Jan. 16 (Bloomberg) — Until a few months ago, Amit Singh dreamed of buying a car. Now, with S$75,000 ($50,100) in the bank, the lawyer is holding back, saying he’ll continue to make the one-hour commute to work on the Singapore subway.
“In these bad times, the buzzword is save, not spend,” says Singh, 34. “It’s not the right economic climate to be lavish or to have a luxurious lifestyle.”
Singapore is asking its citizens, the world’s third- wealthiest adjusted for purchasing power, to be prudent as analysts predict the worst economic slump in the nation’s 43- year history. In speeches, pamphlets and ads, the government is advising people to switch to cheaper frozen meats, take shorter showers and skip the top-of-the-line mobile phone.
The island’s strategy contrasts with that of other countries such as Japan and Taiwan, which are trying to boost consumer spending to spur economic growth as exports falter. Singapore, whose 4.8 million population is one of Asia’s smallest, doesn’t have a big enough home market to make up for falling sales overseas, so officials “are not even going to try” to tell people to spend more, says Vishnu Varathan, an economist at Forecast Singapore Pte.
“There’s no way the domestic economy can make up for the slack in the external sector,” he says. The message “is to bear with pay cuts and live frugally.”
The government is preparing people for dwindling incomes as the nation’s fourth recession in a decade forces companies including lender DBS Group Holdings Ltd., manufacturer Stats Chippac Ltd. and state-owned investment company Temasek Holdings Pte. to fire workers or trim salaries.
Singapore last year unveiled more than S$5.4 billion in cash payouts, utility rebates and special funds, or S$1,700 for each of the nation’s 3.2 million citizens, to help the poor cope with rising food and energy prices.
Officials say people also need to help themselves during the economic crisis. If everyone depends on the government, “we’ll weaken ourselves as a society,” Prime Minister Lee Hsien Loong said on Jan. 11, according to the island’s main English newspaper, the Straits Times. “We’ll cultivate a sense of reliance.”
The World Bank predicts Singapore’s $161 billion economy will be East Asia’s worst performer this year. The government forecasts it may shrink as much as 2 percent, after expanding 1.5 percent in 2008 and 7.7 percent in 2007. Kit Wei Zheng, an economist at Citigroup Inc. in Singapore, says the contraction might be as much as 2.8 percent — the most severe since Singapore gained independence in 1965.
The unemployment rate may more than double to 5 percent from 2.2 percent in September 2008, says Leong Wai Ho, a regional economist at Barclays Capital in Singapore. More than 30,000 jobs may be lost, he says, after about 400,000 new positions were created in the past two years.
That could boost the default rate on mortgages for government-built apartments, which house 84 percent of Singaporeans. The rate has risen to 8 percent from 5 percent in 2003.
Governments elsewhere in Asia are encouraging their more- sizeable populations to spend to counter the deepening global recession. Taiwan extended the New Year’s holiday an extra day and is scheduled to distribute NT$3,600 ($108) shopping vouchers to citizens on Jan. 18. Japanese Prime Minister Taro Aso has pledged to give households 2 trillion yen ($23 billion) in handouts.
That may not work for Singapore, where private consumption accounted for 38 percent of gross domestic product in 2006, compared with more than half in Australia, Hong Kong, South Korea and Japan, according to the World Bank.
Singapore’s leaders have traditionally preached restraint amid economic difficulties. In 2001, when the economy contracted 2.2 percent, the government refused to cap electricity prices and instead gave utility rebates to help the poor and encourage people to “save and not over-consume,” then-Prime Minister Goh Chok Tong said in an August 2001 speech.
The government’s latest campaign began last year when prices of food essentials including rice and cooking oil surged. As inflation soared to a 26-year high of 7.5 percent, Prime Minister Lee urged people to switch to frozen meats and in-house brands of supermarket products, which are typically cheaper.
The national power company ran television ads telling consumers to set air conditioners several degrees higher and use energy-efficient bulbs to combat rate increases of about 42 percent. A government-run community-development council distributed a brochure to homes in Singapore’s most-populous district, suggesting people use less water and substitute meat with “cheaper and healthier” vegetables.
MoneySense, a national financial-education program run by the central bank, sponsored an advertisement in the Straits Times last month featuring a cartoon of a man showing off his new cell phone, then skipping lunch and subsisting on water because he had no money left.
Not everyone is getting the message. Alicia Leong, 29, received a 32-page booklet in her mailbox in December with tips on saving money. The next day, she spent S$1,200 on new clothes and a handbag, charging them to two of her seven credit cards.
“I still have a job, so I don’t see the need to tighten my belt,” says Leong, a teacher at a local high school. “I’ll probably stop when my credit cards are maxed out.”
Singaporeans rolled over a record S$3.5 billion in credit- card debt last November, about 18 percent higher than the year before.
Other people are taking the advice to heart. Jack Oh lost his job as an electrician when his employer went out of business in October. The father of three school-age children now drives a taxi and says he’s cutting back on the Lunar New Year celebration, which begins Jan. 25.
“Last year, we went to a restaurant for the reunion dinner with my family, parents and siblings and spent over S$1,500,” says Oh, 44. “This year, we’re doing it at home, and I told my wife to get the cheaper abalone.”
To contact the reporter on this story: Shamim Adam in Singapore at firstname.lastname@example.org
Last Updated: January 15, 2009 16:13 EST
By Shamim Adam