Coming Soon: TOC's exclusive on-camera interview with David Widjaja's family in Singapore.
The government has done little to indicate that it is willing to share the pain with those who have been affected by the crisis, beyond token cuts in public sector salaries.
It's time to re-visit this issue.
After some $100 billion* in losses at the two state investment and holding companies, one would have thought a little belt tightening would be in order. Alas, there is little sign of any.
Singapore's leaders would do well to take a leaf out of Barack Obama's book and cap top salaries in the government at $500,000.
Singapore is facing its worst economic crisis in 44 years of independence. With external trade at 185% of GDP** and the rest of the world (notably the key US market) reeling from the biggest financial blitz in 80 years, there is unlikely to be a quick fix solution to the country's economic woes. Economists debate whether the recovery will be 'U shaped' or 'L shaped' and how long the recession will last.
These are all, at this point in time, in the nature of best guesses or, to put it a little more unkindly, cases of 'the blind leading the blind'. From all indications, the US has a long way to go, first to understand the nature of the toxic assets on the books of its financial institutions and then to begin to unravel them. How far down the spiral will go or how long it will take is moot at this point.
A cold hard look
With Singapore heavily dependent upon the US and no other markets available to take up the slack, and with no domestic market to speak of, it has little choice but to ride out the typhoon and hope when it passes and the waters calm down, that the ship of state is still upright and watertight. The government has been prudent in the past but, as the Minister Mentor has pointed out on many occasions, it takes just a few years of recklessness or adversity for the fat to be wiped out. It is time to trim the sails.
Let's take a cold hard look at the situation. The GDP grew 1.1% in 2008. The forecast for the drop in GDP in 2009 ranges from 5 to 8% with the possibility that recovery may not start until late 2010 or even 2011. Even after the US economy stabilizes, chances are there will be a new mood of prudence in household savings, so it is unlikely the US will buy as much from abroad as it did in the past: at least until a new economic cycle begins which could be years away.
This means in 2009 alone between $12 billion and $20 billion of domestic economic activity could be wiped out. Market capitalization of listed companies will be severely eroded and, according to Credit Suisse, some 300,000 jobs might be lost (most affected would be the 1 million or so foreigners currently living in Singapore). An exodus of workers out of the country would mean, immediately, an easing of the property rental market, followed, in all likelihood, by a sharp drop in property values (some estimates forecast drops of up to 40%).
In February 2009 alone Total Trade and the Index of Industrial Production dropped by over 22% each as compared with February 2008. Alarming indeed.
Government sharing the pain?
Against this backdrop, nothing short of a war plan will do. Yet, the government has done little to indicate that it is willing to share the pain with those who have been affected by the crisis, beyond token cuts in public sector salaries.
Recent announcements by the Public Service Division (PSD) indicate that salaries of ministers and top civil servants will drop by some 12 to 20% in 2009 compared with the previous year. Although seemingly impressive in percentage terms, it will still leave gross salaries of some $3.1 million for the President (previously over $3.5 million) and $3 million for the Prime Minister. By comparison, the President of the US takes home US$400,000 or about S$600,000. The ministerial grade or Staff Grade 1 (MR4) pay will remain in excess of $1.5 million and the entry level Superscale Grade (SR9) to the civil service salary will be over $350,000. Allowances for each Member of Parliament will be in the region of $190,000 even after the cuts announced recently.
Even taking ministerial and top civil service salaries at the baseline of $1.5 million, the difference between the 'top' and 'bottom' in Singapore society is about 30 times. By comparison, the difference between the top and bottom in developed societies, such as the Scandinavian countries, is about 3 times. As Singapore aspires to first world status, it is imperative that it does more to push up remuneration levels at the bottom and hold those at the top. The example can, obviously, be set by the government, not only as the largest employer but as the Confucian father figure it has often made itself out to be.
A government austerity drive needed
Moreover, with some 66,000 employees in the civil service alone (not counting statutory boards and the armed forces) the practical benefits of an austerity drive would be considerable. The government's total wage bill for the civil service for 2009 is estimated at over $5 billion (again, excluding the stat boards and SAF). It would be reasonable to assume that a fair amount of savings could be wrung out of it (every 20% of savings knocks off $1 billion), thus reducing the need to dip into the piggy bank to the extent the government proposes ($4.9 billion of past reserves are to be drawn down).
The Jobs Credit scheme which will absorb the bulk of the draw down of past reserves ($4.5 billion to be precise) is unlikely to be successful. Companies in many sectors of the economy are likely to see drops in revenue of over 12% of payroll value, which is the amount of subsidy being offered by the government (up to the first $2,500 of salary for each employee on its rolls). Consequently, the government will either be forced to go back to the President to ask for more funds to be unlocked or to let companies sink or swim on their own (the US government is already into its third round of funding). Neither option is very palatable.
It is time the government demonstrated some solidarity with the people and some originality and imagination in tackling the crisis. Unlike leaders of other countries such as Barack Obama and Gordon Brown (who are paid much less than our leaders), the Prime Minister has not been seen to be leading from the front. We have not heard from him as to what austerity measures he proposes to take or where he thinks he can squeeze savings out of the government budget. It is not enough for him to say he is donating his own salary increases to charity for five years. That does not give him the moral high ground. He must do more.
As any housewife will tell you, when faced with shrinking income, the prudent thing to do is to cut your expenses – sharply and swiftly.
A public servant's role is fundamentally different from that of an executive in the private sector. The basic premise that their salaries should be linked to those of the top earners in the private sector is flawed and, arguably, self-serving. Many of these high earners in the private sector (eg bankers) are in second or third generation family businesses built up painstakingly over decades or are in large multi-national corporations with global empires backed by enormous capital.
The concept of Ministers as 'managers' of the Singapore economy is also flawed for reasons I shall discuss in a separate article. At this time I would merely submit that we do not need highly paid 'rocket scientists' (who would have been powerless to prevent the global meltdown, anyway) to run the government. Integrity, honesty, drive, administrative ability, common sense and the skill to communicate with people would appear to be the key attributes needed.
In this time of crisis, the worst economic meltdown since the Great Depression, it is expected that the government will make a bold gesture. If not the people will speak, when they get the opportunity.
* Assuming total combined assets of $400 billion between Temasek Holdings and GIC and erosion of some 33% in keeping with general decline in global asset values over the past year
** source www.singstat.gov.sg
*** citation needed
**** expenditure estimates by object class - 2009 budget