fixed fees and commissions that securities brokerages charged their clients, and allowed foreign banks to open new branches and install new automatic teller machines. These decisions are credited with boosting the competitiveness of Singapore's banking, brokerage, and insurance industries, as well as the city-state's role as a regional financial hub.
But Shanmugaratnam isn't boasting. "I consider myself a member of a team," he says. "I don't imagine myself spouting creative ideas." Spoken like a survivor of Singapore politics. Now his task is to make Singapore a survivor of the Asian downturn.
By Michael Shari in Singapore