Asian financial crisis (1997–1998)

Background

The Asian financial crisis started in Thailand with the collapse of the Thai baht in July 1997. What began as a currency crisis soon affected the wider economy and spread quickly to the rest of the region, leading to economic downturns in several countries. Singapore was not directly hit but suffered the spill-over effects of the economic slowdown,¹ and fell into recession in the second half of 1998. Realising that stimulating domestic demand was not a viable option in a downturn caused by external circumstances, the Singapore government implemented various measures to help ease the cost burden on businesses and individuals.²

Background
The Thai baht was the target of intense speculative attacks just before it collapsed in July 1997.³ For a while, the Thai government managed to defend the currency, which had been pegged to the United States (US) dollar. However on 2 July 1997, it announced that it would no longer intervene and would allow the baht to float. The sharp depreciation of the baht against the US dollar began that same day.⁴

This immediately triggered panic among investors, and other regional currencies such as the Philippine peso, Indonesian rupiah and Malaysian ringgit also began to experience selling pressure. Soon, foreign investors lost confidence in not only the currencies but also in those economies that had, what they saw, weak fundamentals.⁵ In countries most affected by the crisis, banks and other companies collapsed or had to be rescued, and many others were forced to downsize, resulting in massive unemployment. In Indonesia, the crisis even led to the resignation of then president Suharto.⁶

Impact on Singapore’s economy
Given its close economic links with other Asian countries, Singapore could not escape the effects of the financial crisis facing its regional neighbours despite strong economic fundamentals.⁷ From a healthy eight percent growth rate registered in 1997, Singapore’s growth fell to a dismal 1.5 percent in 1998.⁸ The impact on Singapore was indirect but wide-ranging.⁹

Growth also slowed across many industries between 1997 and 1998. The manufacturing sector contracted by 0.5 percent in 1998, down from a 4.5-percent growth recorded a year earlier. The growth of the construction industry fell to 3.9 percent from 1997’s 15 percent. The commerce sector also shrank by four percent in 1998, a drop from the 5.7 percent growth in 1997. In 1998, the financial and business sector experienced a moderate growth of 3.1 percent, down from 11.3 percent reached in 1997, while the transport and communications sector grew by 5.5 percent, a substantial drop from the 9.2 percent achieved in 1997.¹⁰

Singapore’s labour market also took a hit with unemployment rate rising to 3.2 percent in 1998. On average, 62,800 people were unemployed in 1998, compared with 34,800 in 1997. Poor performance across various industry sectors, namely manufacturing, commerce, construction, and transport and communications, led to the retrenchment of 28,300 workers in 1998, the highest ever recorded since the last economic recession in 1985, which saw 19,529 workers laid off.¹¹

Company closures and downsizing also led to lower demand for commercial, industrial and residential properties, which put downward pressure on property prices and rentals.¹² Stock prices fell and this had a negative wealth effect which further weakened consumer sentiment.¹³

Because Singapore’s petrochemical industry catered mainly to Asia, the regional economic slowdown meant lower demand for Singapore’s oil domestic exports, which fell sharply by 15.3 percent in 1998. Non-oil domestic exports still grew, but at a slower rate of 0.9 percent. As manufacturers contended with weaker demand in both regional and local markets, the manufacturing sector contracted slightly by 0.6 percent in 1998.¹⁴

The financial services sector, on the other hand, was one of the worst hit industries and registered a sharp contraction of 7.4 percent in 1998.¹⁵ Reflecting the poor economic outlook for Singapore and the erosion of confidence in the regional economies, banks curbed their local and offshore lending activities and generally lent less to both companies and individuals.¹⁶

Also badly affected were the wholesale and retail trade sector, and the hotel and restaurant sector, which contracted by 4.1 percent and 7.5 percent respectively in 1998.¹⁷

In addition, visitor arrivals fell sharply due to the economic slowdown in the regional markets, where most of Singapore’s visitors were from,¹⁸ and the strengthening of the Singapore dollar against various regional currencies.¹⁹ With weaker domestic spending and fewer foreign visitors, retail sales (excluding motor vehicle sales) fell 8.6 percent in volume and 9.2 percent in value in 1998.²⁰ Food and beverage outlets, likewise, reported a drop in business.²¹ Hotels saw a significant decline in their average occupancy rates²² and resorted to lowering room rates to boost occupancies, leading to a 19.4 percent drop in room revenue in 1998.²³

The government’s response
The Singapore government implemented a host of measures in 1998 with two key objectives: lower business costs and provide relief to individuals and households. Some of these were in place until 1999 and others until 2000.²⁴

The 1998 budget did not include strong measures to counter the effects of the regional financial crisis as the economy was still doing well when it was announced in February 1998.²⁵ It did, however, include measures to help lower business costs, such as a 15-percent property tax rebate for commercial and industrial properties, property tax exemption of up to five years for land under development, and the removal of stamp duty on all instruments except those related to stock and shares, and immovable properties. Individuals and households also received help, such as a five-percent personal income tax rebate, and rebates on service and conservancy charges and rentals on Housing and Development Board flats.²⁶

Subsequently, regional economic conditions deteriorated and the outlook for Singapore worsened. In response, the government announced a package of off-budget measures in June 1998 worth S$2 billion.²⁷ To reduce business costs, the package included an additional 40-percent property tax rebate for commercial and industrial properties, reduced rents, rental rebates on various government properties, as well as lower telecommunications tariffs.²⁸ It also provided specific measures to mitigate the effects of the economic slowdown on the property market.²⁹ For example, government land sales were suspended and successful tenderers were allowed to re-assign government land sale parcels if they were unable financially to complete their development.³⁰

As Singapore slipped into recession in the second half of 1998, the government announced another package worth S$10.5 billion in November, aimed at further reducing costs for businesses by 15 percent.³¹ A major component was a 10-percent cut in employers’ Central Provident Fund contribution rate. Other key measures included a 10-percent corporate tax rebate, wage reduction of five to eight percent, and cuts in a wide range of government rentals, rates and fees.³²

Recovery
By early 1999, the Singapore economy had begun to show signs of recovery.³³ In the first quarter of that year, the economy returned to positive growth, powered by a strong rebound in the manufacturing sector. Retrenchments during the quarter also declined. The recovery was sustained through the year and overall gross domestic product for 1999 grew by 7.2 percent, much higher than the government’s initial forecast of between -1 percent and +1 percent.³⁴



Author
Valerie Chew



References
1. “FY1998: Budget,” Ministry of Finance, 13 May 2008 (From NLB’s Web Archive Singapore); Singapore. Ministry of Finance, Economic Survey of Singapore, 1997 (Singapore: Ministry of Finance, 1998), 2, 11–12, 22, 100–03. (Call no. RSING 330.95957 ESS); Gerald Tan, The Asian Currency Crisis (Singapore: Times Academic Press, 2000), 1, 51–52, 4–86. (Call no. RSING 332.095 TAN)
2. Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 14, 49–60.
3. Ministry of Finance, “FY1998: Budget”; Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 22.
4. Ministry of Finance, “FY1998: Budget”; Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 11–12, 22; Tan, Asian Currency Crisis, 51, 66.
5. Ministry of Finance, “FY1998: Budget”; Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 2, 22.
6. Tan, Asian Currency Crisis, 1–2, 99, 120–22. 
7. Ministry of Finance, “FY1998: Budget”; Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 100–03.
8. Ministry of Finance, Economic Survey of Singapore, 1997, 14, 16; Tan, Asian Currency Crisis, 106, 137.
9. Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 100–03.
10. Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 14–17.
11. Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 21, 24.
12. Tan, Asian Currency Crisis, 136.
13. Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 100; Tan, Asian Currency Crisis, 136.
14. Singapore. Ministry of Finance, Economic Survey of Singapore, 1997, 90, 103.
15. Singapore. Ministry of Finance, Economic Survey of Singapore, 2002 (Singapore: Ministry of Finance, 2002), 90. (Call no. RSING 330.95957 ESS)
16. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998 (Singapore: Ministry of Finance, 1999), 16. (Call no. RSING 330.95957 ESS)
17. Singapore. Ministry of Finance, Economic Survey of Singapore, 2002, 90.
18. Singapore Tourist Promotion Board, Singapore Annual Report on Tourism Statistics 2000 (Singapore: Singapore Tourism Board, 2001), 10. (Call no. RSING 338.47915957 SARTS-[AR]); Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 158.
19. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 14; Tan, Asian Currency Crisis, 85.
20. Singapore. Ministry of Finance, Economic Survey of Singapore, 2002, 116, 117.
21. Singapore Tourist Promotion Board, Singapore Annual Report on Tourism Statistics 2000, 19; Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 159.
22. Singapore Tourist Promotion Board, Singapore Annual Report on Tourism Statistics 2000, 16–17, 54; Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 159.
23. Singapore Tourist Promotion Board, Singapore Annual Report on Tourism Statistics 2000, 58.
24. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 49–60.
25. Narendra Aggarwal, (1998, March 5). “Absence of Tax Cuts Disappoints Business Sector,” Straits Times, 5 March 1998, 45. (From NewspaperSG); Ministry of Finance, “FY1998: Budget”; Ngiam Kee Jim, Coping with the Asian Financial Crisis: The Singapore Experience (Singapore: Institute of Southeast Asian Studies, 2000), 16. (Call no. RSING 332.4095957 NGI)
26. Aggarwal, Absence of Tax Cuts Disappoints Business Sector”; Ministry of Finance, “FY1998: Budget”; Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 52–53.
27. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 54; Ngiam, Coping with the Asian Financial Crisis, 16.
28. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 54; Tan, Asian Currency Crisis, 202.
29. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 55–56.
30. Tan, Asian Currency Crisis, 202; Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 56.
31. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 57–70; Ngiam, Coping with the Asian Financial Crisis, 17.
32. Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 57–60; Tan, Asian Currency Crisis, 202; Ngiam, Coping with the Asian Financial Crisis, 17.
33. Walter Fernandez, “Recession Over but It’s Not Time to Rejoice,” Straits Times, 20 May 1999, 1. (From NewspaperSG); Singapore. Ministry of Finance, Economic Survey of Singapore, 1998, 57–60; Tan, Asian Currency Crisis, 202.
34. Walter, “Recession Over but It’s Not Time to Rejoice.”



Further resources
Andrew Berg, “The Asia Crisis: Causes, Policy Responses, and Outcomes” (International Monetary Fund Working Paper no. 99/138, International Monetary Fund, October 1999)

Callum Henderson, Asia Falling?: Making Sense of the Asian Currency Crisis and Its Aftermath (Singapore: McGraw-Hill, 1998). (Call no.: RSING 332.456095 HEN)



The information in this article is valid as at 30 July 2016 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject.