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Risky Time for Singapore?

Updated On: Mar 02, 2007

In the most recent study conducted by the Political and Economic Risk Consultancy (Perc), Singapore has been rated as the least risky country in Asia.

The study includes 12 Asian countries, Australia and the United States. Overall, Singapore scored 2.74 (with zero being risk-free and 10 being the most risky), just behind Australia’s 2.69.

Singapore continued to do well in areas including domestic political risks, the quality of government policies and its institutions such as the civil service, military and police. It did not do as well in areas such as quality of political opposition, lack of channels for people to express their views and air grievances and the high overall cost of labour.

However, in one area, Singapore’s scores have worsened considerably- its external political risks. The Perc report cited the deterioration of diplomatic ties between Thailand and Singapore after the purchase of Shin corp by Temasek. Singapore is perceived to be increasingly vulnerable to policy changes by foreign governments. The report also pointed out that “To the extent that social unrest in South-east Asian countries scares away foreign direct investment and hurts economic growth, it adversely affects Singapore’s role as a regional support centre by depressing the volume of business to be done.”  

Indeed, Singapore’s relations with its neighbours continue to be rocky. The issue of the banning of the sand-export to Singapore (for its reclamation) continues to be raised in Indonesia. Worryingly, the debate is becoming more emotional with politicians seemingly competing to up the stakes. An Indonesian legislator Andreas H Pareira of the House of Representatives’ Commission I (which deals with foreign affairs) called the Indonesian government to sue the Singaporean government at the International Court of Justice. The essence of the mistaken fear is that Singapore’s borders might expand if it continues with its land reclamation.

Even the House Speaker could not resist playing the nationalistic card. The Speaker, Agung Laksono said, "I think the government should deport the Singaporean envoy as soon as possible in protest against the island state's unfriendly moves. It would be better to send him back as a warning and a form of our protest."

An Indonesian expert on the United Nations Convention on the Law of the Sea, Professor Hikmahanto Juwana of the University of Indonesia assured that Singapore could only reclaim land at its own expense. However, his clarification was not heard.

Vice President Jusuf Kalla has also joined in the criticism on Singapore though for a different issue- the lack of a bilateral extradition treaty between Singapore and Indonesia. The extradition treaty is seen as integral by many Indonesians to prosecute corrupt Indonesians who have fled to Singapore. Kalla pointed out that, “Singapore often says there’s so much corruption in Indonesia. But when we want to work together on combating corruption, they don’t want to.”

In Malaysia, there is rising concern that Singapore would benefit at the expense of Malaysia if the KL-Singapore air route were to be liberalized. Malaysian Airlines Managing Director Idris Jala warned that Singapore would ‘win’ because Changi Airport has 4,000 flights weekly compared to Kuala Lumpur International Airport (KLIA)’s 2,000 flights weekly. The MAS labour union has also submitted a letter of protest to the Transport Minister against any attempt to sign open skies agreements with other government. Once again, the recent ASEAN agreement to liberalise air travel in the region by 2008 might be delayed or even derailed as per many other ASEAN economic agreements.

On an unrelated matter, the Malaysian Deputy Prime Minister Datuk Seri Najib Tun Razak has reiterated that, “The Government should ensure that we ultimately safeguard the national interest.” Although Najib was talking about the Malaysian government’s desire to maintain ultimate control over tariffs and process of monopolistic industries such as power, telecommunications, water supply and highway, his comment reveal the wariness of the Malaysian government towards losing control to the private sector.

A Straits Times columnist Janadas Devan suggested the roots for Singapore’s recent problems with Thailand, Indonesia and Malaysia were due to globalization. Both the appeals to nationalism and envy could be seen to be part of a wider anti-globalization mood. Since Singapore, ‘as the most economically dynamic country in ASEAN’ was seen as a proxy for globalization, it would naturally come under attack from these states.

External political risks may not affect the considerations of multinationals investing in Singapore but the nationalistic fervour of neighbouring countries impact Singapore investments in the region.  Already, Singapore investments to Thailand have dropped some 80% in the first month of 2007.  Members of Parliament (MPs) from Singapore have also begun to raise the issue in Parliament, and asked if government-linked companies should reconsider their regional investment strategy. 

The greater danger for Singapore is that while Singapore remains attractive for foreign direct investment as seen by the PERC report, the economic divide between Singapore and her neighbours may increase.  Nationalistic and protectionist fervour in neighbouring countries will be a dampener for foreign investments in these countries. While this is not something entirely within the control of the Singaporean government, the danger of a languishing region will eventually boomerang to hit Singapore.  (1 March 2007)

Sources:

Early Opening of KL Route ‘Will Benefit S’pore More’ (Straits Times, 28 February 2007)

Najib: National Interest Must Always Be Safeguarded (Malaysia Star, 28 February 2007)

Higher External Risks Won’t Hurt S’pore Business Prospects (Straits Times, 28 February 2007)

VP Kalla Criticizes Singapore on Lack of Bilateral Treaty (Antara, 28 February 2007)

S’pore Bureaucracy Most Biz-Friendly in Asia: Survey (Business Times Singapore, 27 February 2007)

Good Climate, Save for Distant Clouds; Survey Gives Singapore Top Marks but Points to Risks From Its Borders (Today, 27 February 2007)

Open Skies But Some Doors Are Closed (Today 27 February 2007)

Legislator Urges Govt to Sue S’pore in Int’l Court (Antara, 27 February 2007)

S’pore to Benefit More if KL-S’pore Route is Opened Up Before 2008 (Malaysia Economic News, 26 February 2007)

Green with Envy Over a Red Dot (Straits Times, 23 February 2007) 

National Carriers’ Workers Union Against Open Sky Pact (Malaysia General News, 23 February 2007)