Divergent tugs, like pressing ahead towards opportunities and hunkering down to tackle interim difficulties, are par for the course in small and open economies. Singapore has dealt with these often enough in past decades. In the early years, job creation vied for attention alongside dealing with social unrest. Later, industrialisation was pursued while coping with the sudden pullout of British forces. The 1985 recession, Asian financial crisis and global financial meltdown all punctuated the push towards high-technology industries and, later, innovation and knowledge. Now, efforts to restructure the economy may have to contend with more negative growth in forthcoming quarters and possible recession, if even a forecast of 1 per cent to 2 per cent for the year proves optimistic.
Experience has taught the city-state that it pays to remain focused on larger objectives while keeping its powder dry to help workers and small and medium-sized enterprises hit by a slowdown. Measures implemented could be broad-based and sector-specific, as Minister for Trade and Industry (Trade) Lim Hng Kiang told Parliament. Anticipating such need, Finance Minister Heng Swee Keat had not touched a projected overall Budget surplus of $3.4 billion in his Budget this year. This was to strike a balance between "being prudent" and "being accommodating" should conditions worsen. The surpluses of the previous term of government now form part of past reserves. Further, the Constitution makes it a necessity for a balanced budget to be maintained over each term. Hence, any large-scale prop for the economy, such as the $4.9 billion needed for the Jobs Credit Scheme and the Special Risk-Sharing Initiative in 2009, may require a drawdown of past reserves.
Such moves, of course, would be fiscally less harmful if these are one-off. However, one cannot rule out a stubborn downturn, given the International Monetary Fund's latest warning about growing hostility to international trade: "Turning back the clock on trade can only deepen and prolong the world economy's current doldrums." Still, a calibrated approach to recession relief is preferred to avoid undermining confidence sharply. The psychology of recession is such that a gloomy expectation can become a self-fulfilling prophecy, as a Conference Board of Canada economist observed.
Certainly, fiscal policy alone will not suffice. It is just one of several tools to be applied. Structural reforms envisaged, like the new Industry Transformation Programme unveiled this year, need to be sustained, and efforts to develop human capital and make the labour market more dynamic should continue apace. Alongside these, the human dimension should not be overlooked as certain groups might struggle for balance amid turbulence. Their plight will call for a set of targeted interventions to help put them back on their feet.
