ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
(Original pictures by Reuters, Getty Images)
Asia Insight

Singapore seeks another economic miracle maker for next PM

Slower growth raises stakes of succession three years after founding father's death

KENTARO IWAMOTO, Nikkei staff writer | Singapore

SINGAPORE -- Rallying cries rarely heard in Singapore carried across the lush green lawn of Hong Lim Park in early March. About 100 people had gathered under an occasional drizzle to protest a planned increase in the goods and services tax. "The government is overspending on infrastructure!" one demonstrator yelled. 

Speaking one's mind in the city-state requires a certain amount of nerve. "Failure to comply with detailed restrictions on what can be said and who can participate in public gatherings frequently results in police investigations," according to Human Rights Watch. Hong Lim Park is the only place where public demonstrations are tolerated.

The group that came out against the GST increase had more pressing worries. They fear the planned hike to 9% between 2021 and 2025, from 7% now, will put undue strain on their personal finances. Singapore is already the world's most expensive city, according to the Economist Intelligence Unit's Worldwide Cost of Living report. 

The tax increase may be particularly hard to swallow given the vague but growing sense of unease about the country's future.

This Friday marks the third anniversary of the death of Singapore's founding father, Lee Kuan Yew. It was Lee who transformed the tiny, resource-poor island into an advanced economy. Thanks to its geographic location and low-tax model, the city-state became Asia's trade hub and attracted a host of international companies, allowing the government to spread wealth to citizens.

This "economic miracle," though, is becoming harder to sustain. There are a couple of directions Singapore could go: It could find ways to maintain steady expansion, or it could slip into secular stagnation, where anemic growth is a product not of business cycles but of deep-rooted structural problems.

The government is approaching this crossroads just as it faces another major challenge: finding a new leader.

Singapore's move to increase its goods and services tax sparked this rare public protest at Hong Lim Park on March 3. (Photo by Kentaro Iwamoto)

"Soon after the next [general election], my successor must be ready to take over from me," Lee Hsien Loong, Lee Kuan Yew's first son and the current prime minister, said in August 2016. 

Nearly two years later -- two years closer to the election due by April 2021 -- a successor has still not emerged.

In an unusual move, a group of 16 relatively young ministers seen as potential future leaders issued a statement on Jan. 4. "The younger ministers are keenly aware that leadership succession is a pressing issue ... We are conscious of our responsibility, are working closely together as a team, and will settle on a leader from among us in good time."

 A few days earlier, on New Year's Eve, former Prime Minister Goh Chok Tong had nudged them to choose a leader among themselves within six to nine months. 

Of the 16, three stand out as key contenders, judging from how quickly they have been promoted and their experience in important ministries or the military. They are Heng Swee Keat, 56, the current finance minister and a former chief of the Monetary Authority of Singapore; Chan Chun Sing, 48, a minister in the Prime Minister's Office who served in the armed forces for over 20 years; and Ong Ye Kung, 48, the education minister who doubles as the second defense minister.

Heng and Chan were first elected in 2011, while Ong won his seat in the last general election in 2015.

Prime Minister Lee appears to be testing the three, while giving them chances to distinguish themselves on the international stage. Heng visited China last year, while Chan attended this year's World Economic Forum in Davos. Ong accompanied the prime minister on a visit to the White House last year. 

Still, political analysts suggest the candidates are cut from a different cloth than the city-state's prime ministers to this point. 

Since the island split from Malaysia in 1965, it has been ruled by three strong leaders. After Lee Kuan Yew came Goh, who raised Singapore's profile as a regional financial center. The younger Lee, for his part, has built up the knowledge economy.

"The best scenario is to continue to pick strong personalities [to serve as prime minister], someone close to the stature of Lee Kuan Yew, but there's no such person," said Alan Chong, assistant professor at Nanyang Technological University. The next leader could be chosen based on "very thin arguments," he added -- Lee Hsien Loong might not be completely sure about the pick, but merely deem the candidate better than the alternatives.

Singapore's economy has been growing at a roughly 5% clip under Prime Minister Lee Hsien Loong.   © Getty Images

Yet Singapore may need a standout leader more than ever, now that rising protectionism and an increasingly assertive China are shaking the world order. The Singaporean economy has blossomed, in large part, thanks to the free trade system; the next prime minister will have to be ready to fight for that system. 

"None of the most touted contenders for the prime ministership have high profiles outside Singapore," said Garry Rodan, director of the Asia Research Center of Australia's Murdoch University. "Goh Chok Tong was in a similar position before. However, at that time, Lee Kuan Yew remained a force in foreign policy networks and the regional and global order was more stable."

If trust is broken and tit-for-tat trade wars break out, all countries, big or small, will suffer

Singaporean Prime Minister Lee Hsien Loong

For much of the People's Action Party's 50 years of de facto one-party rule, Singapore has punched above its weight diplomatically. Now, many say Lee's retirement could leave the country with less influence. One way to avoid that would be to maintain brisk economic growth, Chong said, but there are real questions about Singapore's prospects. 

Compound gross domestic product growth during Lee Kuan Yew's 25-year tenure came to about 9.3% annually. The rate under Goh, from 1990 to 2004, came to 6.3%, while so far under Lee Hsien Loong it has been 5.3%.

The government is spending more to support an aging population and enhance security in the face of new threats. This explains the unpopular decision to raise the GST, as well as the introduction of a carbon tax -- two moves that have some questioning Singapore's commitment to its low-tax model.

 

Older residents of Chinatown pass the time with games of checkers. Government outlays are rising as the population ages.   © Getty Images

The government does see a way forward. Finance Minister Heng alluded to it in a speech to wrap up the latest budget debate. 

The "most critical challenge" is transforming Singapore's economy, Heng told parliament on March 1. "Our strategy is to position Singapore as a global-Asia node of technology, innovation and enterprise."

This will not be easy.

There is no doubt that the city-state is still attracting businesses. Google has substantial operations with a staff of more than 1,000, according to the finance minister. Singapore is the world's third most innovative economy, after South Korea and Sweden, as measured in this year's Bloomberg Innovation Index. 

Lunch hour in the central business district: The city-state still ranks third on the Bloomberg Innovation Index.   © Reuters

"Singapore's track record of implementation with regards to its structural reform initiatives over the past few decades is stronger than in other countries," said Christian de Guzman, senior credit officer at Moody's Investors Service.
 
But it is also true that the growth rate is headed in the wrong direction. Private-sector economists forecast 3.2% for this year and 2.8% for next year, down from 3.6% in 2017, according to a survey released by the Monetary Authority -- the central bank -- on March 14.

The protectionist polices of U.S. President Donald Trump, meanwhile, have cast a dark cloud over the trade hub. "If trust is broken and tit-for-tat trade wars break out, all countries, big or small, will suffer," Lee Hsien Loong recently told Australian media.

Economists are worried, too. "Many industries within Singapore's services sector, which accounts for about two-thirds of Singapore's economy, are trade-related," said Alvin Liew, senior economist at United Overseas Bank. "So the negative effects of a potential trade dispute may spill over into not just the manufacturers and exporters, and the impact may be magnified in the overall Singapore economy."

While Singapore attempts to spark another economic miracle, the leadership change draws ever closer. And as the PAP and the Workers' Party -- the biggest opposition -- prepare for the looming election, the tax increase and the uncertainty over Lee's successor are creating head winds for the ruling party.

Can Singapore pull off a smooth transition to the fourth generation of leadership and find a path to continued prosperity? The next two or three years will be critical.

Lee Kuan Yew was always cautious about his country's future. "City-states do not have good survival records," he wrote in his memoir. "However, we stand a better chance of not failing if we abide by the basic principles that have helped us progress: social cohesion through sharing the benefits of progress, equal opportunities for all and meritocracy, with the best man or woman for the job, especially as leaders in government."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more