Key political risks to watch in Singapore
By Nopporn Wong-Anan
SINGAPORE, May 3 (Reuters) – Singapore, seen as one of
Asia’s least risky investment destinations, has bounced back
strongly from its worst ever recession, with record
year-on-year growth of 32.1 percent in the first quarter of
2010.
The central bank, concerned about inflationary pressure,
revalued the currency last month by moving up the currency band
and switched to a policy of modest and gradual appreciation.
Following is a summary of key Singapore risks to watch:
* SECURITY
Militants have long had Singapore in their sights — a
Jemaah Islamiah (JI) plot for multiple attacks was uncovered in
December 2001. Internal security and policing are far ahead of
neighbouring states, but the escape of al Qaeda-linked militant
Mas Selamat Kastari from prison was a lapse that showed
security is not infallible. The port and shipping lane in the
Malacca Strait remain two key potential targets, and an attack
on them could cause global disruption. In March the navy issued
a warning of possible militant attacks on oil tankers. But
while such an attack could deal a blow to the export-dependent
economy and its reputation as a safe haven, the overall risks
remain low.
What to watch:
— Assessments of strength and tactics of Jemaah Islamiah
and its offshoots. Most analysts believe the main JI movement
has abandoned attacks on civilian targets, while a violent
splinter group was badly weakened after the death of its leader
Noordin Mohammad Top. If this changes, the threat could rise.
— Markets would not suffer prolonged losses from any
militant attack unless it signalled the threat level would
remain significantly higher. Because of the port’s importance
to Singapore’s economy, the impact of a major attack on the
facility would be more serious for markets.
* TRANSPARENCY AND FINANCIAL SECRECY
Singapore is widely rated as one of the world’s least
corrupt countries, but has been criticised for lack of
transparency in some areas, such as press freedom and secrecy
in the financial industry. Following pressure from the G20, the
country amended its tax law last October to help fight
cross-border tax evasion. In November it was taken off the OECD
“grey list” of nations not implementing international
disclosure standards.
Given the importance of Singapore’s sovereign wealth funds
to its economy, some analysts also want to see greater
transparency in their financial statements.
What to watch:
— Impact of changes to banking secrecy laws. Analysts say
Singapore’s move towards greater transparency in the financial
industry is unlikely to impact its status as a key banking hub
— other countries with strict secrecy laws such as Switzerland
have been moving in the same direction. There have been no
signs yet that rich businessmen from the region, particularly
Indonesia, are pulling long-parked funds out of Singapore due
to the new disclosure rules. If Singapore strikes deals with
countries like Indonesia, Malaysia, Thailand or Taiwan, that
would worry banks and clients, but the short-run prospects of
this are small. Overall, the impact on fund flows from greater
transparency is expected to be positive for Singapore for now.
* RELATIONS WITH NEIGHBOURS
Singapore-bashing is a sure-fire way to win political
capital in many regional countries. Relations with Indonesia,
Malaysia and Thailand in particular are often thorny, and are
further complicated by Singapore’s heavy investment in regional
economies and its reliance on neighbours for some key
resources. As the debacle over the purchase of Thailand’s Shin
Corp showed, careful management of relations with neighbours is
necessary not just for Singapore’s security but also for its
economic prosperity.
With Singapore’s sovereign wealth funds and
government-linked companies also increasingly exposed to India
and China, the city-state’s economy has become vulnerable to
policy risks in those countries too.
“This is exposing Singapore to political risks in other
countries that it has very little control over, and some would
argue not the greatest understanding of,” said Bob Broadfoot of
the Hong Kong-based Political & Economic Risk Consultancy.
What to watch:
— Any signs of a fresh flare-up in tension with
Singapore’s unruly neighbours.
— Economic, political or regulatory upheavals in India or
China that could have an impact on Singapore’s SWFs.
* RACE, RELIGION AND MIGRANTS
Singapore saw deadly race riots in the 1950s and 1960s.
While considerable progress has been made in achieving racial
harmony, some tensions remain. Prime Minister Lee Hsien Loong
said in a speech marking national day last year that religious
and racial tensions were the biggest potential social
faultlines.
The issue is complicated by demographic issues — the
majority Chinese population is growing at a lower rate than
minority Malays and Indians, and the government has made
repeated efforts to encourage citizens to have more children.
Labour shortages mean the country has to rely on immigrant
workers for many jobs. But the recession last year and cultural
differences have made many local Singaporeans wary of migrants.
What to watch:
— Any sharp rise of racial tensions or unrest. This is
considered unlikely, although there is a chance that rising
religious tensions in neighbouring Malaysia could spill over.
— Addressing a growing public discontent on migrant
workers, the government unveiled new measures in February to
increase levies on unskilled and semi-skilled migrant workers,
making it more costly for employers to hire foreigners.
Source: Reuters