TNAG-0055-FCO40-91-Defence-review-1977 — Page 89

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39. As far as the balance of payments is concerned the loss of foreign exchange earning from the United Kingdom base would be partially offset by the elimination of imports for the use of United Kingdom forces, and by the

reduction in imports attributable to the decline in income levels in Singapore. The net effect on the balance of payments will certainly be adverse but the magnitude of the deterioration cannot be determined from the

data at present available.

Mitigating the effects of the rundown

40. The examination of possible mitigatory measures is mainly concerned with

the contribution which can be made by external assistance in various forms.

The effectiveness of such assistance will in large measure be influenced by

political conditions in the country, by the economic policies pursued by the Singapore Government, and more generally by the performance of the Singapore economy. It will be necessary to reach agreement with the Singapore authorities on a strategy of development which will ensure that mitigatory assistance is deployed to best advantage and to obtain assurances that they will take the specific measures which fall to them under such a strategy♦

41. Singapore has no significant natural resources and hitherto her undoubted prosperity by Asian standards has depended on her position as the entrepot point for a large part of Malaysia's international trade; the entrepot trade with Indonesia and other countries in South East Asia; and

the presence of the British base. The rundown of the British base must be seen as taking place in the context of great undertainty concerning the

future of the other main sources of income.

42.

Since the separation of Malaysia and Singapore, Malaysia has begun to

look increasingly to her own resources for her international trade, has

removed certain Commonwealth Preferences and has shown no interest in the

creation of a common market with Singapore. The future of Singapore as an

entrepot point for Malaysia is thus highly uncertain. Further, Singapore

lost virtually the whole of the entrepot trade with Indonesia as a result of

confrontation. This has not yet been recovered nor is it clear whether it

can be established at anything like its former level. Thus though the

growth rate in Singapore in recent years has been impressive the underlying

trends are far from encouraging and cast doubt as to whether in the long

term Singapore could maintain a viable economy at the present standard of

living even if there were no question of the rundown of the British base.

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