Lim Hng Kiang
Singapore
“The company has made commitments to recycle the ash, and as for renewable energy, the gasification project is not an energy project, it is not a generation company (genco). It is to produce hydrogen and carbon monoxide or, essentially, carbon. Because as feedstock to the petrochemical sector, you need more C and more H2.”
“The Government will continue to recover the IIA awarded if the company fails any conditions or breaches the legislative amendments. I would like to highlight that there are no errant cases in the last five years for IIA and the current amendments are, therefore, not reactionary in nature, but are being made for legislative clarity.”
“In addition, the IIA scheme will be extended till 31 December 2022. Clauses 10 to 13 give legislative effect to this change. The remaining legislative changes arising from our periodic review of the income tax system are either administrative or technical in nature.”
“Data on household and individual savings rates by income groups are not available. However, data on the aggregate level of household financial assets can be obtained from the Household Sector balance sheet compiled by the Department of Statistics.”
“The aggregate level of financial assets owned by Singapore’s household sector6 in each of the past five years is provided in Table 1 below. Data on the amount of financial assets owned by households and individuals in the different income percentiles is not available.”
“The Second Review of the Comprehensive Economic Cooperation Agreement (Second CECA Review) is ongoing. The review is taking some time as both countries have our respective interests to work through, such as in the area of labour mobility. Our agencies regularly engage Indian counterparts to work through issues collaboratively.”
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“It is not useful to categorise the approach into different boxes. I think, basically, as I explained at the beginning of my reply, our regime requires everybody to play their role. First, there is a disclosure element. Second, the FIs must do the correct thing. For example, when they manage the process, they must not have incentive scheme which incentivises the relationship managers to be overly aggressive. Third, the investors must also have a responsibility, not just because it is a principle-based, then they do not have any responsibility. So I think our regime carved out the responsibility for every stakeholder and for it to work, all of us must play our role. Having said that, of course, there is always room to improve on how we can ensure better disclosure and better clarity in the product or the risk classification of the product. On the FIs, having gone through this episode, I think they will know the pitfalls of the different types of selling approaches. And on investors, I think this is a useful episode to remember when the next time they approach the banks or when the banks approach them on investing in different higher risk products.”
“Before we jump to compensation, can I say that there is a whole spectrum of investors. Obviously, there are investors who know what they are doing, very sophisticated investors, highly educated, have been doing this many, many times. On the other end, you have certain groups which we categorise as vulnerable investors and this is the definition or the characteristics of the vulnerable investors. It is stated in the guidelines that we sent to FIs. Essentially, as the MD of MAS explained last week, it means people of a certain age, the elderly, the retirees. Secondly, their proficiency in English. If they do not understand the product in English, if they are illiterate, then, of course, they may not be able to read the documents given to them. Thirdly, if they are investing for the first time compared to somebody who has been regularly investing, then this may be the first exposure, they do not know what they are in for. Fourthly, as a proportion of their funds, if they have limited funds and it is inappropriate for them, based on their risk profile, to invest in these funds and they invest a very high percentage of their funds, then obviously they have been wrongly advised. So these are some of the parameters that we put down as investors that we will have to pay special attention to as we work ourselves up the spectrum. Let me assure Members every complaint will be dealt with and the FIs would deal with them impartially. But, at the same time, we do realise that they all fall into different categories and priority should be given to the more vulnerable groups so that we can address their concerns earlier.”
“If you are not happy, approach the FIDReC. Er Lee Bee Wah (Ang Mo Kio): Mr Speaker, Sir, I would like to ask Minister what does he mean by "investors who are vulnerable", what is the number, and whether these vulnerable investors would be able to get back 100% of their money.”
“Mr Speaker, Sir, as I explained just now, our rules and our guidelines do encourage the financial institutions and the financial advisers to undertake a risk profile of the investors when they want to put in their investments. Unfortunately, some of the investors signed the form to say that they do not need the investment advice and they opt out of this risk profiling exercise. And I have explained in my response, even if they have opted out of the process, we are encouraging the FIs to undertake, in this review of the complaints, a risk profile of the vulnerable investors and if the risk profile shows that it is inappropriate for them to undertake or to invest in such products, then the FIs will have to act accordingly. The second question on when the mis-selling investigations would be completed and also when the review would be completed, here I would like to urge Members to be patient. This involves many cases. MAS is undertaking the investigation and the review, both of individual cases as well as a review of the system at large. For the individual cases, we also need to have enough cases to see whether there is a pattern of either the representative involved or the FI involved so that we can take the appropriate action. So MAS will not act just on individual cases. As they complete the investigation, I think it is better for us to take an overall view of the situation. So can I urge Members to be patient? MAS is doing all that is necessary to make sure that every complaint is adequately dealt with. As I have explained, the three-step process – send in your complaint, and within two weeks the FI will have to respond to you; complain to the FI either through phone, email or personal interview, and within four weeks the FI must tell you the result.”
“Mr Speaker, Sir, can I have your permission to take Question Nos. 11 to 16 together?”
“Mr Gautam Banerjee asked the Senior Minister whether more can be done to (i) improve the level of communication and disclosure particularly on credit and market risk when complicated structured investment products are sold to ordinary investors; and (ii) provide comprehensive product and ethics training to those marketing complicated structured products to retail investors.”
“Mr Low Thia Khiang asked the Senior Minister (a) whether the Monetary Authority of Singapore (MAS) will investigate how structured products linked to Lehman Brothers were marketed; and (b) if there is any misrepresentation, whether MAS will assist the affected investors in negotiating with the banks to ensure fair treatment for these investors. 14. Er Lee Bee Wah asked the Senior Minister (a) what are the terms of reference for the three independent consultants appointed by the financial institutions to look into the investors' complaints; (b) what are the procedures to ensure that future investors are not misinformed about high risk financial products; and (c) whether he is able to provide the information on how many of those who invested in these structured products linked to Lehman Brothers were elderly people or retirees. 15. Mr Siew Kum Hong asked the Senior Minister in view of the public concerns on the sale of structured products (a) what are the principles followed by the Monetary Authority of Singapore (MAS) in regulating financial institutions; (b) whether MAS is investigating the allegations that financial institutions have misrepresented and mis-sold structured products to the public and, if so, what is the status of such investigations; and (c) why did MAS not appoint the three individuals reviewing certain financial institutions' internal processes, instead of leaving them to be appointed by the financial institutions and, thereby, permitting possible perceptions of conflicts of interests. 16.”
“Mr Speaker, Sir, I have given the assurance three times already. SALE OF STRUCTURED FINANCIAL PRODUCTS (Regulating and safeguarding of investors' interest) 11. Mdm Halimah Yacob asked the Senior Minister (a) how does the Monetary Authority of Singapore (MAS) supervise financial institutions operating in Singapore to ensure that they fully comply with the regulatory framework requiring disclosures and proper business conduct when they market investment products to retail investors; (b) whether the existing laws and regulations are adequate to protect retail investors against such high-risk investment products; (c) whether MAS will be initiating any investigations into the conduct of financial institutions to ensure that they have conducted themselves appropriately when marketing and selling to retail investors; and (d) what more can be done to enhance safeguards for these investors. 12. Mdm Cynthia Phua asked the Senior Minister (a) how does the Monetary Authority of Singapore (MAS) (i) safeguard the interest of the man-in-the-street to ensure that they are aware of the complexity and high risk nature of the financial products they are investing in; and (ii) regulate banks and finance companies in the sale of high-risk and complex structured financial instruments so as to safeguard the capital sum invested by the man-in-the-street; (b) whether MAS will be able to provide the number of Singaporeans who lost their high-risk investments following the closure of the Lehman Brothers in the US; and (c) whether MAS will require banks to determine the risk tolerance and ensure that the contracted terms and conditions are understood by potential investors before the sale of such products. 13.”
“Mr Speaker, Sir, I agree with the Member who placed great emphasis on this issue of confidence. One very useful way to look at how this crisis has developed is actually to see it in its three elements. There is a liquidity problem, there is a solvency problem, and there is also a deleveraging problem. These are not separate silos. In fact, they interact and affect each other. So I think the problem lies beyond liquidity. For some institutions, it is a solvency problem. Because of the exposure, they are, in fact, insolvent and no amount of liquidity injections is going to save them. For some, it is really a whole deleveraging exercise. Credit has been very ample and less then appropriately costed in the past. Going forward, I think it is fair to say that we will not face the same conditions. And corporates and households will have to deal with this new situation where credit will be scarcer and the cost of credit will be higher. The SMEs and companies that operate in Singapore have to take this into consideration. It is not just a question of liquidity or lack of confidence by the banks. I think there is an overall global deleveraging exercise taking place and our companies will have to look at their business model and those that operate on higher levels of leverage or high levels of loans will have to readjust their business models. On the part of the Government, as I have explained, we are extending help to all the SMEs and this is already borne out by the numbers. Our loans in the LEFS and LIS Schemes have gone up by 55% compared to last year.”
“As I mentioned in my response to Mr Banerjee, all these specific details about individual insurance companies and how their specific investment-linked policies or funds are operating, the Member can refer to the company's website, as they have disclosure requirements. What I would like to say here is, first, for the insurance companies in Singapore, they operate under a very strict regulation regime. They are required to maintain a capital adequacy ratio of at least 120%. And all the insurance companies in Singapore far exceed this adequacy ratio. Many of them go up to 200% and above. So the Member can refer to the individual insurance company's website for the details.”
“The business model that they embark on is more conservative and they have recourse to a very stable depositor base. The interbank market is operating in an orderly manner, unlike in some other countries. So, by and large, our banks are in a very strong position.”
“Mr Speaker, Sir, in my response earlier, I referred to the exposure of our banks to the property sector. There is a cap and banks are not allowed to go beyond 35%. In fact, most of our banks stay well below this cap. So the banks and MAS continue to monitor this closely and do a sensitivity test to see what is the impact should the property market decline by different amounts. As for the impact of the en bloc sales and the deferred payments, this is something that will unfold over the next 18 or 24 months. As of now, as I have said, the extent of the banks exposure is well below the cap and the banks are extremely well positioned to deal with the property downturn. Mdm Cynthia Phua also asked about the safety buffers. I am afraid there is not one single factor to determine the so-called safety factors. This requires a range of perimeters. Suffice to say, the banks in Singapore have a very high capital adequacy ratio. So if we look at banks here and banks overseas, the capital adequacy ratio here is much higher than other countries. Secondly, we have to look at the business model and how the banks operate. For example, if we look at other countries, many of the banks there depend on the wholesale market for their funding requirements. Here, our local banks have a very strong and broad depositor base, and the loan-to-deposit ratio is comparatively low, compared to other banks. So again, that gives them a lot of buffer. And if Members have been following the developments in the US, they will find a strange phenomenon that banks with huge depositor base are now considered safer and more stable. In fact, that is the situation here. Our banks are well run and have very strong capital adequacy ratio.”
“Mr Speaker, Sir, can I have your permission to answer these two supplementary questions when I answer the next set of questions which is Question Nos. 11 to 16?”
“Mr Speaker, Sir, as I have explained in my response earlier, the banking system in Singapore is sound. The interbank market here has been operating efficiently and orderly. We do have instances, during the severe volatilities faced in the international financial markets, where there were concerns about liquidity and MAS would, of course, inject liquidity into the system as and when required. But there have not been specific applications for liquidity assistance by any of our financial institutions here. On the second question of AIG's desire to sell off its AIA operations in Asia, this is something that is still being pursued and MAS will address the issues when the application does arise.”
“However, in the worst case scenario that a bank or insurance company fails, policy owners and depositors have higher priority under the law than other unsecured creditors to claim against the assets of the insurer or the bank. The additional line of protection is in the form of the policy owners' protection fund (PPF) and the deposit insurance schemes. The PPF protects 90% of what the insurer is liable to pay to the owners of life policies. The protection is 100% for compulsory insurance policies for motor bodily injury and work injury. As Members would be aware, the Government announced a guarantee on all deposits last Thursday. I will say more later in my Ministerial Statement. Mr Speaker, Sir, I want to assure Members that the confidence that depositors and policyholders have in the stability and soundness of Singapore's financial system, and in the protection and priority they are accorded under the law, is well-placed.”
“Mr Banerjee asked if insurance companies can put in place measures to educate policy holders and the public at large on the nature of risks involved in different insurance policies, as well as the financial strength and performance of the insurers. The Life Insurance Association and General Insurance Association have been working with MoneySENSE, the national financial education programme, to conduct free public talks and publish consumer guides on different types of insurance policies, such as participating policies, investment-linked policies, health policies, and motor policies. These guides are available on the MoneySENSE and the two associations' websites. There are also various avenues to obtain financial information on an insurance company. MAS publishes on its website the annual statutory returns of insurers containing information on the type of investments and solvency positions of individual insurers. In addition, some insurers publish financial information on their corporate websites and/or in their annual reports. MAS also requires insurers to provide their participating life insurance policyholders information on the investment strategy and broad investment mix of the participating fund as well as the performance of the fund on a regular basis. Dr Lily Neo and Mr Inderjit Singh asked what safeguards are in place to protect policy owners and depositors if an insurance company or a bank should fail. Let me reiterate that the most important safeguards are what I have just outlined earlier, ie, high admission standards, standards of solvency and liquidity and rigorous supervision, as well as the functioning and orderly interbank market. Our focus has been, and must continue to be, on preventing problems in the first place.”
“Given the openness of our economy and our role as an international financial centre, we cannot hope to be decoupled from what is happening in the global financial markets. We must, therefore, stay highly vigilant on the channels through which global developments can affect us. MAS has, for some time now, stepped up its surveillance of international developments and is also in close contact with regulators and central banks in other jurisdictions. Singaporeans are anxious about the impact of the US financial turmoil on their savings and insurance policies. I thank MPs for raising these concerns. Let me now address the specific questions posed. Mr Low Thia Kiang asked about AIA Singapore's exposure to Lehman Brothers and the US sub-prime market. I am happy to assure him that the exposure is limited. Mr Inderjit Singh asked about the impact of the AIG bailout on insurance companies in Singapore. The bailout of AIG does not directly impact other insurance companies in Singapore besides the AIG related insurance entities here. The bailout, in fact, has given AIG time to address its deteriorating financial position and, with its recent announcement to sell some of its businesses to restore AIG's financial strength, AIG policyholders can be more assured that AIG will be able to meet its obligations to its policyholders. AIG has also announced that it would continue to operate most of its life insurance business in Asia, including Singapore. This has given some assurance to policy holders of the continuity of their policies with the same insurance provider.”
“Ms Sylvia Lim also asked if there is any evidence of distressed American banks and financial institutions having to sell off their Singapore properties on an urgent basis and the implications on the local property market. The funding pressures that have arisen in the US and Europe do not arise in Singapore domestic market. The Singapore property holdings of US and European banks are small in relation to our market. Moreover, all banks here have a wide range of assets including corporate and consumer loans, substantial holdings of Singapore Government Securities, and other securities and assets which are not related to property. Mr Speaker, Sir, to summarise, the crisis in the US and Europe is serious. We have seen some of the largest financial institutions in those countries come under severe solvency and liquidity pressures. AIG, for example, which had huge exposures in the credit derivatives market, experienced losses and had its credit rating downgraded. This triggered liquidity pressures forcing US authorities to provide a loan to prevent AIG from defaulting on its obligations and being pushed into bankruptcy. Banks in the US and Europe have been unwilling to lend to each other. This has prompted the European and the US governments to take extraordinary measures in recent weeks to recapitalise their major banks and guarantee bank borrowings. This has improved confidence in their markets and banking systems. While the situation has improved with the announcement of these major initiatives, we are not out of the woods and substantial challenges remain in the international financial system and the global economy.”
“Let me now turn to supervision. MAS generally adopts a conservative approach to the supervision of financial institutions in Singapore, and this has served us well. MAS monitors the financial positions of regulated financial institutions through regular reports of their assets and liabilities submitted by these institutions. MAS limits the amount that banks here can lend to any single borrower. This ensures that they are not overly exposed if any single borrower defaults. In addition, the Banking Act limits a bank's credit and loan exposure to property development and investment activity to 35% of its total non-bank loan and credit exposures. Most banks here are significantly below this limit. In the last two years, MAS has also required all banks with significant operations here to enhance their risk management system, as part of the transition to Basel II, a more risk sensitive international standard for capital. MAS has been closely monitoring developments in global financial markets and the impact on Singapore. The interbank markets in the US and Europe have not been functioning properly as banks, concerned about the solvency and liquidity conditions of other banks, have not been willing to lend to one another other. In Singapore, our domestic interbank markets have been relatively calm and have functioned in an orderly manner. Sufficient liquidity was maintained in the banking system. In anticipation of tighter lending conditions, MAS had in July expanded its Standing Facility to all MAS Electronic Payment System (MEPS+) participant banks. This provides assurance that banks can readily access central bank liquidity when required. MAS has also reiterated that it stands ready to inject additional liquidity if needed.”
“MAS requires the assets of our banks and insurance companies to exceed their liabilities by an appropriate margin, which is set in accordance with MAS' standards. This provides the bank or the insurance company with a buffer to absorb unexpected losses. The riskier the financial institution's assets, the higher will be the safety margin. The quality of our banks' and insurers' assets remains good, and their capital buffers remain strong. Taken together, this means that a bank or insurance company in Singapore will have more than enough assets to pay what it owes to its depositors and policy holders. In the case of foreign banks, MAS maintains high admission standards to determine which institution is permitted to operate in Singapore. Foreign banks, however, maintain significant operations in their home country and internationally, and MAS alone does not determine the solvency of these institutions. MAS, however, keeps in close contact with the foreign bank's home regulator to assure ourselves that the bank continues to meet high standards of solvency and maintain sufficient assets to meet all its liabilities in Singapore and elsewhere. Solvency alone is insufficient, and banks and insurance companies also have to address their liquidity risks. MAS requires both banks and insurers to anticipate their cashflow requirements arising from business needs and the claims of depositors and policyholders and to hold sufficient liquid assets to meet these claims. In addition, MAS requires banks to maintain a significant buffer of liquid assets to meet unanticipated claims from depositors. Insurers' asset portfolio typically comprises more liquid assets such as bonds and Government securities which are more easily liquidated to raise cash should the need arise.”
“Mr Speaker, Sir, Mdm Cynthia Phua, Dr Lily Neo and Mr Inderjit Singh asked about the effects of the recent financial turmoil on banks and insurance companies in Singapore and the impact on Singaporeans. Let me explain the impact of the developments on financial institutions in Singapore, the actions that MAS has taken, and why Singapore is well placed to weather the uncertainties ahead. The US is reeling from the bursting of a credit bubble. Much of the credit found its way into home loans. Some of these loans were made to borrowers without properly checking if they could afford to repay. These loans were securitised; the papers were widely distributed and heavily leveraged. When the housing market turned and house prices fell sharply, many borrowers could not repay their home loans. This has resulted in losses for US and European financial institutions holding mortgage loans and securities backed by those loans. This triggered a process of deleveraging in the housing and credit markets that started in the middle of last year, and is continuing. The situation in Singapore is different. We do not have the problems that the US banks are facing. Our banks have been responsible in their lending practices. Banks and insurance companies in Singapore do not have large exposures to either US mortgage-related securities or to the institutions that have failed. Nor do we have subprime mortgages that are originated here. The three local banks are very well-capitalised and their asset quality remains strong. Singapore's financial system is sound and stable, and has not been significantly affected so far. Let me elaborate further.”
“Mr Speaker, Sir, can I have your permission to take Question Nos. 4 to 10 together?”
“I think we are acutely aware of the impact of any of the so-called pump-priming measures that we may undertake later on, to make sure that there is proper flow-through to the local economy. We will look at the multiplier effects and make sure that whatever injection we put into the economy does not just flow out because of import content or foreign workers content. So, it is something that we have to analyse carefully. SINGAPORE'S RESERVES AND INVESTMENTS (Impact of financial crisis) 3. Ms Ellen Lee asked the Minister for Finance in light of the recent spate of events in the financial sector, whether the financial position of our national reserves and investments, and monies invested by our various Government-linked companies and related organisations have been affected and, if so, by how much.”
“Mr Speaker, Sir, as I have explained just now in my response, so far the construction sector is holding up well. In fact, we do face some supply constraints. At this juncture, I do not think it will be very useful for the Government to add to these supply constraints and pressures by increasing our public sector projects. But this is something that we are watching very carefully, particularly the Ministry of National Development. And as I have explained in my response, we have several public sector projects which we have deferred previously and, of course, if the situation is right and there is some capacity for us to inject these projects into the market, I am sure the Ministry of National Development will do so. But it is a question of timing. If we do so now, I think it will just exacerbate the supply constraints and, in fact, the tender prices will continue to be very high. But at the same time, if the demand drops from the private sector, the Government is in a position to inject some of these projects back into the pipeline. The second question is on inflation. Inflation for Singapore has peaked and we are now seeing the inflation numbers going down. But I must caution that inflation will continue to be sticky for the next few months because some of these costs have a certain amount of lag. Going into next year, over the next 15 months, both MAS and MTI are confident that our inflation numbers will revert back to the more normal 2%-3% that we had seen in previous years.”
“Mr Speaker, Sir, as the financial crisis works itself through the system, particularly through the real economy, we must be braced for slower growth. One of the consequences of this whole deleveraging exercise is that credit will become scarcer and cost of credit will become higher. This is something that our companies have to face. This is the reality of the situation. On our part, the Government will continue to assist our companies, particularly the SMEs, as I have explained in my response just now, through the LEFS, LIS and the Microloan scheme. As I explained, the take-up rate is, in fact, now 55% higher than previous years. So, already the mechanism is working. On the second question of consumer education, this is an on-going exercise. I think there are several agencies involved to make the effort to explain and educate Singaporeans at all levels, including in the schools, on consumer conservatism and to purchase things that they really can afford.”
“The Government will continue to keep a close watch on the labour market situation and already has various measures in place to assist retrenched workers and the unemployed. For instance, the WDA has implemented the Place and Train programme which assists job seekers in securing jobs in industries such as construction, marine, aerospace and healthcare sectors before they undergo relevant training. In 2007, the WDA also helped 68,000 workers to upgrade and certify their skills through its Workforce Skills Qualifications (WSQ) system. In 2006 and 2007, EDB client companies committed $27.5 billion worth of investments, which will create a total of 55,400 new jobs when fully operationalised. Additional job opportunities will also be created in SMEs that support these companies. Many of these investments will continue to come on-stream in the year ahead. For example, in this quarter alone, companies such as Halliburton and Soitec will all be launching their operations officially in Singapore. While we cannot expect overall job creation to be as robust as the past two years, these investments coming on-stream now will create new job opportunities that will benefit Singaporeans. Mr Speaker, Sir, the impact of the evolving global financial crisis and slowdown has already started to flow through to the Singapore economy and our companies. We must be prepared for weaker growth in the next few quarters, and possibly longer depending on when the global economy recovers. However, Singapore's financial and economic fundamentals remain sound. This will enable us to weather the current storm, and emerge strong and resilient.”
“A shortage of contractors, a tight labour market for skilled engineers and project managers, and longer waiting times for construction equipment have all resulted in construction firms stretching out their projects over a longer period of time. Weaker market sentiments have also dampened the outlook for private sector construction demand, and the stream of new private projects to be launched has slowed. However, total public sector construction demand is projected to remain robust; at between $10.5 billion and $13.5 billion for 2008 as the Government proceeds with several essential infrastructural projects such as the MRT Downtown Line and the Marina Coastal Expressway. As such, strong public sector construction demand is expected to provide some cushion and offset the possible decline in private sector construction demand. Let me now turn to the employment outlook. Employment growth in the first half of 2008 has thus far been healthy, with 144,600 jobs added. However, there are signs that the economic slowdown has started to impact the labour market. Employers are exercising more caution in their hiring, with most employers preferring to keep their headcount steady. Given that the economic weakness is expected to continue into 2009, moderation in employment growth is expected in the second half of 2008 and through to 2009. The slowing economy and more cautious hirings have contributed to an increase in the overall unemployment rate from 2% in March 2008 to 2.3% in June 2008. The unemployment rate for 2008 as a whole is likely to be higher than the 2.1% in 2007, which was a record low in 10 years. Retrenchments so far have stayed at roughly the same level as in previous quarters, although this could go up if the economic weakness persists.”
“Visitor arrivals fell by about 6% in July and August 2008. Also, growth in retail sales has slowed down. Excluding motor vehicles, real retail sales grew by just 2.5% in the first eight months of 2008, compared to 8% last year. Mdm Ho Geok Choo asked about the impact on our SMEs and the construction industry. This slowdown has inevitably affected SMEs in the manufacturing sector who are facing lower demand and profits. SMEs in certain services clusters, such as retail and food and beverage, may also be facing slower growth. Other services segments are holding up so far, and overall growth in the services sector is estimated to be 6.1% in the third quarter. In the area of financing, our banks are fundamentally sound. They do not face liquidity issues as serious as in other countries and still have credit available for lending. Nevertheless, banks have become more cautious. Default rates, while still stable, are also likely to increase. We will, however, ensure that credit is available to our SMEs through the Local Enterprise Finance Scheme (LEFS), Loan Insurance Scheme (LIS) and Microloan Programmes. For instance, the amount of outstanding LEFS and LIS loans to SMEs for the first eight months of 2008 has grown by more than 55% over the same period last year. We will ensure that our SMEs will be able to continue financing their business operations and investing in capability upgrading with these loans. The situation in the construction sector is slightly different. The sector is estimated to grow by 7.8% in the third quarter of this year, compared to 18% in the first half of this year. Part of this growth moderation is because of supply-side constraints.”
“Mr Speaker, Sir, advance estimates indicate that Singapore's GDP declined by 0.5% in the third quarter. On an annualised quarter-on-quarter basis, the economy has now registered two consecutive periods of negative growth, which is the common definition of a technical recession. Given the deteriorating external climate and the volatile financial situation globally, growth will remain weak for some quarters to come. MTI has revised the GDP forecast for 2008 to around 3%. Singapore's economy is small, open and closely linked to the global economy. We cannot escape the impact of the global financial crisis and economic slowdown. First, although Singapore banks have largely escaped the direct impact of the crisis because they have less exposure to distressed assets, the segments of our financial services sector which are more sensitive to market sentiments have been affected. This includes trading of stocks, shares and bonds, foreign exchange trading activities, as well as fund management activities. The local stock-market index has dropped by over 40% from the peak in October 2007. Second, the financial market turmoil has clearly affected sentiments in the property market. The number of residential property sales transactions has fallen sharply. In the third quarter of 2008, the private property price index also registered the first quarter-on-quarter decline since the first quarter of 2004. This will weigh down on related real estate activities. Third, the financial crisis has weakened consumer demand around the world, and this has affected our manufacturing and domestic exports. In the third quarter of 2008, Singapore's non-oil domestic exports fell by 8.5%, with the biggest declines in electronics and pharmaceuticals. Our tourism sector has also been hit.”
“Mr Speaker, Sir, can I have your permission to take Question Nos. 1 and 2 together?”
“Mr Zaqy Mohamad asked the Minister for Trade and Industry (a) whether there has been an assessment of the affordability of local tourist attractions for the average Singaporean; and (b) whether the Ministry will consider providing more concessions to make our tourist attractions more affordable to students and families during school holidays, especially for those from the lower-income households.”
“Mr Speaker, Sir, global commodity prices have eased in recent weeks. Amidst weakening demand, global oil prices have declined from a high of US$147 per barrel in mid-July to less than US$110 per barrel in early September. Global food prices remain quite high, but the pace of the price increases has slowed down. This moderation in global prices has had a positive impact on our domestic prices. The effect of the GST increase last year has also started to wear off. As a result, Singapore's headline inflation rate has started to ease. CPI inflation moderated to 6.5% in July, after staying at 7.5% in April, May and June. We expect to see a gradual easing of inflationary pressures in the second half of the year. For the whole year, we expect inflation to average between 6% and 7%. As for economic growth, the external economic outlook remains poor, and we do not expect to see a pickup in the major economies anytime soon. The US economy remains sluggish, weighed down by deleveraging and falling house prices. Europe is facing an imminent recession. Many Asian economies have reported a slowdown or decline in GDP growth in the second quarter of 2008. Some of our export-oriented manufacturing industries have been affected, such as electronics and pharmaceuticals. These sectors will dampen our economic growth. Last month, when MTI revised the growth forecast for this year to between 4% and 5%, it took into account these existing factors. However, the dramatic developments in the US financial industry over the past few days have created new uncertainties. We are closely monitoring these latest developments in the external environment, and assessing their impact on our economy. LOCAL TOURIST ATTRACTIONS (Affordability for average Singaporeans) 18.”
“For example, SMEs can now tap on IE’s new Exporters Development Programme, which develops our SMEs’ skills and knowledge in export activities. Certain industry sectors also continue to see sustained growth despite uncertainty in markets and high business costs. The overall services sector, for example, which comprise largely SMEs, grew by a healthy 7% in the second quarter of 2008. In particular, sectors such as medical technologies, oil and gas, environment and renewable energy, healthcare and wellness, education and lifestyle products and services are expected to demonstrate good growth, going forward. We will support the development of these industries as well as the development of capabilities of SMEs in these areas. Such investments will ensure that our companies continue to retain their competitive edge during this period of economic uncertainty. TOURISM SECTOR (Monitoring of performance) 2. Mr Gautam Banerjee asked the Minister for Trade and Industry (a) what action does the Government plan to take given the decline in both tourist arrivals and tourist spending in June this year; (b) how does Singapore’s performance compare with other tourist destinations and convention cities in the region such as Bangkok, Hong Kong and Macau; and (c) how much of an impact does the shortage of hotel rooms and the steep rise in hotel room rates have on turning potential tourists as well as conventions and conferences away from Singapore.”
“To mitigate this, the Government has released more transitional sites and vacant State properties for office use, which will come on-stream in about a year. The Government has also similarly increased space available for industrial and retail developments, which have also led to a moderation in the industrial and retail rental growth rates. By next year, there would be more forward supply which will gradually be realised over the next few years to ease demand. Nonetheless, we are already seeing a moderation in industrial rental growth rates. For the second quarter this year, industrial rental growth was at about 2.3%, down from about 7.8% in fourth quarter 2007. We will also ensure that SMEs continue to have access to credit through our Local Enterprise Finance Scheme (LEFS), Loan Insurance Scheme (LIS) and Microloan Programmes. With these available loans, our SMEs will be able to continue financing their current operations while investing in capabilities to fuel future growth. Based on our monitoring of these loans and feedback from private financial institutions, there does not appear to be much credit tightening for SMEs. For instance, the amount of outstanding LEFS and LIS loans to SMEs for the first seven months of 2008 has grown by more than 50% over the same period last year. The percentage of SME defaults on bank loans has also remained stable. We are monitoring these trends carefully and will increase Government loans to SMEs if necessary. These challenging economic times also provide new opportunities for SMEs to grow. IE Singapore has stepped up its efforts to support SMEs expanding into emerging markets such as Latin America, Middle East, Russia and Vietnam, which still present opportunities despite the current global slowdown.”
“Mr Speaker, Sir, business costs have indeed gone up. Rental and manpower costs have risen. Global commodity prices remain high compared to their level a year ago, and this has been reflected in higher fuel and materials costs for our SMEs. But this is not unique to Singapore. SMEs in other countries are similarly affected. Feedback we have received from SMEs indicate that higher costs have squeezed their profit margins. But they remain financially sound. Loan default rates and rental arrears are stable. Industry feedback is that SMEs’ business expectations for the next six months are still moderately positive. Our SMEs have highlighted that manpower, raw materials and rental are the key components contributing to the rising business costs. With the continued rise in global commodity costs, it is unlikely that the price pressure on raw materials will ease significantly. Nevertheless, we have put in place several measures in areas within our control to address manpower and rental costs, so as to help SMEs meet the challenges as well as tap opportunities of the current economic environment. Mr Speaker, Sir, we have sought to lower business costs by easing manpower constraints through various avenues. Working with MOM and WDA, we have reached out to economically inactive residents (housewives and mature workers) to encourage them to join the workforce. We have also provided greater flexibility in our foreign worker policy since January 2008. As a result, while we have been seeing some increase in labour costs in the recent months, this is still at a reasonable level compared to labour costs in previous years. We have also sought to ease rental rates. Part of the current rental escalation could be attributed to the spillover effects from the short-term office crunch.”
“When I said that we track cost, we track cost holistically, not just labour cost but also facilities, whether it is office space, commercial space, industrial space or accommodation for foreign workers. Also, a very important part about cost is utility cost. Because of the high dependency on energy imports, we have to pay world prices for utilities. In fact, utility cost is one of the key components of our cost structure. But, nevertheless, despite all these components, I believe we are still competitive. Recently, we commissioned EIU to look at our structure and their primary feedback to us is that investors look at the two sides, not just the cost but also the value that you bring to the table. This is where we also have to continuously work hard at to raise the skill-sets of Singaporeans, raise productivity and all the other things that we put onto the table – connectivity, our stability, and all the other attributes. So, on balance, the value-add that we can bring vis-a-vis the cost, I believe, we remain competitive and EDB is confident that the investment pipeline will continue to be strong. BALI ROAD MAP ON CLIMATE CHANGE (Progress) 4. Er Edwin Khew Teck Fook asked the Deputy Prime Minister and Coordinating Minister for National Security if he will provide an update on the progress of the Bali Road Map negotiations since the 13th Conference of the Parties Meeting of the UN Climate Change Conference in December 2007.”
“Mr Speaker, Sir, as I mentioned in my earlier response, in fact, we are quite confident about the prospects of the pharmaceutical industry. The characteristics that are shown by the pharmaceutical industry represent the very lumpy nature and very high capital intensive nature of the investments. We are still in the early stage of building up the sector. The companies that we have here have sunk in very heavy investments. They produce active pharmaceutical ingredients for the global market, particularly for the developed markets. And so every time they change the production mix, we get this impact on our value-add but the workers remain there. In fact, as I mentioned in my response earlier, the employment figures are going up. And because these are very highly capital intensive, high value-added, the wages in this sector are very high and, therefore, the employment prospects of our workers there are very good. So far, we have not seen significant retrenchments in the pharmaceutical sector. The slowdown in output in this quarter is just reflective of the volatility of the production mix. Another contributing factor which I mentioned was the delay in the introduction of new products because of delays in government approvals for new drugs. But this is something that the drug manufacturers have taken in their stride and they have readjusted their production schedules accordingly. So, going forward, we remain very confident about the prospects of the pharmaceutical sector.”
“Mr Speaker, Sir, we track our competitiveness, in particular, our cost structure very carefully. What we are seeing in recent months of our unit labour cost going up and productivity coming down is partly due to the cyclical changes. As you know, the economy performed extremely well in the last few years and employers have been building up their workforce. Now, with the sudden, abrupt reduction in demand, this has caused productivity to drop. Overall, we believe we still remain competitive as evidenced by most of the international competitiveness reports. Also, our EDB offices overseas, the companies that they deal with, look at the value proposition of Singapore and they remain very confident that Singapore is a very attractive investment location, as is evidenced by our strong pipeline of investments. But, nevertheless, we are always watching our cost structure and we will continue to do so. Mdm Ho Geok Choo (West Coast): I would like to ask the Minister what strategies are being put in place for our pharmaceutical industry to meet the delay for approvals for new pharmaceuticals and stiff competition posed from the generic drugs industry, especially since the pharmaceutical industry is the largest contributor to the manufacturing industry, making up 22% of the total output, and since Singapore's high cost structure will not enable us to compete with the generic drugs industry. The second question is: do we have a sense of how many employees will be affected and released from the workplace in the pharmaceutical industry?”
“The Government is committed to investing in training programmes to ensure that the skill-sets of workers fully meet industry requirements. There are joint initiatives put in place by the Singapore Workforce Development Agency (WDA) and the National Trades Union Congress (NTUC) to equip our workers with portable skill-sets to meet the needs of growth sectors. For example, the Employment and Employability Institute (e2i) is an initiative that was launched in February this year by NTUC in partnership with WDA and the Singapore Labour Foundation. It is a one-stop shop that provides employability assessment and coaching, skills training and job placement opportunities for workers. It reaches out to a broad spectrum of existing and displaced workers with different needs and challenges such as the retrenched workers, the lower-wage workers and older workers. Mr Speaker, Sir, to sum up, we remain confident that manufacturing as a whole will still generate good employment for Singapore. Our strategy of constantly upgrading the sector and workforce will ensure that manufacturing remains a key part of our economy, with meaningful and well paying jobs for Singaporeans.”
“But we should expect that job creation will slow down and some retrenchments may be inevitable in the manufacturing and export-oriented sectors, as they adjust their employment with the falling global demand. It is still too early to tell whether there will be significant retrenchments, and we are monitoring the situation closely. Mdm Ho Geok Choo asked what measures the Government is taking to minimise job losses in the manufacturing sector. Realistically, we cannot seek to protect every manufacturing job or to prevent job losses when the industry restructures or adjusts to slower business demand. Nevertheless, we can reduce the effect of cyclical job losses to the minimum by ensuring that we have a strong pipeline of investments. Some existing jobs will be lost, but new and better paid jobs will also be created. Our investment commitments for 2008 remain strong. In the first half of 2008, we attracted S$12.9 billion of fixed assets investments and S$4.8 billion of total business spending. These projects are expected to generate S$9 billion of value-added and more than 10,000 skilled jobs. We are therefore confident that there is strong sustained investment momentum as evidenced by the recent project announcements, including 3M's new facility to produce film coatings, Wyeth's expansion of its nutritional manufacturing facility, and Procter & Gamble's new perfume manufacturing facility. Many of the new investment projects that we are bringing in will create quality jobs for Singaporeans. We will continue to pursue such high-end investments from both established industries as well as from new growth areas such as clean energy, environment and water. It is important that our existing workforce can be trained to meet the needs of these new industries.”
“The manufacturing sector contracted by 5.2% in the second quarter of 2008 because of weaknesses in pharmaceutical and electronics output. Mirroring the slowdown in these two key exporting segments, our non-oil domestic exports contracted by 5.7% in July. A large part of the recent downturn in manufacturing can be attributed to volatility in the pharmaceutical industry. Significant swings in pharmaceutical output occur quite regularly due to changes in product mix, but these do not reflect fundamental weaknesses in the industry. In fact, employment in the pharmaceutical industry has grown steadily over the years, as has the value- added. Nonetheless, the short-term outlook for biomedical manufacturing will remain weak due to global trends such as competition from generic drugs and delays in government approvals for new drugs. Besides pharmaceuticals, we are also seeing some slowdown in other industries. The electronics industry grew by just 0.2% in the second quarter of 2008; the chemicals industry by 1.2%. Precision engineering fell by 1.7%. All these sectors depend crucially on external demand, especially from developed countries like the US, Japan and Europe. But demand from these countries has come down considerably and is expected to remain weak for some time to come. Notwithstanding these short-term difficulties in some manufacturing segments and exports, we have not yet seen significant numbers of retrenchments besides those arising from the closure of a Motorola plant earlier this year. In fact, employment went up by about 144,000 in the first half of this year, of which 22,000 were attributed to the manufacturing sector.”
“Mr Speaker, Sir, Singapore adopts an exchange rate-centred monetary policy to maintain price stability for sustained economic growth. In setting the exchange rate policy, the Monetary Authority of Singapore (MAS) seeks to strike the right balance between inflation and growth. Since 2004, MAS has adopted a policy of targeting a modest and gradual appreciation of Singapore's trade-weighted exchange rate, amidst robust economic growth. In its last two policy announcements in October 2007 and April 2008, MAS announced that it would allow a stronger appreciation of the Singapore dollar, through a steeper slope and an upward re-centring of its policy band, respectively. These were considered and measured responses to counter the inflationary pressures that were building up in the economy and the sharp increases in global food and fuel prices. If left unchecked, these price pressures could erode Singapore's cost competitiveness and derail our economic growth. Mr Liang Eng Hwa has asked whether the Government will maintain the policy of an appreciating Singapore dollar, in view of weaker GDP and export figures. We recognise that a strengthening Singapore dollar could have some restraining effect on exports in the short term. There is therefore a limit to how strongly the Singapore dollar can appreciate to offset the effects of global inflation passing through to the Singapore economy. At this stage, the current monetary policy stance remains appropriate in the context of achieving low inflation for sustained economic growth over the medium term. MAS will analyse inflation and growth data in a holistic assessment to determine the appropriate policy at its next scheduled policy review in October. Mr Speaker, Sir, let me now proceed to answer the questions on manufacturing.”
“Mr Speaker, Sir, may I have your permission to take Question Nos. 2 and 3 together?”
“Mdm Cynthia Phua asked the Minister for Health in view of the frequent outbreaks of hand, foot and mouth disease among young children (a) whether any studies have been done to understand the pattern of these outbreaks; (b) whether there are measures that can be introduced to prevent the outbreaks; (c) why are the outbreaks becoming more frequent; (d) what are the chances of an outbreak arising from public playgrounds where the environment is not regulated; and (e) can an outbreak be caused by contamination of books in public libraries.”
“The control measures are effective, only if patients are cooperative and comply with their doctors’ advice. In almost all cases, they would need to change their lifestyle, watch their weight, exercise more, stop smoking, take medications and attend regular medical screening. As healthcare providers, we can only provide advice and offer prescriptions; the patients must take personal responsibility and act on the advice. Many are still unaware that they have diabetes as it is a silent disease in its early stage. From next week, all Singaporeans above the age of 40 will be reminded by the Health Promotion Board to go for regular screening by their family GPs. For those with abnormal results, the GPs will advise them to follow up in accordance with a structured treatment protocol. Under the protocol, the diabetic patients are monitored regularly for good blood sugar control and undergo annual eye and foot checks as well as urine tests for early kidney disease. This is supported by patient education efforts through nurse health educators. Patients can use their Medisave Accounts to help pay for the treatment. Regular screening and proper disease management programme, with full compliance by patients are the key measures to help diabetic patients avoid, delay or reduce the onset of complications. HAND, FOOT AND MOUTH DISEASE (Preventive measures against outbreaks) 57.”
“These and other changes have been well-received. EDB also has start-up grants for qualifying IOs to build capability and undertake significant regional activities based out of Singapore. Such IOs may also qualify for support under STB’s Business Events in Singapore scheme. We welcome IOs and local industry associations to work with Government agencies to strengthen their organisations and the IO sector. For example, IE Singapore helps Singapore-based companies identify regional opportunities in partnership with IOs that provide assistance to developing countries, and helps IOs keep abreast of the capabilities, expertise and track record of Singapore-based companies. SPRING provides support to industry associations to develop roadmaps and development projects for our industry through its Local Enterprise and Association Development Programme (LEAD). To date, the feedback and response from IOs is promising. The target is to have 150 IOs in Singapore by 2015. With the efforts of both the Government agencies and the IOs, we are on track to seeing the emergence of a vibrant IO sector. SINGAPOREANS WITH DIABETES (Preventive measures from developing into other medical complications) 56. Mr Ong Ah Heng asked the Minister for Health what measures are in place to prevent the estimated 8% of Singapore’s population who have diabetes from developing other medical complications such as stroke, kidney failure, blindness and foot diseases. Mr Khaw Boon Wan: There is still no cure for diabetes. But doctors now know how best to control the disease to prevent or reduce the risk of developing further complications, such as kidney failure, gangrene, blindness or even death.”
“Mr Lim Hng Kiang: Singapore’s strong business and financial infrastructure, neutral location and pool of talent make it an attractive and competitive location for International Organisations (IOs) that are non-profit and non-governmental in nature. In 2007, there were 60 IOs in Singapore. This included major players from a variety of fields, such as the World Intellectual Property Organisation (WIPO), International Baccalaureate Organisation (IBO) and the International Air Transport Association (IATA). To further strengthen our efforts in attracting IOs, an International Organisations Programme Office (IOPO) was established last year. IOPO is led by EDB, with MAS, MFA, STB and several other agencies as partners. The type of IOs covered by the IOPO include inter-governmental organisations, non-governmental organisations (NGOs), foundations and other philanthropic organisations, industry associations, think-tanks, social enterprises and organisations dealing with corporate social responsibility. The IOPO provides one-stop information and assistance to IOs. It also conducts marketing and outreach to promote Singapore as a premier base for IOs, and supports Singapore-based IOs to expand their regional or international operations. There is a range of incentives available to IOs. The changes announced in Budget 2007 on fund-raising and tax regulations for philanthropic organisations have helped to attract IOs. For example, all registered charities now enjoy automatic income tax exemption. For the other non-profit IOs without charity status, but who have regional or international charters that can bring economic value to Singapore, they can now apply to the IOPO for an income tax exemption for an initial period of not more than 10 years.”
“We recognise that motorists face limited choice in the payment services sector today because NETS is the sole provider of cards for making ERP payments. This is undesirable from the competition perspective. To address this, LTA is working towards adopting an open standard that will allow motorists to use cards issued by more than one card issuer. This will improve the competitiveness of the ERP payment market. On the non-refundable deposit for the ez-link card, the Ministry of Transport has previously explained that this is based on the cost of producing the card. To lower the deposit or make it refundable will mean that every cardholder will be subsidised. This is not desirable. Instead, assistance should be provided in a more targeted way to the needy. In this regard, the Government set up a three-year $10 million Public Transport Fund last year to help lower-income commuters cope with public transportation costs. This Fund, together with additional funding from the public transport operators, has provided public transport vouchers to these commuters who are in need. LTA is also upgrading the transit ticketing system to allow other card issuers to enter the market. This may give commuters more choice beyond the ez-link card, and potentially lower costs. NON-PROFIT AND NON-GOVERNMENT ORGANISATIONS (NPOS/NGOS) (Development plans) 54. Miss Penny Low asked the Minister for Trade and Industry (a) if he will provide an update on the plan to attract non-profit and non-Government organisations (NPOs/NGOs) to Singapore; (b) what are the avenues of assistance given by SPRING, IE Singapore and EDB to foreign and local NPOs and NGOs; and (c) how can existing NPOs and NGOs work with the Ministry to develop this emerging sector.”
“My Ministry has not received any reports of the hoarding of petroleum or petroleum products in Singapore. Petroleum is a hazardous material and needs to be handled with care. Currently, the Singapore Civil Defence Force (SCDF) regulates the storage of petroleum for fire safety reasons. Any person or organisation that wishes to store petroleum or flammable materials in quantities exceeding that specified in the Fire Safety (Petroleum & Flammable Materials – Exemption) Order 2005 is required to obtain a storage licence from SCDF. For personal storage of petrol, a storage licence from SCDF is required for 20 litres or more of petrol. This applies for storage in residential and commercial buildings, and even in vehicle trunks(3). Without a storage licence, any person found storing petroleum beyond the exemption quantity is liable, on conviction, to a fine not exceeding $10,000, or imprisonment for a term not exceeding six months, or both. (3) The exemption quantity is regulated by the Flash Point (that is the lowest temperature at which ignition occurs) of the product. Category Flash Point Product Exemption Amount (Non-factories) Exemption Amount (Factories) Class I Below 23°C Petrol 20 litres 400 litres Class II Between 23°C and 60°C Kerosene 200 litres 1000 litres Class III Between 61°C and 93°C Diesel 200 litres 1500 litres POLITICAL VIEWS ON THE INTERNET (Regulation) 39. Mdm Ho Geok Choo asked the Minister for Information, Communications and the Arts what measures will be taken to update laws restricting the airing of political views on the Internet in view of the recent statements by the Ministry that a lighter-touch approach to Internet regulation is being considered.”
“The pit building is attractively located within the Marina Bay and next to the Singapore Flyer. Amongst its closest neighbours are the future Gardens by the Bay and Marina Bay Sands Integrated Resort. STB intends to maximise the use of the building and its immediate surroundings, during the months when it is not used for the race. The pit building could be put to a variety of business and leisure uses such as events, corporate training programmes, conventions and even art exhibitions. STB is exploring various options and targets to announce plans by September 2008. With four months to go before the F1 race in September, the priority now is to ensure timely completion of the pit building. Construction works are on schedule, and the pit building should be completed by early-July. The race promoter and the many Government agencies involved in this project are now entering the final stages of preparation for our inaugural F1 race and we look forward to a successful event. MALAY VILLAGE (Revamp) 33. Ms Sylvia Lim asked the Minister for National Development (a) why the Malay Village has not been able to thrive since its inception; and (b) how the new plans to revamp it will be an improvement from the past.”