Shanmugaratnam's Quest

By Jarrett Toh
26th August 2009

The global economic downturn is now being felt throughout the world and has greatly affected nearly every country. Singapore is no exception and the city-state is currently taking measures to minimize the effects of the recession.

The island country’s Minister of Finance, Mr Tharman Shamugaratnam, leads these efforts in a bid to curb the financial crisis. Recently, Mr Shamugaratnam unveiled a plan to combat the credit crisis. The plan, involving tax cuts and a hefty financial package, aims to help the country bear the full brunt of what could be its worst recession since independence. In addition to cost-cutting measures, the budget that Mr Shamugaratnam has unveiled includes sizeable infrastructure spending and transfer payments to lower income Singaporeans.

“The Government is doing so in order to have full flexibility to respond to the current economic crisis,” said Mr Shamugaratnam. Furthermore, this plan includes incentives for new growth industries and programmes aimed at upgrading workers' skills.

“This year's 'significantly expansionary' budget will emphasise help for businesses. Late last year the government pledged 2.3 billion dollars in credit support for firms trying to survive the economic turmoil,” said Mr Shanmugaratnam.

However, in his Budget 2009 speech, Mr Shamugaratnam highlighted that the budget would not just be for the current downturn. “The Government will build capabilities and infrastructure for the future, step up educational opportunities, and provide best care services for citizens in their senior years,” he said.

To fund this massive initiative, Mr Shamugaratnam has requested the Singapore government to dip into the country’s multi-billion-dollar national savings. This is the first time Singapore has ever used a cent of its massive reserves, but most analysts agree that it is a suitable course of action. As the open, trade-driven economy takes a sharp turn for the worse, the prospect of bankruptcies and layoffs is striking fear in Singapore, whose citizens are long used to near-full employment and bustling economic activity.

In 2008, The city-state became the first Asian economy to feel the effects of the recession. Mr Shamugaratnam, boasting a Master's degree in Economics from Cambridge University, feels confident that he and the Singapore government will be able to lead Singaporeans out of the recession. “When I acquired the position of Minister of Finance in 2007, I wasn’t expecting a credit crisis of such magnitude to take place any time soon. I have to admit that it caught me off guard. Nevertheless, we have the expertise, the manpower and most importantly, the will to solve this problem.”

However, most analysts agree that Shamugaratnam’s resistance package will do much in helping Singapore fight the credit crunch, the road to full recovery is miles long. As the Monetary Authority of Singapore (MAS) said recently, “the recovery will be slow, gradual and fraught with uncertainties, unlike the quicker rebounds that followed previous downturns.”

Despite a slight increase in economic activity recently, the world’s major economies are still trapped in minimal growth. As long as this remains, Singapore is likely to continue to experience below-average growth. Moreover, analysts say that the new scare over swine flu, which has caused tourism to grind to a halt and uncertainty over the future to worsen, will inevitably amplify the effects of the global economic downturn affecting Singapore. Given the sheer severity of the situation, it appears that Mr Shamugaratnam will have a long time solving the issues at hand.