TNAG-1636-FCO40-2252-Visits-by-FCO-officials-to-Hong-Kong-1987 — Page 40

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promoting high-technology and high-skill exports, by raising wage levels. Expansion in domestic demand, partly stimulated by a

construction boom, offset some of the worst effects of the 1982

world recession, but both GDP growth and expansion of the

manufacturing sector slowed. In 1985, the continuing fall in US demand, the loss of competitiveness resulting from the link to the

US dollar, depression in marine-related heavy industries and

oil-refining (Singapore is the third largest refining centre in the world) combined with the collapse of the domestic construction

industry to force the economy into negative growth (minus 1.7%).

Confidence in Singapore as a financial centre was shaken in late 1985 by the collapse of Pan-Electric Industries and the consequent suspension of the Singapore stock exchange. Imported labour has taken the brunt of the recession though indigenous unemployment rose

to 6% in early 1986.

10. Singapore reacted vigorously, with a special Economic Committee

chaired by Brigadier General Lee reporting in February 1986. Its

recommendations, to cut the employers' contribution to the

compulsory Central Provident Fund (CPF) national savings scheme,

tax-breaks and wage restraint, aimed towards regaining international competitiveness, were endorsed in budget measures. These have

already borne fruit and, aided by the appreciation of the Yen which has led eg Toshiba to switch domestic TV production to Singapore, recovery is evident though still patchy. While manufacturing and transport and communciation sectors have done well, banking and

finance and the commerce sectors are still flat and the construction

sector very depressed. The 1987 budget (5 March) has been welcomed

locally as fair, realistic and a logical extension of the 1986

measures. While reflecting a more optimistic outlook, none of the measures introduced earlier to get the economy moving has been withdrawn, and further modest incentives have been introduced.

11. There are signs economic recovery is quickening. An annual growth rate of 6.5% was registered in the first quarter of 1987.

Singaporean figures indicate that the Consumer Price Index (domestic inflation) fell by 1.4% in 1986. The balance of payments position and reserves (some US$40 bn) remain sound. Singapore still lags behind its main Asian competitors South Korea, Taiwan and Hong

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