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Opinion

Singapore's coronavirus stimulus package has lessons for ASEAN

Its speed is positive, but its size could be bigger to boost isolated economy

| Singapore
A screen shows a telecast of Lee Hsien Loong addressing the outbreak on Apr. 3: his team seems overly cautious.   © Reuters

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

Eleven days in the economic life of Singapore offer a glimpse of what governments are up against in the year of coronavirus. In late March, the city-state unveiled a second relief plan for traumatized businesses and households. Less than two weeks later, it had topped things up with a third.

Singapore's roughly $42 billion outlay is telling in a couple of ways. One is a reminder that, in COVID-19-adjusted terms, fiscal jolts that seem ample one day are quickly overtaken by intensifying economic threats. The other is that policymakers are making it up as they go; there is no playbook for addressing a pandemic atop a massive trade war.

But the pros and cons of Singapore's actions are instructive.

Even before the pandemic began making headlines, Singapore was losing altitude. In 2019, it grew at the slowest rate in a decade. In the January-March period, the economy shrank an annualized 2.2%, the first contraction since the 2008-09 global financial crisis.

Of course, all major economies are stumbling, and announcing do-overs of their own. Take Japan, which this week dwarfed December's $120 billion pre-COVID spending package with a nearly $1 trillion extravaganza. The U.K. has made two runs at stimulus, just as the U.S. is scrambling to supersize its $2 trillion plan.

Singapore, though, augurs poorly for Southeast Asia as 2020 unfolds. Exports, industrial production and consumption are all cratering, so its efforts to contain the red ink rising around a $263 billion economy are worth monitoring.

What is Singapore getting right? Speed, for one thing. The $3.6 billion of supplemental spending announced Monday aims to put cash immediately into the hands of consumers. Public handouts to all adult Singaporeans now total the equivalent of $420. It boosts wage subsidies for companies this month and offers waivers on rent taxes for small businesses and levies on employing foreign workers.

Singapore has been wise to let fiscal loosening take the "primary role" in stabilizing growth. This phrase came directly from the Monetary Authority of Singapore last week, when the central bank added fresh stimulus. In a world in which policymakers everywhere are racing to cut interest rates, there are limits to how much traction liquidity alone brings.

Yet Singapore can do much better. The provisions which apply only to Singaporean citizens are counterproductive given the economy's outsized reliance on imported labor. As politically unpalatable as it seems, putting more cash into circulation with a critical mass of people would increase the government's firepower.

Migrant workers mostly from Bangladesh queue to collect free masks on Feb. 23: the provisions which apply only to Singaporean citizens are counterproductive.   © Reuters

The other concern is scale. All told, Singapore is spending about 12% of gross domestic product. This amount, though, may pale in comparison to the economic hardships to come.

A day after the latest stimulus announcement, Singapore's parliament agreed to strict curbs on social gatherings. This partial lockdown comes as Prime Minister Lee Hsien Loong confronts a jump in COVID-19 cases. The order, which begins next week, involves, as Lee puts it, "most workplaces except for essential services and key economic sectors."

Yet this social "circuit breaker," as Lee himself calls it, will require comparable mechanisms on the economic side to limit downside risks. Here, Lee's team seems overly cautious.

The stimulus-to-GDP ratio is small relative to the 20% jolt Japan unveiled on Tuesday. At the moment, Singapore's plans push up the current fiscal year's budget deficit to 8.9%. In other words, it has considerable fiscal space to broaden demand-boosting efforts.

Fiscal conservatism has no place in 2020, a year in which Lee's government thinks GDP will shrink between 1% and 4%. These figures were bandied about even before the coming clampdown on nonessential businesses and closing of schools. It also has no place at a time when trade-reliant Singapore is essentially on its own.

The headlines to come will obsess over how high U.S. unemployment might go. Might joblessness in the biggest economy surpass the 25% peak in the 1930s? It is possible. China might contract this year. This would deprive Singapore of two of its most pivotal export markets.

Japan is looking at its own year of contraction. The state of emergency that Prime Minister Shinzo Abe announced Tuesday coincided with a record stimulus jolt. Yet efforts to put a floor under Japanese growth will be little help to Southeast Asia in the months ahead. Nor should the region expect many orders to come from Europe.

Along with greater deficit spending, it is vital Lee convince Singaporeans that the economy which emerges from the coronavirus crisis will be a vibrant one. That means multitasking to move the nation of 5.7 million people upmarket into high-value-added services. Efforts over the last decade to boost innovation in biotechnology, energy, health care, logistics, software and other areas have had limited success.

Lee's government could harness today's coronavirus crisis to roll out tax incentives and other inducements to morph the economy into an entrepreneurial powerhouse. A package of steps to incentivize startups, new research and development grants and attractive land and rental deals would add a proactive element to Singapore's reaction to pandemic fallout.

Singapore is proof positive that policymakers everywhere should go big and be creative in safeguarding growth, or resign themselves to a do-over every 11 days or so.

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