http://www.reuters.com/article/idUSSGE60P07D
FACTBOX-Five political risks to watch in Singapore
By Nopporn Wong-Anan
SINGAPORE, Feb 1 (Reuters) - Singapore, widely seen as one of Asia's least risky investment destinations, has recovered from its worst economic recession and is returning to growth in 2010.
Five-year credit default swaps for Singapore's Temasek sovereign wealth fund TEMB5YUSAC=R -- used as a proxy for gauging sovereign risk -- are trading at a spread of around 45 basis points, the least risky of all the components in the Thomson Reuters Emerging Asia Index which has a weighted average spread of 134.40.
Following is a summary of key Singapore risks to watch:
* SECURITY
Militants have long had Singapore in their sights -- a Jemaah Islamiyah (JI) plot for multiple attacks was uncovered in December 2001. Internal security and policing are far ahead of neighbouring states, but the escape of al Qaeda-linked militant Mas Selamat Kastari from prison was a lapse that showed security is not infallible. The port remains a key potential target, and an attack on it could cause global disruption. There is also the risk Singapore will see the emergence of home-grown militants who would be better able to evade internal security. [ID:nSP519268]
What to watch:
-- Assessments of strength and tactics of Jemaah Islamiyah and its offshoots. Most analysts believe the main JI movement has abandoned attacks on civilian targets, while a violent splinter group was badly weakened after the death of its leader Noordin Mohammad Top. If this changes, the threat could rise.
-- Markets would not suffer prolonged losses from any militant attack unless it signalled the threat level would remain significantly higher. Because of the port's importance to Singapore's economy, the impact of a major attack on the facility would be more serious for markets, analysts say. [ID:nSP545301]
* TRANSPARENCY AND FINANCIAL SECRECY
Singapore is widely rated as one of the world's least corrupt countries, but has been criticised for lack of transparency in some areas, such as press freedom and secrecy in the financial industry. Following pressure from the G20, the country amended its tax law last October to help fight cross-border tax evasion. In November it was taken off the OECD "grey list" of nations not implementing international disclosure standards. [ID:nSIN33972]
"Given Singapore's reputation as a regional financial hub and its recent inclusion on the OECD's 'white list' of financial jurisdictions, financial activities such as private banking are set to flourish in 2010," Standard Chartered said.
What to watch:
-- Impact of changes to banking secrecy laws. Analysts say Singapore's move towards greater transparency in the financial industry is unlikely to impact its status as a key banking hub -- other countries with strict secrecy laws such as Switzerland have been moving in the same direction. There have been no signs yet that rich businessmen from the region, particularly Indonesia, are pulling their long-parked funds out of Singapore due to the new disclosure rules. If Singapore strikes deals with countries like Indonesia, Malaysia, Thailand or Taiwan, that would worry banks and clients, but the short-run prospects of this are small. Overall, the impact on fund flows from greater transparency is expected to be positive for Singapore for now. [ID:nnSP436002]
* POLITICAL CHANGE
As Singapore evolves, calls for a more open political system with greater diversity of views are likely to intensify. Singapore's restrictions on opposition activity and freedom of speech will also come under increasing scrutiny. Markets will be watching whether the ruling People's Action Party can manage the transition to greater openness smoothly, and find the appropriate balance between greater openness and continued stability.
What to watch:
-- Any sign of growing social pressure for political change, and the government's response. The government says it will amend the constitution ahead of the next elections, due by early 2012, to allow more opposition representation. But the change is not expected to have a significant impact. Prime Minister Lee Hsien Loong has said the most difficult challenge facing Singapore is finding a political system that works for generations to come, adding the system will evolve with the times.
-- Domestic politics will have no impact on short-term market movements. But Singapore's longer-term investment attractiveness will continue to hinge on its ability to portray itself as an efficient and safe destination for foreign firms and money.
* RELATIONS WITH NEIGHBOURS
Singapore-bashing is a sure-fire way to win political capital in many regional countries. Relations with Indonesia, Malaysia and Thailand in particular are often thorny, and are further complicated by Singapore's heavy investment in regional economies and its reliance on neighbours for some key resources. As the debacle over the purchase of Thailand's Shin Corp showed, careful management of relations with neighbours is necessary not just for Singapore's security but also for its economic prosperity. What to watch:
-- Any signs of a fresh flare-up in tension with Singapore's unruly neighbours.
* DEMOGRAPHICS AND RACE RELATIONS
Singapore saw deadly race riots in the 1950s and 1960s, and while considerable progress has been made in achieving racial harmony, some tensions remain. The issue is complicated by demographic issues -- the majority Chinese population is growing at a lower rate than minority Malays and Indians due to different birth rates, and the government has made repeated efforts to encourage citizens to have more children. Labour shortages mean the country has to rely on immigrant workers for many jobs.
What to watch:
-- Any sharp rise of racial tensions or unrest. This is considered extremely unlikely, although there is a chance that rising religious tensions in neighbouring Malaysia could spill over to some extent.
-- The government is trying to address a growing public discontent on migrant workers as more local Singaporeans feel foreigners are taking jobs away from them during the economic downturn. New measures have been introduced to screen for better qualified semi-skilled migrant workers and differentiate privileges between citizens and permanent residents.
(Reporting by Nopporn Wong-Anan; Editing by Andrew Marshall)gl
FACTBOX-Five political risks to watch in Singapore
By Nopporn Wong-Anan
SINGAPORE, Feb 1 (Reuters) - Singapore, widely seen as one of Asia's least risky investment destinations, has recovered from its worst economic recession and is returning to growth in 2010.
Five-year credit default swaps for Singapore's Temasek sovereign wealth fund TEMB5YUSAC=R -- used as a proxy for gauging sovereign risk -- are trading at a spread of around 45 basis points, the least risky of all the components in the Thomson Reuters Emerging Asia Index which has a weighted average spread of 134.40.
Following is a summary of key Singapore risks to watch:
* SECURITY
Militants have long had Singapore in their sights -- a Jemaah Islamiyah (JI) plot for multiple attacks was uncovered in December 2001. Internal security and policing are far ahead of neighbouring states, but the escape of al Qaeda-linked militant Mas Selamat Kastari from prison was a lapse that showed security is not infallible. The port remains a key potential target, and an attack on it could cause global disruption. There is also the risk Singapore will see the emergence of home-grown militants who would be better able to evade internal security. [ID:nSP519268]
What to watch:
-- Assessments of strength and tactics of Jemaah Islamiyah and its offshoots. Most analysts believe the main JI movement has abandoned attacks on civilian targets, while a violent splinter group was badly weakened after the death of its leader Noordin Mohammad Top. If this changes, the threat could rise.
-- Markets would not suffer prolonged losses from any militant attack unless it signalled the threat level would remain significantly higher. Because of the port's importance to Singapore's economy, the impact of a major attack on the facility would be more serious for markets, analysts say. [ID:nSP545301]
* TRANSPARENCY AND FINANCIAL SECRECY
Singapore is widely rated as one of the world's least corrupt countries, but has been criticised for lack of transparency in some areas, such as press freedom and secrecy in the financial industry. Following pressure from the G20, the country amended its tax law last October to help fight cross-border tax evasion. In November it was taken off the OECD "grey list" of nations not implementing international disclosure standards. [ID:nSIN33972]
"Given Singapore's reputation as a regional financial hub and its recent inclusion on the OECD's 'white list' of financial jurisdictions, financial activities such as private banking are set to flourish in 2010," Standard Chartered said.
What to watch:
-- Impact of changes to banking secrecy laws. Analysts say Singapore's move towards greater transparency in the financial industry is unlikely to impact its status as a key banking hub -- other countries with strict secrecy laws such as Switzerland have been moving in the same direction. There have been no signs yet that rich businessmen from the region, particularly Indonesia, are pulling their long-parked funds out of Singapore due to the new disclosure rules. If Singapore strikes deals with countries like Indonesia, Malaysia, Thailand or Taiwan, that would worry banks and clients, but the short-run prospects of this are small. Overall, the impact on fund flows from greater transparency is expected to be positive for Singapore for now. [ID:nnSP436002]
* POLITICAL CHANGE
As Singapore evolves, calls for a more open political system with greater diversity of views are likely to intensify. Singapore's restrictions on opposition activity and freedom of speech will also come under increasing scrutiny. Markets will be watching whether the ruling People's Action Party can manage the transition to greater openness smoothly, and find the appropriate balance between greater openness and continued stability.
What to watch:
-- Any sign of growing social pressure for political change, and the government's response. The government says it will amend the constitution ahead of the next elections, due by early 2012, to allow more opposition representation. But the change is not expected to have a significant impact. Prime Minister Lee Hsien Loong has said the most difficult challenge facing Singapore is finding a political system that works for generations to come, adding the system will evolve with the times.
-- Domestic politics will have no impact on short-term market movements. But Singapore's longer-term investment attractiveness will continue to hinge on its ability to portray itself as an efficient and safe destination for foreign firms and money.
* RELATIONS WITH NEIGHBOURS
Singapore-bashing is a sure-fire way to win political capital in many regional countries. Relations with Indonesia, Malaysia and Thailand in particular are often thorny, and are further complicated by Singapore's heavy investment in regional economies and its reliance on neighbours for some key resources. As the debacle over the purchase of Thailand's Shin Corp showed, careful management of relations with neighbours is necessary not just for Singapore's security but also for its economic prosperity. What to watch:
-- Any signs of a fresh flare-up in tension with Singapore's unruly neighbours.
* DEMOGRAPHICS AND RACE RELATIONS
Singapore saw deadly race riots in the 1950s and 1960s, and while considerable progress has been made in achieving racial harmony, some tensions remain. The issue is complicated by demographic issues -- the majority Chinese population is growing at a lower rate than minority Malays and Indians due to different birth rates, and the government has made repeated efforts to encourage citizens to have more children. Labour shortages mean the country has to rely on immigrant workers for many jobs.
What to watch:
-- Any sharp rise of racial tensions or unrest. This is considered extremely unlikely, although there is a chance that rising religious tensions in neighbouring Malaysia could spill over to some extent.
-- The government is trying to address a growing public discontent on migrant workers as more local Singaporeans feel foreigners are taking jobs away from them during the economic downturn. New measures have been introduced to screen for better qualified semi-skilled migrant workers and differentiate privileges between citizens and permanent residents.
(Reporting by Nopporn Wong-Anan; Editing by Andrew Marshall)gl
