In 1985, Singapore experienced its first post-independence recession.[1] Prior to the economic decline, Singapore had been enjoying a continuous GDP growth of 8.5 percent per year.[2] Early warning signs of a slowing economy were already evident in 1984, but a booming construction industry bolstered the overall numbers. By the end of 1984, the construction market had become saturated and few projects were in the pipeline for completion.[3] Singapore was headed towards a recession. By the second quarter of 1985, Singapore posted a growth rate of -1.4 percent, which dropped to -3.5 percent in the third quarter. The sharp and sudden downturn took many by surprise.[4] Amid news of companies going bankrupt and the retrenchment of workers, Singapore’s unemployment figure rose to 4.1 percent in June 1985 from 2.9 percent in the previous four years.[5]
The recession in Singapore was caused by a combination of both external and internal factors. There were a number of external factors. First, the economies of industrialised nations were slowing down, in particular the United States.[6] Second, Singapore was also experiencing decreased demand for its goods and services because regional countries were trading directly, bypassing Singapore as an entrepôt. To make matters worse, Indonesia, Thailand and the Philippines had implemented exit taxes, and Malaysia introduced a 50 percent tax on goods bought from Singapore by residents.[7] Third, the situation was further aggravated by poor performances from Singapore’s key industries in oil refining and shipbuilding and repair due to the entry of new competitors.[8]
Internally, the high operating costs attributed to high wages and rentals made Singapore less competitive in the global market, as there was no corresponding increase in productivity. The construction slump, high domestic savings rate and rigidity in the economy further weakened the economy.[9]
To beat the recession, the government introduced a slew of cost-cutting measures such as reductions in employer contributions to the Central Provident Fund and Skills Development Fund; wage restraint for two years; rebates on personal, corporate and property taxes as well as government fees; and loans with lower interest rates. Public development spending was increased and a venture capital fund was set up. The government also adopted a policy of privatisation and deregulation to establish the private sector as the new driver for economic growth.[10]
The severity of the recession prompted Tony Tan, then the Minister for Trade and Industry, to announce the formation of an Economic Committee in March 1985. The committee, led by then Minister of State for Defence and Trade and Industry Lee Hsien Loong, was tasked to assess Singapore’s economy and chart new areas of growth. The committee held its first meeting on 29 April that year and released its full report, The Singapore Economy: New Directions, in February the following year. The committee had proposed several economic reforms to address the causes of the recession and to steer Singapore towards the next phase of its development.[11]
The Singapore economy made a swift recovery in mid-1986. By the second quarter of that year, Singapore posted a growth of 1.2 percent, which increased to 3.8 percent in the third quarter.[12] The recession was the first test for the second-generation leaders led by Goh Chok Tong, who was appointed First Deputy Prime Minister after the 1984 parliamentary general election.[13]
References
1. Bercuson, K. et al. (Eds.). (1995). Singapore: A case study in rapid development (p. 31). Washington, D.C.: International Monetary Fund. Call no.: RSING 338.95957 SIN.
2. Ministry of Trade and Industry. (1986). The Singapore economy: New directions. Singapore: Ministry of Trade & Industry, Republic of Singapore. Call no.: RSING 330.95957 SIN.
3. Rigg, J. (1988, March). Singapore and the recession of 1985 (p. 344). Asian Survey, 28(3), 340–352. Retrieved September 23, 2013, from JSTOR.
4. Chan, H. C. (1986, February). Singapore in 1985: Managing political transition and economic recession (p. 164). Asian Survey, 26(2), 158–167. Retrieved September 23, 2013, from JSTOR.
5. Chan, Feb 1986, p. 165.
6. Ministry of Trade and Industry, 1986, pp. 4–5.
7. Chan, Feb 1986, p. 164.
8. Rigg, Mar 1988, p. 345.
9. Ministry of Trade and Industry, 1986, pp. 5–7.
10. Lee, L. T. (1987, February). Singapore in 1986: Consolidation and reorientation in a recession (p. 248–249). Asian Survey, 27(2), 242–253. Retrieved September 23, 2013, from JSTOR; Tan, A. H. H. (1986). Singapore’s economy: Growth and structural change (p. 290). Southeast Asian Affairs. Retrieved September 23, 2013, from JSTOR; Chan, Feb 1986, p. 165; Rigg, Mar 1988, p. 349–351; Ministry of Trade and Industry, 1986, pp. 16–17.
11. Ministry of Trade and Industry, 1986; Tan, 1986, p. 290.
12. Lee, Feb 1987, p. 249.
13. Daniel, P. (1988, August 23). How the team of seven got the economy back on track. The Straits Times, p. 20. Retrieved from NewspaperSG.
The information in this article is valid as at 2014 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.