Singapore HDB not singing in tune with Govt?

Singapore HDB not singing in tune with Govt?

It should be more sensitive to tough economic times

BUSINESSES big and small are being ravaged by the global economic downturn, with firms here down on their knees pleading for all the help that they can get, from cash to measures that will help them reduce their costs.

The Government has recognised their plight and has promised help. Prime Minister Lee Hsien Loong said the Government would help workers acquire new skills and make sure businesses continue to operate by cutting costs and ensuring that they have access to credit.

The Government wants to keep the economy competitive and make sure that Singaporeans remain employable, he said.

“Because if you are not working, and if your company is not competitive, then there is no way you can come back up and stand on your feet again,” he was quoted as saying.

And in recently explaining to an audience in Chile why the Singapore Government had cut the remuneration of ministers and top civil servants by 18 to19 per cent, he noted: “It is the right thing to do, economically as well as politically, to send the signal that at a time like this, everybody has to tighten his belt.”

However, this message doesn’t appear to have trickled down to the Housing and Development Board (HDB), which has raised the rents of its commercial properties while almost everyone else has brought theirs down.

Mr Nelson Koh of Horizon Books, a company in which my brother is a shareholder, complained that when he received the tenancy renewal notice last month from the HDB, there was a 13-per-cent increase in the rental rates from the current $1,410 a month to $1,590 a month.

When he went to the HDB office to seek clarification and ask for a reduction, he was told to wait for further notice as there were a number of other tenants making similar pleas.

In fact, in November, businesswoman Mdm Tay Boon Yong wrote to the papers to complain about a 20-per-cent hike in the rent for her HDB prototype factory in Defu Industrial Estate, which is slated for redevelopment in a few years’ time.

“What is this talk about keeping business costs down? Does the HDB not align its policies with Government initiatives? We are already bleeding from the slowdown. Increasing rent at this inopportune time is adding salt to the wound,” she asked.

“We are trying hard not only to stay in business, but also retain our workers. Can the Government please knock some sense into the HDB?” she added.

The HDB’s reply to her plight borders on callous.

“Our industrial tenants pay a fixed rent during their tenancy period, which could range from one to three years. Before the tenancy expires, they are offered the option of renewing their tenancies at the prevailing market rent.”

Now who doesn’t pay a fixed rent during their tenancy period?

The HDB then went to point out that “since 2006, the rent of similar industrial premises has increased by about 22.5 per cent. Since September last year, HDB has offered to stagger rent increases to assist industrial tenants like Mdm Tay who face significant rent increases at tenancy renewal, by spreading their rent increases over the renewal term of three years.”

For sure, rents may have risen by the amount that the HDB claims, but aren’t we facing a serious downturn now - perhaps the most serious since the depression of 1929?

Then came a “magnanimous” offer to Mdm Tay from the HDB.

“To help Madam Tay confirm the prevailing market rent of her unit, she can opt for an independent assessment from a private valuer. Alternatively, HDB is prepared to put the unit up for tender so her company can re-bid for it,” it said.

This appears to be a take-it-or-leave it attitude.

Wasn’t the HDB established to provide cheap lodging and premises to not only the population at large but also to Singapore’s small- and medium-sized enterprises (SME), which employ the bulk of our workers?

Or is its main priority now to churn out huge profits? Perhaps the tagline of it new vision and mission statement, “Soaring to Greater Heights”, should read “Soaring to Greater Profits”.

It’s not as if the HDB is losing money on its commercial and industrial properties. For the financial year ended March 2008, the HDB reported a “higher surplus” of $632 million as compared with $381 million in the previous year. It attributed the increase to higher rents, the reversal of impairment losses of commercial and industrial properties and land, as well as higher compensation received for the return of some land parcels to the Government during the year.

While the Government has recently made available$2.3 billion in loan and credit facilities to companies, especially to SMEs, by offering to take80 per cent of the risk of financial institutions in their loan grants, its gesture will come to nought if Government-linked entities like the HDB raise costs to businesses in the current climate.

Prime Minister Lee has said the Government would be introducing “strong measures” to deal with the current recession. One such measure could be to prevent the HDB and like bodies from causing business costs to soar.

Source : Today - 12 Jan 2009

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Pay-interest-only deal for cash-short Singapore home owners

Pay-interest-only deal for cash-short Singapore home owners

DBS scheme eases borrowers’ burden for six to 18 months

By Goh Eng Yeow

HOME owners with mortgages at DBS Bank can ease some of their financial burden by opting to pay only the interest on their loans for periods of up to 18 months.
The bank sees the scheme as a way of helping cash-strapped borrowers who are worried about their ability to repay their mortgages amid the deepening economic gloom.

‘This is a friendly gesture from DBS. At least, I know they won’t treat me like a leper if I approach them for help in my housing instalment.’
Homeowner Rose Tan

The scheme could potentially benefit ‘tens of thousands’ of borrowers with home loans at DBS.

It can mean an immediate reduction in the monthly amount a borrower must fork out as a key portion of the payment - the loan principal - can be set aside.

Take a 25-year home loan of $500,000 pegged at an interest rate of 3.5 per cent.

A borrower will have to pay $2,504 a month - covering both interest and principal.

But by opting to pay the interest only, his monthly payment drops to $1,439, putting an extra $1,065 into his pocket.

So even if a working couple loses one income, which is a growing threat in the downturn, they can likely keep paying their mortgage - and keep their home.

They can also pay the monthly instalment using Central Provident Fund cash if they are only servicing the interest on the loan.

They can resume monthly payments on the principal portion of their loan when their cash flow situation improves.

The periods for paying interest only can extend from a minimum of six months to 18 months.

‘The last thing we want to do is to foreclose on people’s homes. Come and talk to us early if you have any financial problems,’ said Mr Koh Kar Siong, head of consumer deposits and secured lending at the bank, yesterday.

Homeowner Rose Tan, 40, who has a DBS mortgage on her condominium flat, welcomed the move: ‘This is a friendly gesture from DBS. At least, I know they won’t treat me like a leper if I approach them for help in lowering my housing instalment.’

The flip side is that paying interest-only means you are not paying off any of the loan itself so you will have fallen behind.

DBS is the largest bank here and a key player in the private housing loans market. It is also a big lender to HDB flat-owners through its POSB network.

It has ‘tens of thousands’ of mortgage borrowers.

To get the go-ahead, a borrower must give the bank an update of details such as employment and other financial commitments.

The scheme is applicable to cash-strapped borrowers as well as those in the pink of financial health.

DBS will advise them within a week if their applications to pay interest-only on their loans has been approved.

Mr Koh said the updates are needed to enable DBS to fulfil its fiduciary duty and ensure that borrowers have the means to repay their loans eventually.

Besides offering interest-only instalments, DBS is extending an option to allow home owners to extend the tenure of their loans, which will lower their monthly instalments.

Mr Koh said there has not been any sharp rise in the number of borrowers asking DBS to alter their loan repayment terms but banks are unlikely to be immune to the economic slowdown.

‘About 90 per cent of our home loans are taken up by borrowers who occupy their properties. We want to help them to tide over this difficult period,’ he said.

DBS’ move has stirred hopes among traders and home owners that by acting in such a pro-active manner, there will be fewer foreclosures and this will help the wobbly property market to get back on its feet eventually.

Banks such as MayBank and OCBC Bank told The Straits Times that they preferred to take a case-by-case approach to assist home owners who have taken up loans with them.

Mr Gregory Chan, OCBC’s head of secured lending, said: ‘In the event that our customers’ needs change during the duration of their loans, we are open to reviewing their financial positions and borrowing limits, and advising them accordingly.’

Source : Straits Times - 13 Jan 2009

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Tough-going beyond economics

Tough-going beyond economics

Domestic sentiment will force Ma to tread cautiously on China ties

By Goh Sui Noi, Senior Writer

CHINESE President Hu Jintao’s six-point proposal on cross-strait ties, presented on New Year’s Eve, has been lauded for the flexibility it displayed.
Mr Hu responded positively to Taiwanese President Ma Ying-jeou’s call for an economic pact, greater international space for Taiwan and the signing of a peace agreement.

Yet, the response from the other side of the Taiwan Strait has been anything but enthusiastic.

The truth is that Mr Ma, friendly towards China though he is, cannot respond too positively. This is because of Mr Hu’s emphasis on the ‘one China’ principle. That principle is anathema to some Taiwanese, particularly those who believe that the island should declare itself an independent state.

Mr Hu’s reiteration of the ‘one China’ principle was consistent with Beijing’s long-held policy towards Taiwan. What surprised many was his emphasis on the principle, repeating it at least three times in his speech. In particular, he said that negotiations on ending hostilities between the two sides and on a peace agreement should be based on the ‘one China’ principle.

Mr Hu explained ‘one China’ thus: The mainland and Taiwan are not yet unified but this does not mean that China’s sovereignty and territory are split. Rather the status quo reflects the historical rivalry between the Chinese Communist Party and the Kuomintang in the 1940s and earlier. Taiwan and the mainland, he said, both belonged to ‘one China’.

Analysts see this as a fine-tuning of the ‘one China’ principle, formulating it in terms acceptable to the Taiwanese. Even so, Mr Ma felt compelled to remind the Chinese, in a statement on New Year’s Day, that current talks between the two sides are based on the 1992 consensus and ‘mutual non-denial’.

The 1992 consensus, as the Taiwanese understand it, is that there is one China, but each side, the mainland and Taiwan, has it own interpretation of what ‘one China’ means. It was the basis on which talks were first held between the two sides in 1993 and were resumed last year, shortly after Mr Ma came to power, after a hiatus of 10 years. The concept of ‘mutual non-denial’ was introduced by Mr Ma as another basis for cross-strait exchanges.

While the Chinese have acknowledged the 1992 consensus as a basis for past and current talks, they have not explained explicitly what the consensus means to them. Analysts say that if Beijing openly agrees that the consensus means the two sides can have different interpretations of what ‘one China’ means, it would be tantamount to admitting that there are two Chinas, at least conceptually.

Last Wednesday, at a meeting with cross-strait experts from the United States, Mr Ma said that his administration was still analysing Mr Hu’s comments, reflecting the cautiousness with which he was treating Beijing’s overtures.

Cross-strait expert George Tsai of the Chinese Culture University in Taiwan suggested that Mr Hu had played up the ‘one China’ principle for the audience back home. But he added that by placing undue emphasis on it, Mr Hu had put Mr Ma in a difficult position as it created suspicion in Taiwan about China’s intentions.

Indeed, an article in the moderate Apple Daily called the ‘one China’ principle a jinguzhou - a reference to the incantation of the golden hoop used by the monk in the classical novel Journey To The West to control the monkey king - and asked: ‘Do we want it or do we not?’ The China Times in an editorial urged caution on the part of the Taiwanese government.

Ms Tsai Ing-wen, leader of Taiwan’s opposition Democratic Progressive Party and former chairman of the official Mainland Affairs Council, commented that Beijing’s fundamental policy towards Taiwan has not changed. She urged President Ma to not ‘harbour any illusions’ about Mr Hu’s proposals and to ‘place Taiwan’s sovereignty as priority’.

Mr Hu’s reiteration of the ‘one China’ principle - or ‘framework’ as he also occasionally characterised it - in a proposal to take cross-strait negotiation beyond economics to the political realm is understandable. He needs to state in no uncertain terms the basis on which such talks are possible for Beijing. Indeed, he also mentioned more than once another term the Taiwanese have a great aversion to and which the Chinese have avoided articulating for some time now: ‘one country, two systems’.

That he wishes to move talks between the two sides forward so fast has perhaps to do with his wanting to strike while the iron is hot, while there is a mainland-friendly government in power in Taipei. Professor Tsai suggested that Beijing wants to stabilise cross-strait relations now and perhaps create an irreversible trend towards better cross-strait ties.

However, Mr Ma is in no position to move talks beyond economics towards a peace agreement, as Mr Hu suggests, least of all based on the ‘one China’ principle.

A recent poll by the Commonwealth Magazine showed that the number of Taiwanese preferring independence has gone up in the six months since Mr Ma assumed office. The figure of 23.5 per cent is the highest since the magazine began such polling in 1994. Supporters of unification have slid to 6.5 per cent compared with 7.6 per cent the year before and 13 to 18 per cent in previous years. A majority, 57.8 per cent, preferred the status quo. Asked if Taiwan’s current cross-strait policy was sound, 38.2 per cent said yes, but 35.1 per cent said no.

Unless Taiwan’s economy showed some improvement after cross-strait economic relations are liberalised and Taiwanese saw some real benefits from improved ties, it would be hard for Mr Ma to move relations forward. The more viable option now, where he is concerned, is to work towards an economic pact.

If towards the end of Mr Ma’s first term, which ends in 2012, there are signs of an economic upturn, then a start could be made towards political dialogue, said Prof Tsai.

Clearly, Mr Ma needs time to build a consensus within Taiwan’s much-divided society if he is to move cross-strait ties beyond closer economic cooperation.

Source : Straits Times - 13 Jan 2009

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Organ law proposals get solid backing

Organ law proposals get solid backing

Eight in 10 support moves to make more transplants possible

By Lee Hui Chieh

MORE than eight in 10 people here support moves to change transplant laws to make more organs available, and punish organ traders more severely, a Health Ministry survey has found.

Eight in 10 were in favour of even the most controversial proposal of reimbursing living organ donors - but only for their loss of income, as well as direct and future expenses related to the donation, and not for any profit.

Three in four said the total should amount to at least $50,000.

The resounding approval to reimburse altruistic donors suggests there will be no barriers from the public in moving forward on the changes.

Releasing the findings yesterday, the ministry said it would work out a reasonable sum based on international guidelines, and consider the feedback when refining the Human Organ Transplant Act (Hota) Amendment Bill.

The Bill is expected to be introduced in Parliament early this year.

Over a month from Nov 14, the ministry gathered feedback from more than 200 people and nine medical and professional groups through online public consultation, a dialogue, and a written survey.

More than nine in 10 agreed to raising penalties by 10 times on syndicated organ trading, so that organ traders can expect up to $100,000 in fines or a jail term of up to to 10 years or both.

But the ministry did not see eye to eye with feedback on compensating only local, and not foreign, donors, to remove inducement for people in poorer countries to give up their organs.

It said it would issue guidelines to hospitals’ transplant ethics committees to help them decide on a reasonable amount to reimburse foreigners without their profiting from the donation.

Among other proposals that received public backing was allowing the use of organs from donors who are older than 60 years at the time of death.

Under the existing Act, the kidneys, livers, corneas and hearts of Singaporeans and permanent residents can be taken for transplant, unless they have opted out, if they die between the ages of 21 and 60 only.

Some people were concerned that the quality of organs from older donors would be compromised by age or disease, and that young recipients would outlive them. The ministry said yesterday that only organs fit for transplant would be used for suitable recipients.

Most respondents also approved of allowing ‘pair-matched donations’. This involves setting up a registry to match pairs of living organ donors who are incompatible with their intended recipients, with similar pairs.

The ministry said it would allow matching pairs to carry out operations simultaneously, to prevent the donor from one side backing out.

Health-care professionals and watchdogs cheered the solid support.

The feedback means that there was ‘no disagreement on how to go forward’, said Associate Professor Goh Lee Gan, who heads the College of Family Physicians.

It also reflects the public’s concern with the increasing numbers of kidney failure cases, noted Madam Halimah Yacob, chairman of the Government Parliamentary Committee for Health. About 520 people were waiting for a transplant as of October last year.

What people thought of proposed changes

The Human Organ Transplant Act (Hota) should be amended to increase the number of cadaveric donors, by lifting the upper age limit for cadaveric organ donation.
Yes: 93 per cent

No: 7 per cent

Not sure: 0 per cent

Hota should be amended to facilitate living donor transplants, by allowing donor-recipient paired matching for exchanges of organs.
Yes: 95.5 per cent

No: 3 per cent

Not sure: 1.5 per cent

Hota should be amended to support the welfare of living donors, by allowing them to be compensated according to accepted international practices.
Yes: 85.5 per cent

No: 9 per cent

Not sure: 5.5 per cent

Hota should be amended to protect donors and recipients from being exploited by middlemen, by increasing the penalties for syndicated organ trading.
Yes: 96.5 per cent

No: 2.5 per cent

Not sure: 1 per cent

Source : Straits Times - 13 Jan 2009

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Bush to ask for remaining US$350b bailout fund - WASHINGTON

Bush to ask for remaining US$350b bailout fund - WASHINGTON

(WASHINGTON) President-elect Barack Obama asked President George W Bush to request the US$350 billion funds remaining in the financial rescue package, the White House said yesterday.

Popping the question: Mr Bush has agreed to President-elect Barack Obama’s request for the funds in the US financial rescue package
‘President Bush agreed to the president-elect’s request,’ White House spokeswoman Dana Perino said in a statement. ‘We will continue our consultations with the president-elect’s transition team, and with Congress, on how best to proceed in accordance with the requirements of the statute.’

Congress may vote on the request as early as this week, according to senators briefed by Obama economic adviser Larry Summers on the financial rescue package in addition to Obama’s separate plan for roughly US$800 billion in spending and tax breaks to spur the economy.

The formal request for the remaining US$350 billion in the Troubled Asset Relief Program (TARP) must come from President George W Bush, but the Obama team needs to help smooth release of the massive block of federal dollars. The incoming administration wants to use more of the fund to relieve homeowners threatened with mortgage foreclosures, said Senate Banking Committee chairman Christopher Dodd, a Democrat. A fuller accounting of the money already spent is needed as well, Mr Dodd said.

Bush and the Obama team have had some success in selling the plan to members of Congress.

‘Larry Summers made a very strong argument for why it’s important and critical for the overall recovery,’ said senator John Kerry. ‘And I think that’s an argument that most senators understand.’

Mr Summers sought to win over Senate Democrats even as the Republican leader of the House, John Boehner, warned that any effort to release the additional money would be a tough sell.

A request would force a vote within days on whether to block the funding, but the deck is stacked in favour of Bush and Obama winning release of the remaining US$350 billion.

Congress can pass a resolution disapproving the request, but the White House could veto the resolution; then, just one-third of either chamber would be needed to uphold the veto and win release of the money. Senate leaders would prefer to win a majority vote, Mr Dodd said.

The idea is to make the money available to the new administration shortly after Obama takes office on Jan 20. The unpopular bailout has featured unconditional infusions of money into financial institutions that have done little to account for it.

Treasury Secretary Henry Paulson originally promised the money would be used to buy up toxic mortgage-related securities whose falling values have clogged credit markets and brought many financial institutions to the brink of failure.

Senate Majority Leader Harry Reid said that Bush and Obama officials were near agreement.

‘We’re waiting to hear from President Bush and/or president-elect Obama as to what, if anything, they’re going to do,’ said Mr Reid, ‘and that’s occurring as we speak.’ But to prevail, Mr Obama and his team must soothe senators who feel burned by the way the Bush administration has used the bailout.

‘The (incoming) administration . . . is going to fundamentally alter how this is being managed,’ Mr Dodd said. ‘The concept is still very sound and solid and it is needed. But it’s not going to pass around here unless there’s a strong commitment to foreclosure mitigation.’

Work continued through the weekend on Mr Obama’s economic recovery plan, which features aid to cash-strapped state governments, tax cuts for most workers and working couples, a huge spending package blending old-fashioned public works projects with aid to the poor and unemployed, and a variety of other initiatives.

Mr Obama, meanwhile, said on Sunday he was prepared for immediate involvement in Mideast diplomacy toward a solution to the Israeli-Palestinian conflict but once again refused to show his hand about specifics that would lead him to success where his predecessors have failed for more than a half-century.

Pressed on his silence about the raging war in the Gaza Strip, Mr Obama quickly reverted to his contention that there can be only one president speaking for the United States on foreign policy issues, a position that has caused some to claim the incoming chief executive was being callous in the face of Palestinian suffering in the Israeli offensive to cripple the Hamas organisation.

‘I think that players in the region understand the compromises that are going to need to be made. But the politics of it are hard,’ Mr Obama said in an ABC television interview broadcast on Sunday.

Mr Obama reiterated that the violence and suffering on both sides was ‘heartbreaking. And obviously what that does is it makes me much more determined to try to break a deadlock that has gone on for decades now. The incoming leader, who has been receiving daily national security briefings since his election in November, also acknowledged that his campaign pledge to close the prison at Guantanamo Bay will be more of a challenge than he anticipated. — AP, Reuters

Source : Business Times - 13 Jan 2009

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Citi expects govt to run $3b-$4b budget deficit

Citi expects govt to run $3b-$4b budget deficit

By CHEW XIANG

THE government is expected to run a $3-4 billion budget deficit, according to Citi economist Kit Wei Zheng in a note released yesterday.

But a total fiscal stimulus package of up to $24 billion including off-budget measures - equivalent to between 8 and 9 per cent of GDP - is ‘not inconceivable’, Mr Kit said.

The initial budget is likely to be more conservative, he said. ‘We suspect the government may choose not to deploy all the fiscal stimulus at one go on Jan 22, and may instead keep its powder dry for an off-budget package - as was the case in previous recessions.’

In 2001, $13.5 billion of off-budget measures, equivalent to 8.4 per cent of year 2000 GDP, were announced, he said. And the Asian financial crisis led to a $12.5 billion package, equivalent to 8.8 per cent of GDP.

‘As the current recession could well be the most severe in Singapore’s history, a fiscal stimulus package in the order of 8-9 per cent of GDP ($18-24 billion) is not inconceivable in our view,’ Mr Kit said.

For the Budget proper, due to be announced on Jan 22, a more modest 1.2 to 1.5 per cent deficit ($3-4 billion) is expected, he said. This is likely to focus on targeted income support, modest demand stimulation and alleviating financial stress on businesses.

According to Mr Kit’s estimates, the government could spend almost 10 per cent more this year, or $41 billion, up from an estimated $37.45 billion for FY 2008. Development expenditure is likely to be significantly higher, with $4.7 billion of deferred public construction projects expected to be brought forward, he said.

This is likely to be financed partly by a bumper surplus from 2007, when the government came in $6.45 billion above budget.

The government will also be able to draw on extra money after recent changes to the way investment returns from its fiscal reserves are calculated, estimated at $3-5 billion a year.

However, ‘there may be some downside risks to these estimates, depending on the magnitude of recent likely losses by GIC and Temasek on their investments, or the willingness of the government to actually fully utilise the cap on investment returns,’ Mr Kit said.

HSBC economists expect a 3 per cent deficit next year, while Standard Chartered economist Alvin Liew estimates a total package of $15 billion, or 6 per cent of 2008 GDP.

‘While it is difficult to predict the budget balance in FY 2009-10, we are very likely to see record deficits in these two years,’ he said in a recent note. ‘We estimate fiscal budget deficits of 4.1 per cent of GDP in FY09 and 1.6 per cent in FY 2010.’

Source : Business Times - 13 Jan 2009

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Singapore GDP to fall 4.5% in 2009: Deutsche Bank

Singapore GDP to fall 4.5% in 2009: Deutsche Bank

Export recession, credit squeeze mean most Asian nations will see GDP plunge

By ANNA TEO

DEFLATION will emerge as a ‘very real threat’ this year in several Asian economies, including Singapore, as a result of the severe export recession, says Deutsche Bank’s chief economist for Asia.

Mr Spencer: ‘For the US, we see another two quarters of shrinking GDP before things start to improve.’ Meanwhile, deflation is a real threat this year in several Asian economies, including Singapore
The spectre of falling prices - a bane for companies particularly - will disappear once oil prices start to rise again possibly next year, Michael Spencer said in an interview here yesterday. The Hong Kong-based economist was in town to meet with clients as part of a regional swing.

His GDP forecasts for the region are more bearish than the market consensus ‘by a considerable margin’ - especially on Singapore and Hong Kong in 2009, and on China’s 2010 outlook, he told BT. ‘Generally, the consensus expectations are about a percentage point higher than us, and it stems from (our) being generally more negative on the US and Europe.’

The German bank’s forecasts see a 2 per cent contraction in the US economy this year, and a 3 per cent shrinkage in Euroland. Export-driven Singapore will be particularly hit, with its GDP expected to fall 4.5 per cent in 2009, according to Mr Spencer’s forecasts.

That’s the most bearish 2009 forecast for Singapore to date, and would be its worst annual contraction on record. The official GDP forecast ranges from a 2 per cent shrinkage to 1 per cent growth, while most other economists see a sub-3 per cent contraction.

Hong Kong is expected to suffer a 4 per cent GDP contraction, according to his forecasts, while the Taiwanese economy will shrink by 1.6 per cent.

Across the region, a combination of a huge export recession and credit tightening by Asian banks will result in a plunge in GDP growth, excluding China and India, to just 1.1 per cent this year, after an estimated 4.2 per cent pace in 2008.

‘I think as we get into the third quarter, the data will start showing some improvement,’ says Mr Spencer. ‘I think the year-on-year deterioration in exports, industrial production, retail sales, will probably reach its peak or its nadir in the third quarter. Q3 will be the worst on a year-on-year basis.’

On a seasonally adjusted quarter-on-quarter basis, the current quarter or the preceding Q4 of 2008 will likely be the worst. For Singapore, it is ‘possible’ that the current quarter will see an even sharper contraction than Q4’s 12.5 per cent q-o-q fall, he said.

‘In the US, we’re pretty confident that Q4 2008 was the worst of the q-o-q recession but we see another two quarters of shrinking GDP before things start to improve.’

He added: ‘In terms of the crisis atmosphere, and the sharp sudden deterioration in activity, we probably have seen the worst. But I think, given that our forecasts are more bearish than consensus, I think people will still be surprised at how weak the data will remain for the next six months.

‘There is no sudden turnaround in the global economy. It will be well into the year, probably the third quarter, before people start to feel that things are really improving, and they will improve slowly.’

Meanwhile, there will be deflation to contend with.

‘If you go back to even after a relatively mild recession in 2001, a number of economies in Asia had three years of deflation, or going in and out of deflation, and I think we’re entering another period like that.’

Inflation in Asia in the last two years was almost entirely a commodity price story, Mr Spencer pointed out.

‘It was food and fuel prices going up. Certainly the fuel price story has completely reversed, and there’s probably a little bit more downside on oil prices - they could probably go as low as US$30 per barrel. They probably won’t rise very fast thereafter, but if OPEC makes bigger cuts than they’ve announced so far, conceivably oil prices will start to rise in 2010. That would be the only reason to expect an exit from deflation in Asia.

‘If oil prices are sort of stable, then deflation will last for a couple of years, because we’re opening up in a sense an enormous output gap globally. And the slow pace of recovery, in our view, means that the output gap won’t close until 2011 or later. So you’re not going to get genuine demand pressures for higher inflation for another three years at least. So the only reason to expect deflation to end would be to have a bullish view on commodities.’

In any case, the economies most at risk of deflation are the historically low inflation economies - Singapore, Taiwan, Korea, Thailand, and ‘eventually’ Hong Kong, once its ‘lagged’ rents measure in its consumer price index (CPI) catches up with current levels.

‘Essentially housing costs disappear as a source of inflation; you’re left with this weaker sort of inflation in clothing, transport, lower oil price, and eventually lower food prices as well.’

People will soon perceive deflation, even if the CPI doesn’t really report it, he says. ‘People will feel like it’s a much more deflationary environment than the statistics show.’

The risk of a commodity price upsurge is low, he adds. Oil prices will likely bounce around in a wide range of US$30-US$50 this year. But a significant spike in perhaps 2010 will be enough to pull inflation back to positive territory in Asia, he says. But ‘if oil prices just keep going sideways you’ll have the CPI bounce around minus 1 per cent to minus 2 per cent for a few years.’

But deflation in Asia will not become a huge problem like it had been for Japan through the 1990s ‘for the simple reason that these economies can be dragged out of recession and deflation very qiuckly, given how open they are’, Mr Spencer says.

‘Any return of growth globally will bring an end to recession; any reflation globally will bring an end to deflation.’

It was very difficult to restart growth in Japan because of several inherent factors, not least because it wasn’t an open, export-driven economy with effective fiscal policies.

‘It’s quite easy to restart growth in Singapore - all you need is growth in the US and Europe, and we’re confident we’ll get that by the end of this year.’

But deflation will be an issue for companies ‘in the sense that we’ll get growth but it won’t be enough growth that you’re going to generate any significant pricing power, so pressure on companies to continue to improve productivity, even in an environment of positive growth by the end of this year or 2010, will remain.’

So while deflation for the export-sensitive economies in Asia will not hamper growth, it will hit corporate profitability and margins.

Source : Business Times - 13 Jan 2009

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IMF may need another US$150b for crisis - WASHINGTON

IMF may need another US$150b for crisis - WASHINGTON

(WASHINGTON) The International Monetary Fund (IMF) may need another US$150 billion to help counter the hit to emerging markets and poorer countries from a worsening global economic downturn, managing director Dominique Strauss-Kahn said.

The IMF chief, in an interview in Washington, also chided European leaders for failing to grasp the depth of the coming slump in their region, creating the risk of social upheaval. The fund will make a ’significant’ increase in its US$1.4 trillion projection of global financial losses and writedowns, he added.

The remarks by Mr Strauss-Kahn, a former French finance minister and presidential contender, may help build momentum for proposed stimulus packages in Germany and France.

They also indicate that the fund may put pressure on nations with large foreign-exchange reserves, such as China and Saudi Arabia, to step up contributions.

‘If in six months from now the crisis has worsened and many other of our members need our help, the demand may be above what we have,’ Mr Strauss-Kahn said in the Jan 9 interview. ‘If the political decision is made to do something, I’m convinced that it will not be difficult to find the extra US$150 billion’ that would double the lender’s resources compared with a year ago, to a total of US$500 billion, he said.

The IMF chief warned there will be ’some decrease’ in the IMF’s economic forecasts. In November, the fund predicted global growth of 2.2 per cent this year, with US gross domestic product shrinking by 0.7 per cent, Japan’s by 0.2 per cent and the euro area’s by 0.5 per cent.

Mr Strauss-Kahn, 59, has already overseen the steepest jump in fund commitments in its six-decade history. The IMF agreed to lend US$41.8 billion to troubled economies in November, its largest monthly pledge on record.

While Japan in November pledged an additional US$100 billion to boost fund resources, other nations have yet to commit to help. — Bloomberg

Source : Business Times - 13 Jan 2009

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Construction costs poised on a downtrend - Singapore

Construction costs poised on a downtrend - Singapore

Tender price index may have fallen 6-8% in Q4, says consultancy RLB

By ARTHUR SIM

(SINGAPORE) Construction costs may have shrunk in Q4 2008 and are likely to be still on the way down, says a top consultancy firm.

Rider Levett Bucknall (RLB) says preliminary figures show its tender price index (TPI) may have fallen 6 to 8 per cent quarter on quarter in Q4.

The drop is significant because in the first nine months of 2008, the TPI - which reflects tender price movements in specific sub-sectors of the construction industry - rose 18 per cent year on year.

RLB said there has been a significant drop in tendering activity and recent tenders appear to reflect an easing of prices - ‘largely due to the fall in construction demand as well as declines in material costs, contractors’ preliminaries and tendering margins’.

The firm said that in Q3 2008, the TPI showed little movement and ‘appeared to have peaked’.

The current downward trend in building tender prices is anticipated to be more fully felt in the market by the second quarter of 2009.

In Q4, construction demand is expected to have been $4 billion - way down from an estimated $7.5 billion in Q3.

At end-November 2008, steel reinforcement cost US$740 a tonne, or 40 per cent less than the July 2008 figure of US$1,251.

Copper prices fell even more. At end-November 2008, copper cost US$3,716 a tonne, or 57 per cent down from $8,683 a tonne in April 2008.

But not all costs have eased.

RLB said prices of mechanical and electrical services have not moderated. And wages for construction workers are anticipated to remain stable in the short term. Some costs have continued to rise. For instance, granite aggregate and ordinary Portland cement have gone up 14.9 and 4.2 per cent respectively since April 2008.

At end-Q3 2008, construction costs in Singapore on a per square metre of gross floor area (GFA) basis were still relatively high.

RLB said the cost of constructing a 55-storey (or more) office building was $5,200-$5,950 per sq m of GFA, up from $4,960-$5,660 per sq m in Q1 2008.

A luxury condominium cost $4,500-$6,200 per sq m of GFA in Q3, compared with $4,000-$5,500 per sq m of GFA in Q1.

But RLB said: ‘The current downward trend in building tender prices is anticipated to be more fully felt in the market by the second quarter of 2009.’

Barclays Capital regional economist Leong Wai Ho reckons the fall in costs will help the construction industry ‘extract more profits and value added from each dollar of contracts awarded’.

But he added: ‘The industry faces a no less challenging environment, given that credit is incrementally more scarce and interest expenses are rising.’

He also said that as most raw materials are imported, construction companies’ cost structures are extremely sensitive to the changes in the value of the Singapore dollar.

Citing a survey by DP Information Group, Citigroup said an analysis of the financial results of more than 2,000 construction firms showed 27 per cent of them have short-term debt that exceeds their cash.

Citigroup said there is a significant risk of even healthy companies defaulting on loans if refinancing difficulties persist.

Citigroup economist Kit Wei Zheng added: ‘The drop in construction costs should provide welcome relief for construction companies’ margins. But the flip side is that it also reflects softening demand conditions in the recession.

‘One can reasonably expect private sector construction demand to soften as the recession unfolds, and public sector demand may have to pick up the slack.’

David Liew, managing director of United Engineers Developments, said falling construction costs are ‘good news’ but the cost savings are limited because construction costs account for only about 20 per cent of total development costs.

Still, he said: ‘Falling construction costs may bring more smiles to the faces of contractors, especially those who committed to projects based on fixed-price contracts during the boom, as they will enjoy improved margins having previously factored in relatively higher material prices.’

Source : Business Times - 13 Jan 2009

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World Bank bars deals with two IT firms

World Bank bars deals with two IT firms - MUMBAI

It alleges they made improper payments to its employees - MUMBAI

(MUMBAI) Two Indian companies have been barred from dealing with the World Bank over allegations of improper payments, the organisation said, in the latest revelations to hit the country’s information technology (IT) sector.

The companies involved are India’s third-largest software firm Wipro Technologies and a subsidiary of technology outfit Megasoft India, the global financial body said in a statement on its website on Sunday.

Wipro is accused of ‘providing improper benefits to (World) Bank staff’ while Megasoft is said to have been involved in ‘a joint venture with Bank staff while also conducting business with the Bank’.

In response, Wipro said the ban would not adversely affect its business as its revenues from the World Bank were ‘insignificant’.

The sanction related to its listing in 2000, when it issued American depository shares to family members and friends of World Bank employees, the company said to the Mumbai stock exchange.

‘They purchased 1,750 shares for 72,000 dollars and signed a statement that their purchase did not violate any ethics or conflict of interest policies of their company,’ it added.

The shares were offered through a ‘commonly utilised’ programme approved by the US regulator.

Despite the denial of any conflict of interest or wrongdoing, the market reacted badly to the announcement, with Wipro shares falling 23.3 rupees or 9.3 per cent to close at 227.35 on India’s benchmark 30-share Sensex index. Megasoft stock closed down 0.6 per cent at 15.75 rupees. There was no immediate comment from Mega-soft.

The ban on Wipro came as India’s IT sector reeled from revelations of a massive false accounting scandal at the country’s fourth-largest software exporter Satyam Computers, which has seen its chairman arrested.

‘We decided to disclose these names, as after the whole Satyam fiasco, transparency relating to global firms would benefit,’ a World Bank spokesman in New Delhi told AFP by telephone.

In December, the World Bank barred Satyam from doing business with it for eight years over ‘improper benefits’ paid to World Bank staff.

‘Satyam also failed to maintain documentation to support fees charged for its subcontractors,’ it added.

Both Wipro and Megasoft were barred for four years.

The World Bank also said in the future it would publicise the names of all companies which it bars from corporate procurement, besides those debarred from bank-finance projects. — AFP

Source : Business Times - 13 Jan 2009

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