ERIC ELLIS SingaporeIndonesian President B.J. Habibie contemptuously describes Singapore as a little red dot on the regional map. But he might have his colors mixed up. The tiny city-state's efforts to keep the world's financial wolves from its door have given it a greenish tinge--green for go.
In the past six months, Singapore has quietly enacted a series of crucial reforms in the banking, legal and technology sectors. Unlike some of its neighbors, who gripe that they have been victimized by an inhumane worldwide financial system, Singapore seems committed to keeping up with its Western trading partners and their mantra of globalization. We have to change, acknowledges Deputy Prime Minister Lee Hsien Loong, who articulates a thorough, if gradual, approach. It is more than a tweaking... What we want is a series of adjustments which will be cumulatively significant, but not an overnight change.
Singapore regulators recently opened the doors to foreign Internet service providers, though they must have a local partner. And companies using the Web are no longer required to use a government-controlled proxy server to download Web pages. That means faster access to a wider range of Websites. Harish Pillay, who heads the Singapore chapter of the Internet Society, is cheered by the government's new, more relaxed attitude toward the Web. Says he: They are gradually seeing the light.
In the financial industry, Singapore announced in May it would permit foreign institutions to acquire local banks accustomed more to a cosy cartel than competition. Just two weeks later, Keppel Tat Lee Bank became the first to succumb when it was partially bought out by Allied Irish Bank. Other mergers and takeovers will likely follow, says Lee, who also heads the local Monetary Authority. Singapore's approach to the crisis has been quite enlightened, says Alexander Au, chief executive of Oversea-Chinese Banking Corp. They have recognized a regional need for reforms and have introduced them quietly and carefully in key areas--with mini-bangs rather than a Big Bang. Significantly, Singapore has brought in two outsiders--Au, who was chief executive of Hong Kong's Hang Seng Bank, and former J.P. Morgan executive John T. Olds--to manage the banking shakeup; one of Olds' first moves was to maneuver several government appointees out the door at Development Bank of Singapore.
Of course, laissez-faire capitalism hasn't entirely replaced Singapore Inc., and bureaucrats still largely guide the city-state's fortunes. Yet their gradualist approach to reform seems to be working. The economy was damaged by the Asian financial crisis (growth fell from 8% in 1997 to 1.5% last year), but the effects have been comparatively mild. The partially floated Singapore dollar has stabilized at a competitive 25% below its pre-crisis level. Property prices have been allowed to drift down to about 40% of their previous peaks--significantly below those of rival Hong Kong. Employers' contributions to the Provident Fund, a government retirement plan, were reduced, effectively cutting the cost of labor. Ministerial salaries, the world's highest, also got a symbolic haircut, and Singapore slashed airport landing fees and the cost of shipping berths. As a result of such moves, the city-state has become a cheaper, more attractive place to do business. You have got to manage your transition, says Lee. We started doing that in 1997 just about the time the crisis began. Then, as the crisis deepened, we decided consciously to proceed with this rather than slow it down or change course. In the new Singapore, reform doesn't know the meaning of red.